ENGINEERING MANAGEMENT
2. DECISION MAKING
2.1 INTRODUCTION
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. If he is to become effective, he
must learn the intricacies of decision-making. Many times, he will be confronted by situations where he
will have to choose from among various options. Whatever his choice, it will have effects, immediate or
otherwise, in the operations of his organization.
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 right environment for continuous growth and success of any organized
effort.
2.2 DECISION-MAKING AS A MANAGEMENT RESPONSIBILITY
Decisions must be made at various levels in the workplace. They are also made at various stages in the
management process. Decision-making is a responsibility of the engineer manager. It is understandable
for managers to make wrong decisions at times. The wise manager will correct them as soon as they are
identified. The bigger issue is the manager who cannot or do not want to make decisions.
2.3 WHAT IS DECISION-MAKING?
Decision-making may be defined as “the process of identifying and choosing alternative courses of action
in a manner appropriate to the demands of the situation.”
The definition indicates that the engineer manager must adapt a certain procedure designed to determine
the best option available to solve certain problems.
2.4 THE DECISION MAKING PROCESS
Rational decision-making is a process involving the following steps:
1. Diagnose problem
2. Analyze environment
3. Articulate problem or opportunity
4. Develop viable alternatives
5. Evaluate alternatives
6. Make a choice
7. Implement decisions
8. Evaluate and adapt decision results
2.4.1 Diagnose Problem
If a manager wants to make an intelligent decision, his first move must be to identify the problem. If the
manager fails in this aspect, it is almost impossible to succeed in the subsequent steps. An expert once
said “identification of the problem is tantamount to having the problem half solved.”
What is a problem? A problem exist when there is a difference between an actual situation and a desired
situation.
2.4.2 Analyze the Environment
The environment where the organization is situated plays a very significant role in the success or failure
of such an organization. It is, therefore, very important that an analysis of the environment be undertaken.
The objective of environmental analysis is the identification of constraints, which may be spelled out
either internal or external limitations.
Example of external limitations:
1. Limited funds available for the purchase of equipment.
2. Limited training on the part of employees.
3. Ill-designed facilities.
Example of internal limitations:
1. Patents are controlled by other organizations.
2. A very limited market for the company’s products and services exists.
3. Strict enforcement of local zoning regulations.
Components of the Environment
The environment consists of two major concerns:
1. Internal Environment
The internal environment refers to organizational activities within a firm that surrounds
decision-making. Shown in Figure 2.1 are the important aspects of the internal environment.
2. External Environment
The external environment refers to variables that are outside the organization and not
typically within the short-run control of top management. Figure 2.2, shows the forces
comprising the external environment of the firm.
Figure 2.1 THE ENGINEERING FIRM AND THE INTERNAL ENVIRONMENT IN DECISION-MAKING
THE ENGINEERING FIRM
INTERNAL ENVIRONMENT EXTERNAL
ENVIRONMENT
Organizational Aspects
like org. structure, policies,
procedures, rules, ability of
management, etc.
Marketing Aspect
Like product strategy,
promotion strategy, etc. DECISION
Personal Aspects
Like recruitment practices,
incentive systems, etc.
Production Aspects
Like plant facility layout,
inventory control, etc. EXTERNAL
Financial Aspects
ENVIRONMENT
Like liquidity, profitability, etc.
Figure 2.2 THE ENGINEERING FIRM AND ITS EXTERNAL ENVIRONMENT
Government
Engineers Labor Unions
ENGINEERING
Clients FIRM Suppliers
Competitors Banks
Public
2.4.3 Develop Viable Alternatives
Oftentimes, problems may be solved by any of the solutions offered. The best among the alternative
solutions must be considered by management. This is made possible by using a procedure with the
following steps:
1. Prepare a list of alternative solutions.
2. Determine the viability of each solution.
3. Revise the list by striking out those which are not viable.
2.4.4 Evaluate Alternatives
After determining the viability of the alternatives and a revised list has been made, an evaluation of the
remaining alternatives is necessary. This is important because the next step involves making a choice.
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. In other words, each alternative must be evaluated and
evaluated in terms of its value, cost, and risk characteristics.
2.4.4.1 Value
The value of the alternative refers to benefits that can be expected.
2.4.4.2 Cost
The cost of the alternative refers to out-of-pocket costs, opportunity costs, and follow-on
costs.
2.4.4.2 Risk
The risk characteristics refers to the likelihood of achieving the goals of the alternative.
2.4.5 Make a Choice
After the alternatives have been evaluated, the decision-maker must now be ready to make a choice. This
is the point where he must be convinced that all the previous steps were correctly undertaken.
Choice-making refers to the process of selecting among alternatives representing potential solutions to a
problem.
To make the selection process easier, the alternatives can be ranked from best to worst on the basis of
some factors like benefits, cost, or risk.
2.4.6 Implement Decision
After the decision has been made, implementation follows. This is necessary, or decision-making will be
an exercise in futility.
Implementation refers to carrying-out the decision so that the objectives sought will be achieved. To make
implementation effective, a plan must be devised.
At this stage, the resources must be made available so that the decision may be properly implemented.
2.4.7 Evaluate and Adapt Decision Results
In implementing the decision, the results expected may or may not happen. It is, therefore, 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, the criteria used in evaluation, and the solution selected for implementation are
in keeping with the goals and objectives originally specified.
Control refers to actions made to ensure that activities performed match the desired activities or goals,
which have been set.
In this last stage of the decision-making process, the engineer manager will find out whether or not the
desired result is achieved.
2.5 APPROACHES IN SOLVING PROBLEMS
In decision-making, the engineer manager is 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, and
2. Quantitative evaluation.
2.5.1 Qualitative Evaluation
This term refers to evaluation of alternatives using intuition and subjective judgement. 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
2.5.2 Quantitative Evaluation
This term refers to the evaluation of alternatives using any technique in a group classified as rational and
analytical.
2.6 QUANTITATIVE MODELS FOR DECISION-MAKING
The types of quantitative techniques which may be useful in decision-making are as follows:
2.6.1 Inventory Models
Inventory models consists of several types all designed to help the engineer manager make decisions
regarding inventory. They are as follows:
1. Economic order quantity model – 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 model – this is an economic order quantity technique applied to
production orders.
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.
2.6.2 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.
2.6.3 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 technique which enables engineer manager
to schedule, monitor, and control large and complex projects by employing three time estimate
for each activity.
2. The Critical Path Method (CPM) – this is a network technique using only one time factor per
activity that enables engineer manager to schedule, monitor, and control large and complex
projects.
2.6.4 Forecasting
There are instances when an engineer manager make decisions that will have implications in the
future. A manufacturing firm, for example, must put up a capacity which is sufficient to produce the
demand requirements of customers within the next 12 months. As such, manpower and facilities must
be procured before the start of operation. To make decisions on capacity more effective, the engineer
manager must be provided with data on demand requirements for the next 12 months. This type of
information may be derived through forecasting.
Forecasting may be defined as “the collection of past and current information to make predictions
about the future.
2.6.5 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. When one independent variable is involved, it is called simple regression; when two or more
independent variables are involved, it is called multiple regression.
2.6.6 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 maker 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.
2.6.7 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. 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.
2.6.8 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.
2.6.9 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.”
