BES 8

ENGINEERING MANAGEMENT
Module 2: Decision Making

Prepared by:
ENGR. CHINNY JULY C. SARSAGAT-BALDONADO
Faculty, EE Department
College of Engineering, Architecture & Technology
Palawan State University
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w Overview

COURSE DESCRIPTION:
The course covers the principles of
management, theory and practice,
various approaches to decision making, CONTENTS
managing production and services
operations; and project management.
Emphasis is also given on the 2.1. Definition
managerial functions of planning,
organizing, staffing, leading and 2.2. Decision Making Process
controlling 2.3. Approaches in Solving
Problems
COURSE OUTCOMES:
At the end of this module, students will be able
to:
Use appropriate techniques in decision
making to solve problems related to
engineering management; and

PROGRAM OUTCOMES:
Function effectively on multi-disciplinary and multi-cultural teams that
establish goals, plan tasks, and meet deadlines;
Recognize ethical and professional responsibilities in engineering
practice;
Communicate effectively with a range of audiences;
Articulate and discuss the latest developments in the field of electrical
engineering;
Demonstrate knowledge and understanding of engineering and
management principles as a member and/or leader in a team to manage
projects in multidisciplinary environments.

INTENDED LEARNING OUTCOMES

TIME FRAME:
At the end of this module, you This module
should be able to analyze can be covered
case studies by applying the in one week.
Steps in the Decision-Making
Process

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 Decision Making Defined

Since we have already studied the Principles of Engineering Management

on the first module, we can now thoroughly discuss one of the responsibilities
of an engineer manager which is the decision making.
Decision making is a very important function of the engineer manager. His
organization will rise or fall depending in the outcomes of his decisions. It is,
therefore, necessary for the engineer manager to develop some skills in
decision making.

Decision making can be defined as:

1. The process of choosing a specific procedure or course of action from

among several possible alternatives.
2. Can be determined by non-quantitative means, such as intuition, facts,
experiences and opinions.
3. Can also be determined by quantitative means such as operations
research, linear programming, simulation, Monte Carlo, gaming and
program evaluation review technique.
4. It is defined as the selection of a course of action from among
alternatives; it is at the core of planning.
5. A plan cannot be said to exist unless a decision–a commitment of
resources, direction, or reputation–has been made.
6. Managers sometime see decision making as their central job because
they must constantly choose what is to be done, who is to do it, and
when, where, and occasionally even how it will be done.

The Decision Making Environment

The business system model helps to place the decision making

environment in its proper perspective. Most companies have three levels of
management: Operational, Tactical and Strategic.

1. Strategic-level Managers determine long-term strategies and set

corporate objectives and policy consistent with these objectives
2. Tactical-level Managers are charged with the responsibility of
implementing the objectives and policies set forth at the strategic level of
management. To do this, the manager identifies specific tasks that need
to be accomplished.
3. Operational-level Managers complete specific tasks as directed by the
tactical-level managers.

The higher the decision maker is in the organization, the more complex
and difficult the decision he has to make. Also, the number of people affected
by the decision increases at the level of the decision maker.

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 For decisions made at the strategic and tactical levels, each alternative
will have avid proponents. To a much lesser extent, this is also true of
operational level decisions. As a result, the decision maker is constantly
smoothing with new insight and information
Evaluating information at face value is not enough. The decision maker
must have the ability to place each piece of information in its proper
perspective.

Decision Making Process

The Decision Making Process consists of various steps as shown below

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 These are the steps in the Decision Making Process

1. Set objectives. The existence of a problem implies the need for a

decision maker to make at least one decision, and typically a series of
decisions, to resolve a problem. In the first step, the decision maker sets
the objectives for the decision.

2. Identify constraints. Constraints in some way limit the decision maker’s

choices. Constraints could be defined by legal, economic or political
considerations. Decision constraints are sometimes presented in terms
of desired specification or performance standards.

3. Identify alternatives. The decision making process involves making a

choice between two or more alternatives. In this step, the decision maker
identifies alternative solutions that meet the constraints outlines in step
2. In most cases, the alternatives are chosen because they provided a
solution to the problem, but often one of the alternatives is to do nothing.

4. Gather appropriate information. The information requirements for a given

decision vary considerably depending on the complexity and scope of the
decision to be made. During this step, the decision maker gathers information
that may provide insight as to which alternative to choose.

5. Evaluate alternatives. In this step, the decision maker evaluates each

alternative. A decision can be rendered based on available information.

