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DECISION MAKING

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Michelle Palcon

on 26 June 2014

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Transcript of DECISION MAKING

DECISION MAKING
DECISION MAKING AS A MANAGEMENT RESPONSIBILITY

• Decision-making is a responsibility of the engineer manager.
• Management must strive to choose a decision option as correctly as possible.
• The higher the management level is, the bigger and the more complicated decision-making becomes.

THE DECISION-MAKING PROCESS
According to David H. Holt, rational decision-making involves the following steps”
1. Diagnose problem
2. Analyze the environment
3. Articulate problem or opportunity
4. Develop viable alternatives
5. Evaluate alternatives
6. Make a choice
7. Implement decision
8. Evaluate and adapt decision results

APPROACHES IN SOLVING PROBLEMS
1. Qualitative evaluation
2. Quantitative evaluation

SUMMARY
Decision-making is a very important function of the engineer manager. His organization will rise or fall depending on the outcomes of his decisions. 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.


THANK YOU FOR LISTENING!
By: Dimayuga, Joan R.
Palcon, Michelle T.
DECISION MAKING
- process of identifying and choosing alternative courses of action in a manner appropriate to the demands of the situation.
- “heart of all the management functions” according to Nickels

DECISION MAKING AS A MANAGEMENT RESPONSIBILITY

• Decision-making is a responsibility of the engineer manager.
• Management must strive to choose a decision option as correctly as possible.
• The higher the management level is, the bigger and the more complicated decision-making becomes.

DECISION MAKING
- process of identifying and choosing alternative courses of action in a manner appropriate to the demands of the situation.
- “heart of all the management functions” according to Nickels

DECISION MAKING AS A MANAGEMENT RESPONSIBILITY

• 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 (top, middle and lower) and at various management functions (planning, organizing, directing and controlling)


DECISION MAKING
- process of identifying and choosing alternative courses of action in a manner appropriate to the demands of the situation.
- “heart of all the management functions” according to Nickels

DIAGNOSE PROBLEM
- Identification of the problem is tantamount to having the problem half-solved
- A problem exists when there is a difference between an actual situation and a desired situation.

ANALYZE THE ENVIRONMENT
- The environment where the organization is situated plays a very significant role in the success or failure of such an organization.
- The objective of environmental analysis is the identification of constraints, which may be spelled out as either internal or external limitations.
EXAMPLES OF INTERNAL LIMITATIONS:
a. Limited funds available for the purchase of equipment.
b. Limited training on the part of employees.
c. Ill-designed facilities.

ANALYZE THE ENVIRONMENT
EXAMPLES OF INTERNAL LIMITATIONS:
a. Limited funds available for the purchase of equipment.
b. Limited training on the part of employees.
c. Ill-designed facilities.
EXAMPLES OF EXTERNAL LIMITATIONS:
a. Patents are controlled by other organizations.
b. A very limited market for the company’s products and services exists.
c. Strict enforcement of local zoning regulations.

COMPONENTS OF THE ENVIRONMENT:
1. Internal – refers to organizational activities within a firm that surrounds decision-making.
2. External – refers to variables that are outside the organization and not typically within the short-run control of top management.

ARTICULATE PROBLEM OR OPPORTUNITY
DEVELOP VIABLE ALTERNATIVES
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
- 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.
- Each alternative must be analyzed and evaluated in terms of its value, cost, and risk characteristics.

VALUE – refers to the benefits that can be expected
COST – refers to out-of-pocket costs, opportunity costs, and follow-on costs.
RISK CHARACTERISTICS – refer to the likelihood of achieving the goals of the alternatives.

MAKE A CHOICE
• Choice-making – process of selecting alternatives representing potential solutions to a problem.
• Particular effort 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 it effective, a plan must be devised.
EVALUATE AND ADAPT DECISION RESULTS
• It is important for the manager to use control and feedback mechanisms to ensure results and to provide information for future decisions.
• Feedback – 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 – actions made to ensure that activities performed match the desired activities or goals that have been set.

QUALITATIVE EVALUATION
- Evaluation of alternatives using intuition and subjective judgment.
- Managers tend to use this 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.

QUANTITATIVE EVALUATION
- Evaluation of alternatives using any technique in a group classified as rational and analytical.
QUANTITATIVE MODELS FOR DECISION MAKING
1. INVENTORY MODELS –consist of several types all designed to help the engineer manager make decisions regarding inventory.
a. 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 inventory.
b. PRODUCTION ORDER QUANTITY MODEL – economic order quantity technique applied to production orders.
c. BACK ORDER INVENTORY MODEL – used for planned shortages.
d. QUANTITY DISCOUNT MODEL – used to minimize the total cost when quantity discounts are offered by suppliers.

QUANTITATIVE MODELS FOR DECISION MAKING
2. QUEUING THEORY – describes how to determine the number of service unit that will minimize both customer waiting time and cost of service. Applicable to companies where waiting lines are a common situation.

3. NETWORK MODELS – models where large complex tasks are broken into smaller segments that can be managed independently.

a. The Program Evaluation Review Technique (PERT) – 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 (CPM) – uses only one time factor per activity that enables engineer managers to schedule, monitor and control large and complex projects.


QUANTITATIVE MODELS FOR DECISION MAKING
4. FORECASTING – the collection of past and current information to make predictions about the future.

5. REGRESSION ANALYSIS

- Forecasting method that examines the association between two or more variables.
- May be simple or multiple depending on the number of independent variables present.
- SIMPLE REGRESSION: one independent variable is involved
- MULTIPLE REGRESSION: two or more independent variables are involved.



6. SIMULATION – represents reality, on which conclusions about real-life problems can be used
– Decision maker develops a mathematical model of the system under consideration.
– Does not guarantee an optimum solution.

7. LINEAR PROGRAMMING – used to produce an optimum solution within the bounds imposed by constraints upon the decision.

8. SAMPLING THEORY – samples of populations are statistically determined to be used for a number of processes, such as quality control and marketing research. It saves time and money.

9. STATISTICAL DECISION-THEORY

- Rational way to conceptualize, analyze, and solve problems in situations involving limited or partial information about the decision environment.


QUANTITATIVE MODELS FOR DECISION MAKING
SUMMARY
The decision making process consists of various steps namely: diagnose problems, analyze environment, articulate problem or opportunity, develop viable alternatives, evaluate alternatives, make a choice, implement decision, and evaluate and adapt decision results.
There are two approaches in solving problems, namely: qualitative evaluation and quantitative evaluation. Qualitative evaluation is used for solving fairly simple problems, while quantitative evaluation is applied to complex ones.

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