DECISION MAKING

Chapter 5

DECISION MAKING

Decision Making Process Defined

 It is the process of deciding about something important, especially in a group of people or in an

organization.
 It involves the selection of a course of action from among two or more possible alternatives in order to
arrive at a solution for a given problem.

As evidenced by the foregone definitions, decision making process is a consultative affair done by a
committee of professionals to drive better functioning of any organization. Thereby, it is a continuous and
dynamic activity that pervades all other activities pertaining to the organization. Since it is an ongoing
activity, decision making process plays vital importance in the functioning of an organization. Since
intellectual minds are involved in the process of decision making, it requires solid scientific knowledge
coupled with skills and experience in addition to mental maturity.
Decision Making process can be regarded as check and balance system that keeps the organization
growing both in vertical and linear directions. It means that decision making process seeks a goal. The
goals are pre-set business objectives, company missions and its vision. To achieve these goals, company
may face lot of obstacles in administrative, operational, marketing wings and operational domains. Such
problems are sorted out through comprehensive decision making process. No decision comes as end in
itself, since in may evolve new problems to solve. When one problem is solved another arises and so on,
such that decision making process, as said earlier, is a continuous and dynamic.

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NAME:____________________________________ COLLEGE OF ENGINEERING & INDUSTRIAL

T ECHNOLOGY
 DECISION MAKING

Step 1: Identify the decision

You realize that you need to make a decision. Try to clearly define the nature of the decision you
must make. This first step is very important.

Step 2: Gather relevant information

Collect some pertinent information before you make your decision: what information is needed, the
best sources of information, and how to get it. This step involves both internal and external “work.” Some
information is internal: you’ll seek it through a process of self-assessment. Other information is external:
you’ll find it online, in books, from other people, and from other sources.

Step 3: Identify the alternatives

As you collect information, you will probably identify several possible paths of action, or
alternatives. You can also use your imagination and additional information to construct new alternatives. In
this step, you will list all possible and desirable alternatives.

Step 4: Weigh the evidence

Draw on your information and emotions to imagine what it would be like if you carried out each of
the alternatives to the end. Evaluate whether the need identified in Step 1 would be met or resolved
through the use of each alternative. As you go through this difficult internal process, you’ll begin to favor
certain alternatives: those that seem to have a higher potential for reaching your goal. Finally, place the
alternatives in a priority order, based upon your own value system.

Step 5: Choose among alternatives

Once you have weighed all the evidence, you are ready to select the alternative that seems to be
best one for you. You may even choose a combination of alternatives. Your choice in Step 5 may very likely
be the same or similar to the alternative you placed at the top of your list at the end of Step 4.

Step 6: Take action

You’re now ready to take some positive action by beginning to implement the alternative you chose

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in Step 5.

Step 7: Review your decision & its consequences

In this final step, consider the results of your decision and evaluate whether or not it has resolved
the need you identified in Step 1. If the decision has not met the identified need, you may want to repeat
certain steps of the process to make a new decision. For example, you might want to gather more detailed
or somewhat different information or explore additional alternatives.

NAME:____________________________________ COLLEGE OF ENGINEERING & INDUSTRIAL

T ECHNOLOGY
 DECISION MAKING

What is Decision Making Skills?

Decision making skills is the ability to understand needs, evaluate comparable options & narrow
down to the one best option. Decision making skills focuses on research, collecting & analyzing data and
making a correct judgment for effective & efficient end result. In business, this is a critical trait which
employees must possess to select the best possible solution for any company problem, for ensuring
smooth business processes. Good decision making skills increases efficiency, improves processes & helps
grow business revenue.

Why Good Decision making is important?

Strong decision-making helps solve problems promptly and creates a leadership position for the
decision-makers. Strong decisions should be impartial and devoid of any emotional influences that might
make us overlook shortcomings. Such decision-making should also be transparent and logical.
Every employee is assigned a different task depending on their job roles & responsibilities. For
every task, there are always multiple options for achieving the end result. However, not all options are
viable as only some are cost effective, some take a longer time, some require more people etc. This is
where the decision making skills of an employee are important. The employee needs to understand the
objective, analyze all possible options, evaluate the strengths & weaknesses and take the best decision in
the interest of the company.

Types of Decision Making

The ways in which decisions can be made can be of several types. The broad classification of how
people can take decisions are:
1. Analytical- This type is based on collecting information, analyzing data & taking a calculated
decision.
2. Directive- this is usually based on several processes & rules, and is focused on the end goal.

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3. Conceptual- this type of decision making keeps into consideration how other people will be
impacted by the decision.
4. Behavioral- this type is driven by the nature, attitude or behavior of a person.
These are simply the broad types of decision making. People need to hone good decision making
skills so that they can make the best all available resources & information to take the most ethical as well
as profitable decision for the business.

