TOPIC: DECISION MAKING

Managers of all kinds and types, including the engineer manager, are primarily tasked to provide leadership in the
quest for the attainment of the organization’s objectives. If he is to become effective, he must learn the intricacies of
decision making. May times, he will be confronted by situations where he will have to choose from among various
options. Whatever his choice, it will have effects, immediate or otherwise, in the operations of this organization.

The engineer manager’s decision making skills will be very crucial to his success as professional. A major blunder in
decision making may be sufficient to cause the destruction of any organization. Good decision, on other hand, will
provide the right environment for continuous growth and success of any organized effort.

Decision making as a Management Responsibility

Decisions must be made at various levels in the workplace. They are also made at the various stages in the
management process. If certain resources must be used, someone must make a decision authorizing certain persons to
appropriate such resources.

Decision making is a responsibility of the engineer manager. It is understandable for managers to make wrong
decisions at 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. Delaney concludes that this type of managers are dangerous and “should
be removed from their position as possible.”

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. The higher the management level is, the bigger and the more
complicated decision making becomes.

An example may be provided as follows:

The production manager of a certain company has received a written request from a section head regarding
the purchase of an airconditioning 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.

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.

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.”

The definition indicates that the engineer manager must adapt a certain procedure designed to determine the best
option available to solve certain problems

Decisions are made at various management levels(i.e., top, middle, and lower levels) and at a various management
functions (i.e., planning, organizing, directing, and controlling). Decision making, according to Nickels and others, “is the
heart of all management functions.”
 The Decision Making Process

Rational decision making, according to David H. Holt, is a process involving the following steps:

1. diagnose problem
2. analyze environment
3. articulate problem or opportunity
4. develop viable alternatives
5. evaluate alternative
6. make a choice
7. implement decision
8. evaluate and adapt decision results

Diagnose Problem

If a manager wants to make an intelligent decision, his first move must be to identify the problem. If the manager
fails in this aspect, it is almost impossible to succeed in subsequent steps. An expert once said “identification of the
problem is tantamount to having the problem half-solved.”

What is a Problem? A problem exists when there is a difference between an actual situation and a desired situation.
For instance, the management of a construction company entered into a contract with another party for the
construction of a 25 storey building on a certain site. The actual situation of the firm is that it has not yet constructed the
building. The desired situation is the finished 25-storey building. In this case, the actual situation is different from the
desired situation. The company, therefore, has a problem and that is, the construction of the 25-storey building.

Analyze the Environment

The environment where the organization is situated plays a very significant role in the success or failure of such an
organization. It is, therefore, very important that an analysis of the environment to be undertaken.

The objective of environmental analysis is the identification of constraints, which may be spelled out as either
internal or external limitations. Example 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 service exists.
3. Strict enforcement of local zoning regulations.

When decisions are to be made, the internal and external limitations must be considered. It may be costly, later on,
to alter a decision because of a constraint that has not been previously identified.
 An illustration of failure to analyze the environment is as follows:

The president of a new chemical manufacturing company made a decision to locate his factory in a place
adjacent to a thickly populated area. Construction of the building was made with precision and was finished
in a short period. When the clearance for the commencement of operation was sought from local authorities,
this could not be given. It turned out that the residents opposed the operation of the firm and made sure that
no clearance is given

The president decided to relocate the factory but not after much time and money has been lost. This is a
clear example of the cost associated with management disregarding the environment when decisions are
made. In this case, the president did not consider what the residents could do.

Components of the Environment. The environment consists of two major concerns:

1. Internal and
2. External

The internal environment refers to organizational activities within a firm that surrounds decision-making. Shown in
Figure 1 are the important aspects of the internal environment

The external environment refers to variable that are outside the organization and not typically within the short-run
control of top management Figure 2 shows the forces comprising the external environment of the firm.

Figure 1 The Engineering Firm and the Internal Figure 2 The Engineering Firm and its External
Environment in Decision-Making Environment
Develop Viable Alternatives

Oftentimes, problem may be solved by any of the solutions offered. The best among the alternative solutions must be
considered by management. 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 solutions
3. Revise the list by striking out those which are not viable.

