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MANAGEMENT FOR ENGINEERS

HUT-310
Module III
Module 3 (productivity and decision making- 7 hours)
Concept of productivity and its measurement; Competitiveness; Decision making process;
decision making under certainty, risk and uncertainty; Decision trees; Models of decision
making.

1. Define productivity
Or
Differentiate production & productivity
 Production is the manufacturing of desired products with the help of inputs
(raw material and utilities), machines, method, and manpower.
 Productivity refers to the effectiveness of the production process.
 Production refers to the quantity of the product.
 Productivity is the manufacturing of desired products with the optimal
utilization of inputs (raw material and utilities), machines, method, and
manpower.
 Productivity is the efficiency of production.
 Productivity can be defined as the ratio between output and input.
Output
Productivity 
Input
2. Factors affecting productivity

3. Describe the significance/importance of productivity

 Productivity is key to a company's profitability and long-term success.
 It measures how much output a company can produce from resources such as
labor, capital or raw materials.
 If a company improves its productivity, it can generate more output from its
resources.
4. How can we improve the productivity of an organisation?
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 Keep things simple. While having a productivity strategy is key, it doesn't have
to be elaborate. ...
 Set reminders. ...
 Review goals daily (or at least regularly) ...
 Minimize time-wasting activities. ...
 Use productivity apps. ...
 Motivate your team. ...
 Avoid multitasking. ...
 Offer a wellness program.
5. Discuss various productivity improvement techniques
1. Task Batching
 Work on similar tasks together to get into flow state more easily
2. Don't Break the Chain
 Build or break a habit by focusing on one thing each day
3. Eat the Frog
 Beat procrastination/delay by doing the most difficult or important thing first
 Stop Dallying and Get More Done in Less Time
4. Value analysis and value engineering.
 Value analysis involves analysing and improving existing components and
systems
 value engineering involves redesigning and developing new components
and systems
5. Product diversification.
 It is a strategy employed by a company to increase profitability and achieve
higher sales volume from new products.
 Eg: A company that primarily sells clothing might expand into selling home
goods and accessories.
6. Standardization and simplification.
 Standardisation involves consistent form, size, composition, methods, and
quality maintained for all products/services.
 Simplification is an approach to identify which is the most efficient and
best suited method for a particular purpose/activity.
7. Reliability engineering.
 The main purpose of the Reliability Engineer is to improve the reliability
of critical assets (fixed plant, earth moving equipment and supporting
assets such as utilities and facilities)
 It is the ability of equipment to function without failure.
 It is the ability of a system or component to function under stated conditions
for a specified period of time without failure.

6. Various methods to measure productivity

1. Single factor productivity
2. Multifactor productivity,
3. Total productivity and
4. Total Factor productivity.

1. Single factor productivity

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Total output
Single factor productivity 
Individual input

Total output
Capital productivity 
Capital input (capital employed )

.
Total output
Labour productivity 
Labour input (expenditure on labour )

Total output
Material productivity 
Material input (cost of material )
2. Multifactor Productivity

3. Total productivity
 Total productivity is defined as the ratio of total output to the sum of all input
factors
Total output
Total productivity 
Total input
4. Total Factor productivity.
 Total factor productivity can be defined as the ratio of net output to
the sum of associated labour and capital (factor) inputs.
Net output
Total Factor Productivity (TFP ) 
( Labour  Capital ) input
Net Output = Total Output - Intermediate goods or services purchased
7. What are the difficulties or Problems in measuring productivity
1. Difficulty in measuring inputs
2. Difficulty in measuring output
3. Factorial productivity: Difficult to calculate the productivity of different factors
of production separately.
4. Changing conditions Service sector
5. Different periods
6. Difficulty in measuring man-hours
7. Technological change
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8. Define competitiveness in an organization

 Ability to efficiently use its resources to offer products and services that exceed
customer expectations.
 As a short-term capability, it refers to how a company manages its market position in
both products and services, achieving corporate goals.
9. Define managerial decision making/why it is important?
 It is the selection of course of action from among alternatives
 It is the core of planning
 The quality the decision made by the manager, determines the organization’s
performance and the future of the organization.
10. Steps in decision making process / List out the steps in rational decision-making.
1. Defining/identifying the problem
 Only when a problem is recognized, the work toward its solution can be
initiated.
2. Analyzing the problem
 Next step is the detailed study of the problem involved.
 Analysis helps managers to gain an insight into the problem.
3. Developing alternative solutions
 The decision maker must try to find out the various alternatives available in
order to get the most satisfactory result of a decision.
4. Selecting the best solution
 A comparison is made among the outcomes of various alternatives and the
best one is chosen.
5. Implementing the decision
 After the selection of the best alternative, the next step is to convert the
selected alternative into an effective action.
6. Follow-up
 Follow-up is necessary to decide whether the decision already taken should
be continued or be modified in the light of changed conditions.