6. Choose the most acceptable alternatives. In this step, the manager

examines the ranking of alternatives and selects the most acceptable
alternatives, which is often the top-ranked alternative. On occasion, extending
circumstances caused managers to look past the highest-ranking alternative
and select a lower-ranking alternative. Decisions, especially those made
collectively by several managers, are often the result of creativity.

MAJOR STEPS IN DECISION MAKING

1. Identifying Alternatives and the Limiting Factor

 The ability to develop alternatives (by ingenuity, research, and
common sense), is often as important as being able to select
correctly among them.
 The manager needs help in this situation, as well as assistance
in choosing the best alternative, is found in the concept of the
limiting or strategic factor.
 A limiting factor is something that stands in the way of
accomplishing a desired objective.
 The principle of the limiting factor states that, by recognizing and
overcoming those factors that stand critically in the way of a goal,
the best alternative course of action can be selected.

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 2. Evaluation of Alternatives
 This is the point of ultimate decision making, although
decisions must also be made in the other steps of planning—in
selecting goals, in choosing critical premises, and even in
selecting alternatives.
 Because of complexities in evaluating alternatives, newer
methodologies and applications and analysis are needed:
 Advantages/ Disadvantages
 Strengths/ Weaknesses
 Cost-Benefit Analysis (C.B.A.)
 Decision Trees

3. Selecting an Alternative: Three Approaches

Bases for selecting from among alternative courses of action

Experimentation

How to select from

Reliance on the
among Choice made
past
alternatives?

Research and
analysis

Decision Making under Certainty, Uncertainty, and Risk

1. Certainty
In a situation involving certainty, people are reasonably sure about
what will happen when they make a decision. The information is
reliable and is considered to be reliable, and the cause and effect
relationships are known.

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2. Uncertainty
In a situation of uncertainty, on the other hand, people have only a
meager database, they do not know whether or not the data are
reliable, and they very unsure about whether or not the situation
may change.

3. Risk
In a situation with risks, factual information may exist, but it may be
incomplete. To improve decision making, one may estimate the
objective probability of an outcome by using, for example,
mathematical models. On the other hand, subjective probability,
based on judgment and experience, may be used.

Approaches in Solving Problems

Techniques used in Decision Making Process

1. Marginal Analysis. This tool is used in decision making to figure out

how much more output will result if one or more variable (worker) is
added. Samuelson defines a marginal product as the extra product or
output added by one extra unit of that factor. While other factors are
being held constant. This technique is particularly useful for evaluating
alternatives in the decision making process.
2. Financial Analysis. This is another tool in decision making used for
estimating the profitability of an investment, calculating the payback
period, and analyzing cash inflows and outflows. Investment
alternatives can be evaluated using a discounted peso analysis of cash
inflows and outflows.
3. Break-even Analysis. This is another tool which enable a manager to
see the effects of alternatives available based on price, fixed cost, and
variable cost per unit. With this tool it is possible to determine what will
be the break-even point for a company as a whole or any of its product.
At break-even point, total revenue equals total cost and there is no
profit.
4. Ratio Analysis. It is an accounting tool used for the interpretation of
accounting information. The basic financial ratios compare costs and
revenue for a particular period. These ratios bring out a relationship
between two financial aspects.
Some ratios are:
Current Assets = Current Assets/Current Liabilities
Debt to Equity = Total Debt/ Equity

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 Inventory Turnover = Sale/Inventory
Net Operating Margin = Net Operating Profit/ Sales
Return on Capital = Net profit after taxes/ Net Worth

5. Operations Research Techniques. Operations research involves the

application of quantitative methods to decision making. OR has been
defined by Miller and Starr as “ Applied Decision Theory”, in which the
decision maker seeks scientific, logical or mathematical means.
Observation, analysis, hypothesis formulation and experimentation are
the methods generally used in ORT.

a. Queuing or Waiting-ling Method. This method used

mathematical techniques for balancing waiting lines and services
provided. When there is irregular demand, waiting lines occur and
manager must decide how to handle the situation. If people are
waiting in queues are not going to be provided quick service, they
may go elsewhere.

b. Linear Programming. This technique is used in decisions

involving the allocation of resource or limited resources to reach a
particular objective such as, least cost, highest margin and so on.
When these resources have several alternative uses. This methods
is used for solving simple, complex and routine problems. In order to
apply this method, the situation must involve two or more activities
competing for limited resources and all relationships in the situation
must be linear.

