Decision Making in Management

1. DECISION-MAKING
IN ENGINEERING MANAGEMENT
PRESENTED BY: ENGR. KIM EDUARD DANABAR
ATENEO DE NAGA UNIVERSITY
DEPARTMENT OF CIVIL ENGINEERING

2. COURSE OUTLINE
THREE LEVELS OF DECISION-MAKING
3
DECISION MAKING AS A RESPONSIBILITY
2
THE DECISION-MAKING PROCESS
4
WHAT DECISION-MAKING?
1
APPROACHES IN SOLVING PROBLEMS
5
QUANTITATIVE MODELS FOR DECISION-MAKING
6

3. DECISION-MAKING
WHAT IS DECISION-MAKING?
q 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.”
q Decision-making, according to Nickels and
others, “is the heart of all the management
functions.”

4. DECISION-MAKING AS A MANAGEMENT RESPONSIBILITY
MANAGER
RESPONSIBILITY
DECISION
DECISION
ERROR CORRECTION
IDENTIFIED
ISSUE
CAPACITY TO
MAKE DECISIONS

5. THE THREE LEVELS OF DECISION-MAKING
TOP LEVEL MANAGEMENT
q Management must strive to choose a
decision option as correctly as
possible.
q Since they have that power, they are
responsible for whatever outcome
their decisions bring.
q The higher the management level is,
the bigger and the more complicated
decision-making becomes.
Strategic Decisions
(Long Term)
Operational Decisions
(Day to day operations)
Tactical Decisions
(Intermediate Range)
FIRST-LINE MANAGEMENT
MIDDLE-LEVEL MANAGEMENT

6. Example:
q The production manager of a certain company has received a written request from a
section head regarding the purchase of an air conditioning unit. Almost
simultaneously, another request from another section was forwarded to him requiring
the purchase of a forklift. The production manager was informed by his superior that
he can only buy one of the two requested items due to budgetary constraints.
q The production manager must now make a decision. His choice, however, must be
based on sound arguments for he will be held responsible later on, if he had made
the wrong choice.
DECISION-MAKING

7. DECISION-MAKING PROCESS
Diagnose the
Problem
Analyze the
Environment
Develop Viable
Alternatives
Evaluate
Alternatives
Make a Choice
Implement
Decision
Evaluate and
Adapt Decision
Results

8. DECISION-MAKING PROCESS
1. DIAGNOSE THE PROBLEM
ü Managers must first realize the need for which a
decision is to be made.
ü Also, if a manager wants to make an intelligent
decision, his first move must be to identify the
problem.
ü If the manager fails in this aspect, it is almost
impossible to succeed in the subsequent steps.

9. DECISION-MAKING PROCESS
Diagnose the
Problem
Analyze the
Environment
Develop Viable
Alternatives
Evaluate
Alternatives
Make a Choice
Implement
Decision
Evaluate and
Adapt Decision
Results

10. DECISION-MAKING PROCESS
2. ANALYZE THE ENVIRONMENT
ü The environment where the organization is
situated plays a very significant role in the
success or failure of such an organization.
ü It is therefore, very important that an analysis
of the environment be undertaken.

11. DECISION-MAKING PROCESS
2. ANALYZE THE ENVIRONMENT
Components of the Environment (2 major concerns):
a) Internal environment – refers to organizational
activities within a firm that surrounds decision-
making.
b) External environment – refers to variables that are
outside the organization and not typically within
the short-run control of top management.

12. DECISION-MAKING PROCESS
Diagnose the
Problem
Analyze the
Environment
Develop Viable
Alternatives
Evaluate
Alternatives
Make a Choice
Implement
Decision
Evaluate and
Adapt Decision
Results

13. DECISION-MAKING PROCESS
3. DEVELOP VIABLE ALTERNATIVES
ü oftentimes, problems may be solved by any of the
solutions offered. The best among the alternative
solutions must be considered by management.
ü This is made possible by using a procedure with the
following steps:
a) Prepare a list of alternative solutions.
b) Determine the viability of each solutions.
c) Revise the list by striking out those which are not viable.

14. DECISION-MAKING PROCESS
Diagnose the
Problem
Analyze the
Environment
Develop Viable
Alternatives
Evaluate
Alternatives
Make a Choice
Implement
Decision
Evaluate and
Adapt Decision
Results

15. DECISION-MAKING PROCESS
4. EVALUATE ALTERNATIVES
ü After determining the viability of the
alternatives and a revised list has been made,
an evaluation of the remaining alternatives is
necessary.
ü This is important because the next step
involves making a choice.

16. DECISION-MAKING PROCESS
Diagnose the
Problem
Analyze the
Environment
Develop Viable
Alternatives
Evaluate
Alternatives
Make a Choice
Implement
Decision
Evaluate and
Adapt Decision
Results

17. DECISION-MAKING PROCESS
5. MAKE A CHOICE
ü After the alternatives have been evaluated, the
decision-maker must now be ready to make a
choice.
ü This is the point where he must be convinced that
all the previous steps were correctly undertaken.
ü To make the selection process easier, the alternatives can be ranked
from best to worst on the basis of some factors like benefit, cost, or risk.

18. DECISION-MAKING PROCESS
Diagnose the
Problem
Analyze the
Environment
Develop Viable
Alternatives
Evaluate
Alternatives
Make a Choice
Implement
Decision
Evaluate and
Adapt Decision
Results

19. DECISION-MAKING PROCESS
6. IMPLEMENT DECISION
ü It refers to carrying out the decision so that the
objectives sought will be achieved.
ü To make implementation effective, a plan must
be devised.

