Chapter Two – Decision-Making

Learning Outcomes:
At the end of the session, the student is expected to:
1. To discuss the decision-making process and its quantitative models.
2. To appreciate the importance of decision-making as an engineer.
Pre-test:
1. Why does decision-making skills important for a civil engineer?
Discussion:
I. Introduction
- Decision-making may be defined as “the process of identifying and choosing alternative
courses of action in a manner of appropriate to the demands of the situation”.
- 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.
- The engineer manager’s decision-making skills will be very crucial to his success as a
professional.
- A major blunder in decision-making may be sufficient to cause the destruction of any
organization. Good decisions, on the other hand, will provide the environment for
continuous growth and success of any organized effort.

II. 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.
- Decision-making is a responsibility of the engineer manager. It is understandable for
managers to make wrong decision at times.
- The higher the management level is, the bigger and the more complicated decision-
making becomes.

III. The Decision-Making Process

- According to David H. Holt, rational decision-making is a process involving the
following steps:
i. Diagnose problem
ii. Analyze environment
iii. Articulate problem or opportunity
iv. Develop viable alternatives
v. Evaluate alternatives
vi. Make a choice
vii. Implement decision
viii. 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.
- A problem exists when there is a difference between an actual situation and
a desired situation.

 Analyze the Environment

- The objective of environment analysis is the identification of constraints,
which may be spelled out as either internal or external limitations.

Example of internal limitations:

 Limited funds available for the purchase of equipment.
 Limited training on the part of employees.
 Ill-designed facilities.

Example of external limitations:

 Patents are controlled by other organizations.
 A very limited market for the company’s products and services exists.
 Strict enforcement of local zoning regulations.

- Components of the Environment. The environment consists of two major

concerns:
 Internal Environment – it refers to organizational activities within the
firm that surrounds decision-making.
 External Environment – it refers to the variables that are outside the
organization and not typically within the short-run control of the top
management.

 Develop Viable Alternatives

- Oftentimes, problems may be solved by any of the solutions offered. The best
among the alternatives solutions must be considered by management. This is
made possible by using a procedure with the following steps:
 Prepare a list of alternative solutions.
 Determine the viability of each solution.
 Revise the list by striking out those which are not viable.
 Evaluate Alternatives
- After making a list of viable alternatives, an evaluation of the list is necessary.
Proper evaluation makes choosing the right solution less difficult.
- According to Souder, “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.
 The cost of the alternatives refers to out-of-pocket cost, opportunity
cost, follow-on cost.
  The risk characteristics refer to the likelihood of achieving the goals
of the alternatives.

 Make a Choice
- After evaluating all of the alternatives, the decision-make must now be ready
to make a choice.
- Choice-making refers to the process of selecting among alternatives
representing potential solutions to a problem.

 Implement Decision
- Implementation refers to carrying out the decision so that the objectives
sought will be achieved.
- A plan must be devised for an effective implementation of a decision.

 Evaluate and Adapt Decision Result

- After a decision was implemented, the expected result may or may not happen.
It is important to use the feedback and control mechanisms to ensure results
and to provide information for the 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
line with the goals and objectives.
 Control refers to actions made to ensure that activities performed
match the desired activities or goals.

IV. Approaches in Problem Solving

- In decision-making, the engineer manager is faced with problems which may either
be simple or complex.
- These are the approaches used in problem solving:
i. Qualitative Evaluation – it refers to evaluation of alternatives using intuition
and subjected judgment.
ii. Quantitative Evaluation – it refers to the evaluation of alternatives using any
techniques in a group classified as rational and analytical.

V. Quantitative Models for Decision-Making

- The types of quantitative techniques which may be useful in decision-making are as
follows:
i. Inventory Models
- Inventory models consist of several types all designed to help engineer
manager make decision 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.
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 shortage.
d. Quantity discount model – an inventory model used to
minimize the total cost when quantity discounts are offered by
suppliers.

ii. Queuing Theory

- 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.

iii. 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:
a. 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.
b. 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.

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

v. 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.
a. Simple Regression – when a single variable is involved.
b. Multiple Regression – when two or more variables are
involved.
 vi. Simulation
- Simulation is model constructed to represent reality in which
conclusions about real-life problems can be used.
- The decision maker must develop a mathematical model of the system
under consideration.
- It can evaluate the alternatives fed into the process by the decision-
maker.

vii. Linear Programming

- Linear programming is a quantitative technique that is used to produce
an optimum solution within the bounds imposed by constraints upon
the decision.
- It is a useful decision-making tool when supply and demand limitations
are constraints upon the system.

viii. 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

ix. Statistical Decision-Theory

- Decision theory refers to the “rational way of conceptualize, analyze,
and solve problems in situation involving limited or partial information
about the decision environment.
- Bayesian Analysis is a type of analysis that is used for evaluating the
alternatives.
- The purpose of Bayesian Analysis is to revise and update the initial
assessments of the event probabilities generated by the alternative
solutions.
- After assigning probabilities of various events, the Bayes criterion is
used.
- The Bayes criterion selects the decision alternative having the
maximum expected payoff, or the minimum expected loss if he is
working with a loss table.
Summary:
- Decision-making is an important skill of an engineer manager. The failure or success of
his/her goal depends on the outcomes of his decisions. The process of identifying and
choosing alternative courses of action in manager appropriate to the demands of the
situation is called decision-making.
- The decision-making process consists of various steps, namely: diagnose problem, 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.
Assessment:
1. Can the engineer manager avoid making management decision? Why or why not?
2. Why is proper diagnosis of the problem important?
3. How may alternative solutions be evaluated?
References:
Engineering Management, Roberto G. Medina