decision-making eric b bernardo
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em 2010TRANSCRIPT
DECISION-MAKING
Prepared by:
Eric B. Bernardo
Chapter 2
me
INTRODUCTION
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. Many times, he will be confronted by situations where he will have to choose from among various options.
DECISION-MAKING
Decision Making as a Management Responsibility
What is Decision Making?
The Decision Making Process
Approaches in Solving Problems
Quantitative Models for Decision Making
DECISION-MAKING AS A MANAGEMENT RESPONSIBILITY
Decisions must be made at various levels in the workplace. They are also made at various stages in the management process. It is understandable for managers to make 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 soon as possible.”
WHAT IS DECISION-MAKING?
“It is the process of identifying and choosing alternative courses of action in a manner appropriate to the demands of the situation.”
WHAT IS DECISION-MAKING?
Decisions are made at various management levels(i.e., top, middle, and lower levels) and at various management functions (i.e., planning, organizing, directing and controlling). Decision-making according to 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:1. diagnose problem2. analyze environment3. articulate problem or opportunity4. develop viable alternatives5. evaluate alternatives6. make a choice7. implement decision8. evaluate and adapt decision results
DIAGNOSE PROBLEM
If a manager wants to make an intelligent
decision, his first move must be to identify theproblem. If the manager fails in this aspect , it
isalmost impossible to succeed in the
subsequentsteps. An expert once said “identification of
theproblems is tantamount to having the problem
halfsolved.”
ANALYZE THE ENVIRONMENT
The objective of environmental analysis is the identification of constraints, which may be spelled out as either internal or external limitations. When decisions are to be made, the internal and external limitations must be considered.
ANALYZE THE ENVIRONMENT
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
ANALYZE THE ENVIRONMENT
Example 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.
ANALYZE THE ENVIRONMENT
Components of the environment. The environment
consist of two major concerns:1. internal environment- refers to organizational activities within a firm that surrounds decision making.2. external environment- refers to the variables that are outside the organization and not typically within the short-run control of top management.
THE ENGINEERING FIRM AND THE INTERNALENVIRONMENT IN DECISION-MAKING
THE ENGINEERING FIRM
INTERNAL ENVIRONMENT
Organizational Aspects
like org. structure, policies, procedure rules, ability of management, etc.
Marketing Aspects
like product strategy, promotion strategy, etc.
Personal Aspects
like recruitment practices, incentive systems, etc.
Production Aspects
like plant facility layout, inventory control, etc.
Financial Aspects
like liquidity, profitably, etc.
EXTERNAL
ENVIRONMENT
EXTERNAL
ENVIRONMENT
DECISION
THE ENGINEERING FIRM AND THE INTERNALENVIRONMENT IN DECISION-MAKING
ENGINEERING FIRM
Government
Suppliers
Public
EngineersLabor Unions
Banks
Clients
Competitors
DEVELOP VIABLE ALTERNATIVES
Often times, problems may be solved by any of the solutions offered. The best among the alternative solutions may 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.
EVALUATE ALTERNATIVES
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.”
MAKE A CHOICE
Choice making refers to the process of selecting among alternatives representing potential solutions to a problem. At this point, Webber advices that “…particular efforts 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. 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 the implementation, according to Aldag and Sterns, must “understand and accept the solution.”
IMPLEMENT DECISION
It is, therefore, important for the manager to use
control and feedback mechanisms to ensure results
and to provide information for the future decisions.
Feedback refers to the process which require checking at each stage of the process to assure that the that 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 goal, that has not been set.
In the last stage of the decision-making process,
the engineer manager will find out whether or not
the desired results is achieved. If the desired result
is achieved, one may assume that the decisionmade was good. If it was not achieved , Ferrell
andHirt suggest that the further analysis is
necessary.
FEEDBACK AS A CONTROL MECHANISM IN THEDECISION-MAKING-PROCESS
Diagnose problemStep 1
2
8
7
6
5
4
3
AAnalyze problem
Make a choice
Evaluate alternatives
Develop viablealternatives
Articulate problem or opportunity
Implement decision
Evaluate results
Results achieved
Results not achieved
Adapt decision results
Determine steps whether error
was made
APPROACHES IN SOLVING PROBLEMS
In the 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 evaluation2. quantitative evaluation
Qualitative EvaluationThis refer to the evaluation of
alternatives using intuition and subjective judgment. Stevenson states that managers tend to use the qualitative approach when: 1. the problem is fairy simple 2. the problem is familiar 3. the cost involved are not great 4. immediate decisions are needed
Quantitative EvaluationThis refers to the evaluation of
alternatives using any technique in a group classified as rational and analytical.
QUANTITATIVE MODELS FORDECISION-MAKING
The types of quantitative techniques which may be useful in decision-making are as follows:
1. inventory models2. queuing theory3. network models4. forecasting5. regression analysis6. simulation7. linear programming8. sampling theory
9. statistical decision theory
INVENTORY MODEL
1. Economic order quantity model – 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 the inventory.
2. Production order quantity model – this is an economic order technique applied to production orders.
3. Back order inventory model – 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 costumer waiting time and cost of service.
NETWORK MODELS
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 complexprojects.
FORECASTING
It may be defined as “the collection of past and current information to make predictions about the future.”
REGRESSION ANALYSIS
It 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.
SIMULATION
It is a model constructed to represent reality, on which conclusions about real-life problems can be used. It is highly sophisticated tool by means of which the decision maker develops a mathematical model of the system under consideration.
It does not guarantee an optimum solution, but it can evaluate the alternatives fed into the process by the decision-maker.
LINEAR PROGRAMMING
It is used to produce an optimum solution within the bounds imposed by constraints upon the decision. It 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
It is the quantitative technique where samples of populations 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
Refers to the “rational way to conceptualize, analyze, and solve problems in situations involving limited, or partial information about the decision environment.”
