DECISION-MAKING

CHAPTER 2
 DECISION MAKING AS A
MANAGEMENT RESPONSIBILITY
Decision-making is a responsibility of the engineer
manager.
It is understandable for managers to make wrong
decisions a times.
The wise manager will correct them as soon as
they are identified.
The bigger issue is the manager who cannot or do
not want to make decisions.
Management must strive to choose a decision
option as correctly as possible.
Since they have that power, they are responsible
for whatever outcome their decisions bring.
 WHAT IS DECISION-
MAKING?

 Decision-making may be defined as “the process of

identifying and choosing alternative courses of action
in a manner appropriate to the demands of the
situation”.
 Decisions are made at various management levels
and at various management functions.
 Decision-making, according to William G. Nickels and
others, “is the heart of all the management functions”
 THE DECISION MAKING PROCESS
Rational decision-making, according to David H. Holt,
is a process involving the following steps:
Diagnose Problem
If the manager wants to make an intelligent
decision, his first move must be to identify the
problem.
Analyze the Environment
The objective of environmental analysis is the
identification of constraints, which may be spelled
out as either internal or external limitations.
Examples of internal limitations are as follows:
1. Limited funds available for the purchase of equipment.
2. Limited training on the part of employees.
3. Ill-designed facilities.
 Examples of external limitations are as follows:
1. Patents are controlled by other organizations.
2. A very limited market for the company’s products and
services exists.
3. Strict enforcement of local zoning regulations.
 The environment consists of two major concerns:
1. Internal environment
a. Organizational Aspects
b. Marketing Aspects
c. Personnel Aspects
d. Production Aspects
e. Financial Aspects
2. External environment
a. Government
b. Labor Unions
c. Suppliers
d. Banks
e. Public
f. Competitors
g. Clients
h. Engineers
 Articulate Problem
 Discuss the problem with the member of the
organization and gather data and information for
future references
 Develop Viable alternatives
 This is made possible by using a procedure with
the following steps:
1. Prepare a list of alternative solutions.
2. Determine the viability of each solution.
3. Revise the list by striking out those which are not viable.
 Evaluate Alternatives
 Proper evaluation makes choosing the right
solution less difficult.
 Each alternative must be analyzed and evaluated
in terms of its value, cost, and risk characteristics.
 The value of the alternatives refers to benefits that
can be expected.
 Make a Choice
 This is the point that the decision-maker must be
convinced that all the previous steps were correctly
undertaken.
 Choice-making – refers to the process of selecting
among alternatives representing potential solutions to
a problem.
 “particular effort should be made to identify all
significant consequences of each choice.”
 Implement Decision
 Implementation – refers to carrying out the decision
so that the objectives sought will be achieved.
 At this stage, the resources must be made available
so that the decision may be properly implemented.
 “those who will be involved in implementation must
understand and accept the solution”.
Evaluate and Adapt Decision Results
 Feedback
 Control
 If the desired result is achieved, one may assume
that the decision made was good. If it was not
achieved, O.C. Ferrel and Geofrey Hirt suggests
that further analysis is necessary.
 APPROACHES IN SOLVING PROBLEMS
Approaches:
 Qualitative evaluation
 Qualitative approach when:
a. The problem is fairly simple.
b. The problem is familiar.
c. The costs involved are not great
d. Immediate decisions are needed.

 Quantitative evaluation – refers to the evaluation of

alternatives using any technique in a group classified as
rational and analytical.
 QUANTITATIVE MODELS FOR
DECISION MAKING
The types of quantitative techniques which may be useful in
decision-making are as follows:
Inventory Models
Economic order quantity model
Production order quantity model
Back order inventory model
Quantity discount model
Queuing Theory
Network Models
The Program Evaluation Review Technique (PERT)
The Critical Path Method (CPM)
Forecasting
Regression Analysis
Simulation
Linear Programming
Sampling Theory
Statistical Decision-Theory
DECISION-MAKING
CHAPTER 2