NAME:____________________________________ COLLEGE OF ENGINEERING & INDUSTRIAL

T ECHNOLOGY
 DECISION MAKING

5 Ways to Improve Decision Making Skills as a Leader

 

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NAME:____________________________________ COLLEGE OF ENGINEERING & INDUSTRIAL

T ECHNOLOGY
 DECISION MAKING

Characteristics of Decision Making

The characteristics of decision making are discussed as :

 Selective: It is a selective process in which the optimal alternative is opted, among the various
alternatives. The selection of the alternative is done, only after evaluating all the alternatives
against the objectives.

 Cognitive: As the decision making encompasses the application of intellectual abilities, such as
analysis, knowledge, experience, awareness and forecasting, it is a cognitive process.

 Dynamic: It is a dynamic activity in the sense that a particular problem may have different
solutions, depending upon the time and circumstances.

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 Positive or Negative: A decision is not always positive, sometimes even after analyzing all the
points a decision may turn out as a negative one.

 Ongoing process: We all know that a company has perpetual succession and various decisions are
taken daily by different levels of management to keep the firm going. These decisions are taken,
keeping in mind the objectives of the organization.

 Evaluative: Evaluation of the possible alternatives using critical appraisal methods, is a part of the
decision-making process.

NAME:____________________________________ COLLEGE OF ENGINEERING & INDUSTRIAL

T ECHNOLOGY
 DECISION MAKING

Approaches in Solving Problems

In decision-making, the engineer manager 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 evaluation – This term refers to evaluation of alternatives using intuition and subjective
judgment. Stevenson states that managers tend to use the qualitative approach when:

a. The problem is fairly simple

b. The problem is familiar
c. The costs involved are not great
d. 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.

QUANTITATIVE MODELS FOR DECISION MAKING

The types of quantitative techniques which may be useful in decision-making are as follows:

1. Inventory Models
2. Queuing theory
3. Network models
4. Forecasting
5. Regression analysis
6. Simulations
7. Linear programming
8. Sampling theory
9. Statistical decision theory

1. INVENTORY MODELS

Inventory models consist of several types all designed to help the engineer manager makes Page8
decisions regarding inventory. They are as follows:

1. Economic Order Quantity Model (EOQ) – this one is 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.

2. Production Order Quantity Order – this is an economic order quantity technique applied to
production orders,

NAME:____________________________________ COLLEGE OF ENGINEERING & INDUSTRIAL

T ECHNOLOGY
 DECISION MAKING

3. Back Order Inventory Model – this is an 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.

2. QUEUING THEORY

The 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.

The queuing theory is applicable to companies where waiting lines are a common situation.
Examples are cars waiting for service at a car service center, ships and barges waiting at the harbor for
loading and unloading by dock-workers, programs to be run in a computer system that processes jobs, etc.

3. 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:

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

4. FORECASTING

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It is a technique that uses historical data as inputs to make informed estimates that are predictive
in determining the direction of future trends. Businesses utilize forecasting to determine how to allocate
their budgets or plan for anticipated expenses for an upcoming period of time.

5. REGRESSION ANALYSIS

The regression model is a forecasting method that examines the association between two or more
variables. It uses data from various periods to predict future events.

NAME:____________________________________ COLLEGE OF ENGINEERING & INDUSTRIAL

T ECHNOLOGY
 DECISION MAKING

Regression analysis may be simple or multiple depending on the number of independent variables
present. When one independent variables is involved, it is called simple regression; when two or more
independent variables are involved, it is called multiple regression.

6. SIMULATION

Simulation is a model constructed to represent reality, on which conclusions about real-life

problems can be used. It is a highly sophisticated tool by means of which the decision marker develops a
mathematical model of the system under consideration.

Simulation does not guarantee an optimum solution, but it can evaluate the alternatives fed into the process
by the decision-maker.

7. LINEAR PROGRAMMING

Linear programming is a quantitative technique that is used to produce an optimum solution within
the bounds imposed by constrains upon the decision. Linear programming is very useful as a decision-
making tool when supply and demand limitations at plants, warehouse, or market areas are constraints
upon the system.

8. SAMPLING THEORY

Sampling theory is a quantitative technique where samples of population are 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, save time
and money.

9. STATISTICAL DECISION THEORY

Decision theory refers to the “rational way to conceptualize, analyze, and solve problems in
situations involving limited, or partial information about the decision environment. “

Statistical Decision theory is concerned with the making of decisions when in the presence of

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statistical knowledge (data) which sheds light on some of the uncertainties involved in the decision
problem.

NAME:____________________________________ COLLEGE OF ENGINEERING & INDUSTRIAL

T ECHNOLOGY