20. DECISION-MAKING PROCESS
Diagnose the
Problem
Analyze the
Environment
Develop Viable
Alternatives
Evaluate
Alternatives
Make a Choice
Implement
Decision
Evaluate and
Adapt Decision
Results

21. DECISION-MAKING PROCESS
7. EVALUATE AND ADAPT DECISION RESULTS
ü In implementing the decision, the results
expected may or may not happen.
ü It is, therefore, important for the manager to
use control and feedback mechanisms to
ensure results and to provide information for
future decisions.

22. DECISION-MAKING PROCESS
7. EVALUATE AND ADAPT DECISION RESULTS
q CONTROL - refers to actions made to ensure that
activities performed match the desired activities or
goals that have been set.
q FEEDBACK - refers to the process which requires
checking at each stage of the process to assure that
the alternatives generated, the criteria used in evaluation, and the solution
selected for implementation are keeping with the goals and objectives
originally specified.

23. APPROACHES IN SOLVING PROBLEMS
o In decision-making, the engineer manager is
faced with problems which may either be simple
or complex.
o To provide him/her with some guide, he/she must
be familiar with the following approaches.

24. 1. QUALITATIVE EVALUATION
o refers to evaluation of alternatives using intuition
and subjective judgment. Managers tend to use
the qualitative approach when:
ü The problem is fairly simple.
ü The problem is familiar.
ü The costs involved are not great.
ü Immediate decisions are needed.
APPROACHES IN SOLVING PROBLEMS

25. 2. QUANTITATIVE EVALUATION
o refers to the alternatives using any technique in a
group classified as rational and analytical.
o It is an evaluation method that yields numerical
indices gathered primarily from formal (objective)
methods of data collection, systematic and
controlled observation, and a prescribed research
design.
APPROACHES IN SOLVING PROBLEMS

26. These are the following:
1. Inventory models
2. Queuing theory
3. Network models
4. Forecasting
5. Regression analysis
QUANTITATIVE MODELS FOR DECISION-MAKING
6. Simulation
7. Linear programming
8. Sampling theory
9. Statistical decision
theory

27. 1. INVENTORY MODELS
o consists of several types all designed to help the
engineer manager make decisions regarding inventory.
o They are as follows:
QUANTITATIVE MODELS FOR DECISION-MAKING
a) Economic order quantity model - this one is used to calculate
the number of items that should be ordered at one time to
minimize the total yearly cost of placing orders and carrying the
items in inventory.

28. QUANTITATIVE MODELS FOR DECISION-MAKING
b) Production order quantity model - this is and
economic order quantity technique applied to
production orders.
c) Back order inventory model - this is an inventory
model used for planned shortages.
d) Quantity discount model – an inventory model used
to minimize the total cost when quantity discounts
are offered by suppliers.

29. 2. QUEUING THEORY
o It is one that describes
how to determine the
number of service units
that will minimize both
customer waiting time
and cost of service.
QUANTITATIVE MODELS FOR DECISION-MAKING
o The queuing theory is applicable to companies where waiting
lines are a common situations.

30. 3. NETWORK MODELS
o these are models where large complex tasks are
broken into smaller segments that can be managed
independently.
o The most prominent network models are:
QUANTITATIVE MODELS FOR DECISION-MAKING
a) The program evaluation review technique - a technique
which enables engineer managers to schedule, monitor, and
control large and complex projects by employing three time
estimates for each activity.

31. QUANTITATIVE MODELS FOR DECISION-MAKING
b) The critical path method – this is a network
technique using only one time factor per
activity that enables engineer managers to
schedule, monitor, and control large and
complex projects.

32. 4. FORECASTING
o there are instances when engineer managers make
decision that will have implications in the future.
o Forecasting is a decision-making tool used by many
businesses to help in budgeting, planning, and
estimating future growth.
QUANTITATIVE MODELS FOR DECISION-MAKING
o In the simplest terms, forecasting is the attempt to predict future
outcomes based on past events and management insight.

33. 5. REGRESSION ANALYSIS
o The regression model is a forecasting method that
examines the association between two or more
variables. It uses date from previous period to
predict future events.
o There 2 are 2 types of regression which are:
QUANTITATIVE MODELS FOR DECISION-MAKING
a) Simple regression - one independent variable is involved.
b) Multiple regression - two or more independent variables are
involved.

34. 6. SIMULATION
o is a model constructed to represent reality, on
which conclusions about real-life problems can
be used.
o It is a highly sophisticated tool by means of
which the decision maker develops a
mathematical model of the system under
consideration.
QUANTITATIVE MODELS FOR DECISION-MAKING

35. 7. LINEAR PROGRAMMING
o It is a quantitative technique that is used to
produce an optimum solution within the
bounds imposed by constraints upon the
decision.
o Linear programming is very useful as a decision
making tool when supply and demand
limitations at plants, warehouse, or market
areas are constraints upon the system.
QUANTITATIVE MODELS FOR DECISION-MAKING

36. 8. SAMPLING THEORY
o It is a quantitative technique where samples of
populations are statistically determined to be
used for a number of processes, such as quality
control and marketing research.
o When data gathering is expensive, sampling
provides an alternative. Sampling, in effect,
saves time and money.
QUANTITATIVE MODELS FOR DECISION-MAKING

37. 9. STATISTICAL DECISION THEORY
o It refers to the “rational way to conceptualize,
analyze, and solve problems in situations
involving limited, or partial information about
the decision environment.
o Statistical decision theory focuses on the
investigation of decision making when
uncertainty can be reduced by information
acquired through experimentation.
QUANTITATIVE MODELS FOR DECISION-MAKING

38. THANK YOU!
ENGR. KIM EDUARD DANABAR
ATENEO DE NAGA UNIVERSITY
DEPARTMENT OF CIVIL ENGINEERING