CHAPTER 2
Articulate problem or opportunity
Decision Making- the process of identifying and
choosing alternative courses of action in a manner
appropriate to the demands of the situation.
- the heart of all the management function.
Decision are at various management levels. TOP ,
MIDDLE and LOWER LEVELS
Decision are made at various management
functions. PLANNING, ORGANIZING, DIRECTING,
and CONTROLLING.
*THE DECISION MAKING PROCESS*
1. Diagnose Problem-If a manager wants to
make an intelligent decision, his 1st move
must be to identify the problem.
2. Analyze environment-The objective of
environmental analysis is the identification
of constraints, which may be spelled out as
either internal or external limitation.
Components of the environment
Internal Environment refers to the
organizational activities within a firm
that surrounds decision-making.
The engineering firm and its internal
environment:
Organizational aspects
Marketing aspects
Personnel aspects
Production aspects
Financial aspects
External Environment refers to
variables that are outside the
organization and not typically within the
short-run control of top management.
The engineering firm and its internal
environment:
Public
Government
Banks
Engineers
Competitors
Labor unions
Clients
Suppliers
3.
4. Develop viable alternatives
The best among the alternative solutions
must be considered by management using a
procedure with the ff. 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.
5. Evaluate alternatives
How the alternatives will be evaluated
1. Depend on the nature of the problem
2. The objectives of the firm
3. The nature of the alternatives presented.
6. Make a choice
7. Choice Making refers to the process of
selecting among alternatives representing
potential solutions to a problem.
8. 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.
9. Evaluate and adapt decision results
Important for the manager to use control
and feedback mechanisms to ensure results
and to 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.
Control refers to the actions made
to ensure that activities performed match
the desired activities or goals that have
been set.
Approaches in solving problems
1. Qualitative evaluation refers to the
evaluation of alternatives using intuition
and subjective judgement. 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.
4. Immediate decisions are needed.
2. Quantitative evaluation -this term refers to
the evaluation of alternatives using any
technique in a group classified as rational
and analytical
Types of quantitative techniques:
1. Inventory Models
2. Queuing Theory
3. Network models
4. Forecasting
5. Regression analysis
6. Simulation
7. Linear programming
8. Sampling Theory
9. Statistical decision theory
*Quantitative models for decision making*
1. Inventory Models :
a) Economic order quantity model this one
is used to calculate the number of items
that should be ordered at one time.
b) Production order quantity model this is
an 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.
2. Queuing Theory is one that describes how
to determine the number of service units
that will minimize both customers waiting
time and cost of service.
- applicable to companies
where waiting lines are a common
situation.
3. Network Models these are models where
large complex tasks are broken into smaller
segments that can be managed
independently.
The 2 most prominent network models
are:
a) The Program Evaluation Review
Technique a technique w/c enables
engineer managers to schedule,
monitor, and control large and complex
projects by employing three time
estimates for each activity.
b) The Critical Path Method this is a
network technique using only one time
factor per activity that enables engineer
managers to schedule,
4. Forecasting - the collection of past and
current information to make predictions
about the future
5. Regression Analysis examines the
association between 2 or more variables. It
uses data from previous periods to predict
future events.
6. Simulation is a model constructed to
represent reality, on w/c conclusions about
real-life problems can be used.
7. Linear Programming is a quantitative
technique that is used to produce an
optimum solution within the bounds
imposed by constraints upon the decision.
8. 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.
9. Statistical Decision-Theory-rational way to
conceptualize, analyze, and solve problems
in situations involving limited, or partial
information about the decision
environment.