To illustrate:
An engineering firm has a problem of increasing its output by 30%. This is the result of a new agreement
between the firm and one of its clients.

The list of solutions prepared by the engineering manager shows the following alternatives courses of action:

1. improve the capacity of the firm by hiring more workers and building additional facilities;
2. secure the services of the subcontractors;
3. buy the needed additional output from another firm;
4. stop serving some of the company’s customers;
5. delay servicing some clients.

The list was revised and only the first three were deemed to be viable. The last two were deleted because of
adverse effects in the long-run profitability of the firm.

Evaluate Alternatives

After determining the viability of the alternatives and revised list has been made, an evaluation of the remaining
alternatives is necessary. This is important because the next step involves making a choice. Proper evaluation makes
choosing the right solution less difficult.

How the alternatives will be evaluated will depend on the nature of the problem, the objectives of the firm, and the
nature of alternatives presented. Souder suggests that “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 . An example may be described as follows: a net
profit of 10 million pesos per year if the alternative is chosen.

The cost of the alternative refers to out-of-pocket costs (like 100 million pesos for construction of facilities),
opportunity costs (like the opportunity to earn interest of 2 million pesos per year if money invested elsewhere), and
follow on costs(like 3 million pesos per year for maintenance of facilities constructed).

The risk characteristics refer to the likelihood of achieving the goals of the alternatives. If the profitability of a net
profit of 10 million pesos is only 10 percent, then the decision-maker may opt to consider an alternative with a 5 million
pesos profit but with an 80 percent probability to success.

Another example of an evaluation of alternatives is shown below:

an engineer manager is faced with a problem of choosing between three applicants to fill up a lone vacancy junior
engineer. He will have to set up certain criteria for evaluating the applicants. If the evaluation is not done by a
professional human resources officer, then the engineer manager will be forced to use predetermined criteria
 A typical evaluation of job applicants will appear as follows:

Make a Choice

After the alternatives have been evaluated, the decision-maker must now be ready to make a choice. This is the
point where he must 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.
At this point, Webber advises that”… particular effort should be made to identify all significant consequences of each
choice.”

To make selection process easier, the alternatives can be ranked from best to worst on the basis of some factors like
benefit, cost, or risk.

Implement Decision

After a decision has been made, implementation follows. This is necessary, or decision-making will be on exercise in
futility.

Implementation refers to carrying out the decision so that the objectives sought will be achieved. To make
implementation effective, a plan must be devised.

At this stage, the resources must be made available so that the decision may be properly implemented. Those who
will be involved in implementation, according to Aldag and Stearns, must understand and accept the solution.

Evaluate and Adapt Decision Results

In implementing the decision, the result expected may or may not happen. It is therefore, important for the
manager to use control and feedback mechanisms to ensure results and provide information for future decisions.

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 in keeping with the goals
and objectives originally specified.

Control refers to actions made to ensure that activities performed match the desired activities or goals, that have
been set.
 In this last stage of the decision-making process, the engineer manager will find out whether or not the desired
result is achieved. If the desired result is achieved, one may assume that the decision made was good. If it was not
achieved, Ferrell and Hirt suggest that further analysis is necessary. Figure 3 presents an elaboration of this last step.

Figure 3 Feedback as Control Mechanism in the

Decision-Making Process

Approaches in Solving Problems

In decision-making , the engineer manager is faced with problems which may either be simple or complex. To provide
him with some guide, he must be familiar with the following approaches:

1. qualitative evaluation, and

2. quantitative evaluation

Qualitative Evaluation. This term refers to evaluation of alternatives using intuition and subjective judgment. Stevenson
states that managers tend to use the qualitative approach when:

1. the problem is fairly simple.

2. the problem is familiar
3. the costs involved are not great / low cost
4. immediate decisions are needed
 An example of an evaluation using the qualitative approach is as follows:

A factory operates on three shifts with the following schedule:

First shift – 6:00 A.M. to 2:00 P.M.
Second shift - 2:00 P.M. to 10:00 P.M.
Third shift - 10:00 P.M. to 6:00 A.M.