11. Explain the models in decision making/ explain the different models of decision-
making behaviour.
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1. Rtional decisions – The rational decision-making model follow logical steps to

find a solution to a problem.
2. Intuitive decision model – Rather than logical reasoning, the intuitive decision
model uses feelings and instincts to make decisions.
3. Recognition-primed decision model – This decision model is similar to the
intuitive model except that this model is little more structured.
12. Explain the rationality in decision making
 Rational decision making is the opposite of intuitive decision making.
 It is a strict procedure utilising objective knowledge and logic.
 It involves identifying the problem to solve, gathering facts, identifying
options and outcomes, analysing them, considering all the relationships and
selecting the decision.
13. Explain the types of decisions
1. Programmed decisions
 Decisions following the standard policy, rules or procedures that exist there.
These decisions are known as the programmed decisions.

2. Non-programmed decisions
 Non-programmed decisions, on the other hand, are new and non-routine in
nature.
 These decisions are unstructured, non-recurring and ill-defined in nature.

14. Differentiate programed & non programed decisions

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15. Explain various decision making environments

1. Decision making under risk
 It is a decision-making situation where there are different possible outcomes
and the probabilities of these outcomes can be measured in some way.
 It is a situation in which the consequences of the adopted option and the
probability of its occurrence are known
2. Decisions making under conditions of certainty
 Decision making under certainty implies that people are reasonable sure
about what will happen when they make a decision
 Here the manager has perfect knowledge of all the information needed to
make a decision.
 This condition is perfect for problem solving.
 The challenge is simply to study the alternatives and choose the best
solution.
3. Decision making under conditions of uncertainty
 In making decisions under pure uncertainty, you do not have any information
about the outcomes.
 There are many unknowns.
 Nobody knows what will happen.
 There is no possibility of knowing what could occur in the future to alter the
outcome of your decision.
 Uncertainty refers to a decision-making situation where there are different
possible outcomes and the probabilities of these outcomes cannot be
meaningfully measured, sometimes because all possible outcomes cannot be
foreseen or specified.

16. Explain decision making under uncertainty.(Above answer)

17. Discuss decision making under risk. .(Above answer)

PROBLEMS
1. A company produces 160 kg of plastic molded parts of acceptable quality by
consuming 200 kg of raw materials for a particular period. For the next period,
the output is doubled (320 kg) by consuming 420 kg of raw material and for
the third period, the output is increased to 400 kg by consuming 400 kg of raw
material. Find the productivity for each period.

From the result it is clear that for the

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 second period though production has doubled, productivity has decreased from 80% ,
 Third period production is increased by 150% and the corresponding productivity
increased from 80% to 100%
2. A company produces 160 kg of plastic molded parts of acceptable quality by
consuming 200 kg of raw materials for a particular period. For the next period, the
output is doubled (320 kg) by consuming 420 kg of raw material and for the third
period, the output is increased to 400 kg by consuming 400 kg of raw material. Find the
productivity for each period.

4. Long Beach Bank employs three loan officers, each working eight hours per day. Each
officer processes an average of five loans per day. The bank’s payroll cost for the
officers is $820 per day, and there is a daily overhead expense of ₹500.
a. Compute the labor productivity.
b. Compute the multifactor productivity, using loans per dollar cost as the
measure.

The bank is considering the purchase of new computer software for the loan operations. The
software will enable each loan offer to process eight loans per day, although the overhead
expense will increase to 550 Rs.
c. Compute the new labour productivity
d. Compute the new multi factor productivity
e. Should the bank proceed with the purchase of new software?. Explain’’
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Decision Tree

