ENGINEERING MANAGEMENT

Managers as Decision MakersChapter:06

Learning Outcomes

• Describe the eight steps in the decision- making process• Explain the four ways managers make

decisions• Classify decisions and decision-making conditions• Identify effective decision-making

techniques

Decision Making

Decision -making a choice from two or more alternatives.

Decision Making

Decision Making The process by which managers respond to

opportunities and threats by analyzing options, and making decisions about goals and courses of action. Decisions in response to opportunities—occurs when

managers respond to ways to improve organizational performance.

Decisions in response to threats—occurs when managers are impacted by adverse events to the organization.

The Decision Making Process

1. Identifying a problem and decision criteria and allocating weights to the criteria

2. Developing, analyzing, and selecting an alternative that can resolve the problem

3. Implementing the selected alternative

4. Evaluating the decision’s effectiveness

The Decision Making Process

Step 1: Identifying a Problem

Characteristics of Problems Managers must first realize that a problem exists and

a decision must be made.

There is pressure to solve the problem.

The manager must have the authority, information, or resources needed to solve the problem.

Step 2: Identifying Decision Criteria

Decision criteria are factors that are important (relevant) to resolving the problem, such as: Costs that will be incurred (investments required) Risks likely to be encountered (chance of failure) Outcomes that are desired (growth of the firm)

Important Decision Criteria

Step 3: Allocating Weights to the Criteria

Decision criteria are not of equal importance: Assigning a weight to each item places the items in

the correct priority order of their importance in the decision-making process.

Assigning Weights to Decision Criteria

Step 4: Developing Alternatives

Identifying viable alternatives Alternatives are listed (without evaluation) that can

resolve the problem.

Possible Alternatives

Step 5: Analyzing Alternatives

Appraising each alternative’s strengths and weaknesses An alternative’s appraisal is based on its ability to

resolve the issues related to the criteria and criteria weight.

Evaluation of Alternatives

Step 6: Selecting an Alternative

Choosing the best alternative The alternative with the highest total weight is

chosen.

Step 7: Implementing the Alternative

• Putting the chosen alternative into action- Conveying the decision to and gaining commitment

from those who will carry out the alternative

Step 8: Evaluating Decision Effectiveness

The soundness of the decision is judged by its outcomes. How effectively was the problem resolved by

outcomes resulting from the chosen alternatives?

If the problem was not resolved, what went wrong?

Decisions Managers May Make

Rational Decision-Making

Rationality - a logical, step-by-step approach to decision making, with a thorough analysis of alternatives and their consequences.

1. The outcome will be completely rational2. The decision maker uses a consistent system

of preferences to choose the best alternative

3. The decision maker is aware of all alternatives4. The decision maker can calculate the

probability of success for each alternative

Bounded Rationality

Bounded Rationality - a theory that suggests that there are

constraints that force a decision maker to be less than

completely rational: Limited or unreliable information is availableHuman minds have limited capacity to process the

informationLimited amount of time is available

Satisficing

Satisficing Searching for and choosing an acceptable, or satisfactory

response to problems and opportunities, rather than trying to make the best decision.

accepting solutions that are “good enough.” Managers explore a limited number of options and choose

an acceptable decision rather than the optimum decision. Managers assume that the limited options they examine

represent all options. This is the typical response of managers when dealing

with incomplete information.

Example: Job searching as a Financial Planner