Each shift consists of 200workers manning 200 machines. On September 16,1996, the operations went smoothly
until the factory manager, an industrial engineer, was notified at 1:00 P.M. that five of the workers assigned to
the second shift could not report for work because of injuries sustained in a traffic accident while they were on
their way to the factory.

Because of time constraints, the manager made an instant decision on who among the first shift workers would
work overtime to man the five machines.

Quantitative Evaluation. This term 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:

1. inventory models
2. queing theory
3. network models
4. forecasting
5. regression analysis
6. simulation
7. linear programming
8. sampling theory
9. statistical decision theory

Inventory Models
Inventory models consist of several types all designed to help the engineer manager make decisions regarding
inventory. They as follow:
1. 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.
2. Production order quantity model- this is an economic order quantity technique applied to production orders.
3. Back order inventory model – this is an inventory model used for planned shortages.
4. Quantity discount model – an inventory model used to minimize the total cost when quantity discounts are
offered by suppliers.

Queuing Theory
The queuing theory is one that describes how to determine the number of service units that will minimize both
customer waiting time and cost of service .

the queuing theory is applicable to companies where waiting lines are common situation. Examples are cars waiting
for service at a car service center, ships and barges waiting time at the harbor for loading and unloading by dock
workers, programs to be run in a computer system that processes jobs, etc.
Network Models
These are models where large complex tasks are broken into smaller segments that can be managed independently.

The two most prominent network models are:

1. The Program Evaluation Review Technique (PERT) – a technique which enables engineer managers to schedule,
monitor, and control large and complex projects by employing three time estimates for each activity.

2. The Critical Path Method (CPM) – 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.

Forecasting
There are instances when engineer managers make decisions that will have implications in the future. A
manufacturing firm, for example, must put up a capacity which is sufficient to produce the demand requirements of
customers within next 12 months. As such, manpower and facilities must be procured before the start of operations.
To make decisions on capacity more effective, the engineer manager must be provided with data on demand
requirements for the next 12 months. This type of information may be derived through forecasting.

Forecasting may be defined as “the collection of past and current information to make predictions about the future.”

Regression Analysis

The regression model is a forecasting method that examines the association between two or more variables. It uses
data from previous periods to predict future events.

Regression analysis may be simple or multiple depending on the number of independent variables present. When
one independent variable is involved, it is called simple regression; when two or more independent variables are
involved, it is called multiple regression.

Simulation

Simulation is a model constructed to represent reality, on which conclusions about real-life problems can be used. Is
is a highly sophisticated tool by means of which the decision maker develops a mathematical model of the system
under consideration.

Simulation does not guarantee an optimum solution but it can evaluate the alternatives fed into the process by the
decision maker.

Linear Programming

Linear Programming is a quantitative that is used to produce an optimum solution within the bounds imposed by
constraints upon decision. 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

Sampling Theory

Sampling theory 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.

When data gathering is expensive, sampling provides an alternative. Sampling, in effect, saves time and money.
Statistical Decision-Theory

Decision theory refers to the “rational way to conceptualize, analyze, and solve problems in situations involving
limited, or partial information about the decision environment.”

SUMMARY

Decision making is a very important function of the engineer manager. His organization will rise or fall depending on
the outcomes of his decision. It is therefore, necessary for the engineer manager to develop some skills in decision-
making.

The process of identifying and choosing alternative courses of action in a manner appropriate to the demands of the
situation is called decision-making. It is done at various management levels and functions.

The decision making process consists of various steps, namely: diagnose problem, analyze environment, articulate
problem or opportunity, develop viable alternative, make a choice, implement decision, and evaluate and adapt
decision results.

There are two approaches in solving problems, name: qualitative evaluation and quantitative evaluation. Qualitative
evaluation is used for solving fairly simple problems, while quantitative evaluation is applied to complex ones.

Activity 2

Explain the following

1. Why is proper diagnosis of the problem important?

2. Can the engineer manager avoid making management decision? Why or why not?