Plant size decision Completion time 12 months

Large Completion time 8 months

plant
Small
Development programme succeeds plant Completion time 6 months

Development decision Completion time 4 months

Development
programme fails
Decision node Drop product

Chance node
An example of a decision tree
 A decision tree is a schematic representation of the alternatives available to a decision
maker and their possible consequences.
 All decision trees contain decision nodes and state of nature nodes (chance node).
Construction and reading of decision tree is from left to right.
 Decision nodes (decision points) are represented by squares from which one or several
alternatives may be chosen.
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 State-of-nature nodes are represented by circles out of which one or more state-of-nature
will occur. Branches leaving square nodes represent alternatives; branches leaving
circular nodes represent chance events (i.e., the possible states of nature).
Problems
1. A glass firm developing a substantial backlog of orders is considering three courses of
action
i. Arrange for subcontracting
(ii) Begin overtime production
(iii) Construct new facilities.
The correct choice depends largely on future demand, which may be low, medium or
high. By consensus, management ranks the respective probabilities as 0.10, 0.50 and 0.40.
A cost analysis reveals the effect on profits as shown below.
Course of action Low(P=0.1) Medium(P=0.5) High(P=0.4)
1.Arrange for 10 50 50
subcontracting
2. Begin over time -20 60 100
3.Construct new facilities -150 20 200
Show this decision situation in the form of a decision tree and indicate the most preferred
decision and the corresponding expected value.
Low (0.1) 10

A Medium (0.5) 50

High (0.4) 50
1

Low (0.1) –20

2 B Medium (0.5) 60

High (0.4) 100

3
Low (0.1) –150

C Medium (0.5) 20

High (0.4) 200

EMV = Probability x Impact

 Here EMV corresponding to C is highest = 75 Rs, so it is suggested to construct new

facilities
3. A cell phone manufacturer has invented a 3D phone. The company wants to take
decision whether to manufacture the phone, take royalty from another manufacturer, or
sell rights of the invention and take a lump sum amount of ₹50,000. The profits associated
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and probability of these alternatives is given in the table below. Represent the problem as
a decision tree and suggest a decision to maximise profits.
Manufacture the
Take royalty
Demand phone
Probability Profit Probability Profit
High 0.25 2,00,000 0.25 60,000
Medium 0.4 50,000 0.4 40,000
Low 0.35 –10000 0.35 20,000
Based on the data give, decision tree is drawn as below.

Low (0.25) 200000

e A Medium (0.4) 5000

hon
he p
re t
actu High (0.35) –10000
nuf
Ma
Sell rights of the invention
₹50000
Sel
l rig
hts Low (0.1) 60000
of t
he i
nve
ntio
n B Medium (0.5) 40000

High (0.4) 20000

Expected Monetary Value is calculated for each alternative as below.

EMV of node A =200000 0.25 + 50000 0.4 – 10000 0.35 =₹66500

EMV of node B =60000 0.25 + 40000 0.4 + 20000 0.35 =₹38000

Choice of alternative is made based on the highest expected value (EV). Here, as
EV corresponding to A (of ₹66500) is highest, it is suggested to construct new
facilities.
4. Modern forest management uses controlled fires to reduce fire hazards and to stimulate
new forest growth. Management has the option to postpone or plan a burning. In a
specific forest tract, if burning is postponed, a general administrative cost of ₹300 is
incurred. If a controlled burning is planned, there is a 50% chance that good weather
will prevail and burning will cost ₹3200. The results of the burning may be either
successful with probability 0.6 or marginal with probability 0.4. Successful execution
will result in an estimated benefit of ₹6000, and marginal execution will provide only
₹3000 in benefits. If the weather is poor, burning will be cancelled incurring a cost of
₹1200 and no benefit. Develop a decision tree for the problem and analyse the decision
tree and determine the optimal course of action.
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Successful burning
₹6000
0.6
Good weather
B
0.5
Marginal burning
A ₹3000
0.4
ng Bad weather
r ni ₹1200
u 0.5
nb
Pla

Po
stp
on
eb
ur n
ing
₹300

 Conclusion: As burning results in a profit of 200Rs, and postpone burning results

in an expense of 300Rs. So management should plan for burning.
4. Amar Company is currently working with a process, which after paying for
materials, labour, etc., brings profit of ₹12000. The following alternatives are
made available to the company.

a) The company can conduct research (R1) which is expected to cost ₹10000
having 90% chance of success. If it proves to be success, the
company gets gross income of ₹25000.
b) The company can conduct research (R2) which is expected to cost ₹8000
having 60% chance of success. If it proves to be success, the gross
income will be ₹25000.
c) The company can pay ₹6000 as royalty for a new process which will bring
a gross income of ₹20000.
d) The company continues the current process.

Because of limited resources, it is assumes that only one of the two types of research can be
carried out at a time. Use decision tree analysis to locate the optimal strategy of the
company.
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Expected Monetary Value