c. Game Theory. This involves selecting the best strategy, taking

into consideration one’s actions and action of one’s competitors.
Thus, it is a “conflict of interest” situation where one individual tries
to win. McDonald contends that the strategic situation is the theory
which lies in the instruction between two or more individuals, each of
whose actions is based on an expectation concerning the actions of
others over whom he has no control. When one individual wins, the
other losses. Minimizing the maximum loss and maximizing the
minimum gain are two concepts used in the game theory.

d. Simulation. This technique involves the building of a model that

represents a real or an existing system. These models are useful in
evaluating and selecting the best one. The blueprint of a proposed
building is an example of simulation. In recent years, computers are
being widely used in simulation techniques. Role playing or teaching

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 concepts through case studies are some form of simulation
techniques.

e. Decision Tree. This is an interesting technique used in analyzing

a decision. Through a graphic illustration, the alternative solutions
can be identified and probability estimates are assigned to these
alternatives and pay-offs relating to alternatives can be determined.

REVIEW QUESTIONS
1. Can an Engineer Manager avoid making management decision? Why or Why
not?
2. When a problem becomes apparent and the engineer manager chooses to
ignore it, is he making a decision?
3. Why is proper diagnosis of the problem important?
4. How may one develop viable alternatives in problem solving?
5. Why is it important for those who will be involved in implementation to
understand and accept the solution to the problem?

ASSESSMENT
CASE STUDY
R.E. Construction: It’s Now or Never
When Engineer Romeo Estabillo finished his Civil Engineering course at
Mapua Institute of Technology, he took the board examination and passed it in
1981. Wanting to start independently, he went back to his hometown (Santiago
City) to organize his own construction firm. In his first few years of operation, he
accepted contracts for the construction of residential houses. As he
gained experience, his clients grew in number, and even the most prominent
persons in the province of Isabela availed of his services
At the start, he hired two assistants to help him in his daily routine as a
contractor. One of the two assistants, Mr. Silvino Santiago, was a third year civil
engineering student who had stopped schooling due to financial difficulties. His
main task was a draftsman. His duty was to produce all documents relating to the
physical requirements of the various contracts entered into by his boss. Among,
these documents are the building plan, specifications, bill of materials, building
permit, etc. his additional duty was to assist Engineer Estabillo in supervising the
foremen and workers at the various construction sites.

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 The second assistant, Mr. Romulo Mamaril, was assigned to
coordinate purchasing bookkeeping, and other related administrative activities.
At the third year of operations, Engineer Estabillo was already directing
operations in his newly constructed office inside his residential compound. By
this time, two more female employees were hired to assist in the
various tasks performed in the office.
By 1994, Engineer Estabillo reviewed his company’s payroll. It indicated that
he has in his employ six full time civil engineers, two draftsmen, ten administrative
personnel, one messenger and one security guard. The foremen and
laborers working at the various projects were contractual.
By June 1996, Engineer Estabillo felt that business was continuously
growing, so he will have to secure the services of four civil engineers on a full-
time basis. As he was directly supervising all operations, he now feels that he
may not be able to perform his functions effectively if he will push through with
the plan. He wants to make a decision, but he is apprehensive. He thinks
operations are now more complex that decision-making must be a little scientific.
With this thought, he pondered on how he will go about solving the problem

Discussion Items:
Does Engineer Estabillo have to secure the services of four
additional civil engineers on a full-time basis? If he decided to push through with
the plan of adding four full-time civil engineers, will he be able to perform his
functions effectively?

SUPPLEMENTARY KNOWLEDGE

For additional information, you may view the following materials:

A. Dragan Milosevic, et. al. 2010.Case studies in project, program, and

organizational project management

B. Huthaifa Khalil. Lectures notes in Engineering Management.

C. Nyambre Osana. 2013. Engineering management 1 Lecture notes.

ANSWER KEY
Refer to rubrics.

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 References

A. Bens, I., 2012. Facilitating with Ease! Core Skills for Facilitators, Team Leaders
and Members, Managers, Consultants, and Trainers, 3rd ed., Wiley Jossey-
Bass.
B. Kerzner, I., 2017. Project management: a systems approach to planning,
scheduling, and controlling 12th ed.
C. Kouzes, J., and Posner, B., 2012 The leadership challenge: How to make
extraordinary things happen in organizations, 5th ed., Wiley Jossey-Bass.
D. Medina, R., Engineering management
E. Shina, S., 2014. Engineering project management for the global high-
technology industry.
F. Weihrich and Koontz. Management - A global perspective. 11th Edition.

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