chapter 2

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 this 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.

Decisions must be made at various levels in the workplace. They are also made at the various stages in the management process. If certain resources must be used, someone must make a decision authorizing certain persons to appropriate such resources.

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. Delaney concludes that this type of managers are dangerous and “should be removed from their positions as soon as possible.”

Management must strive to choose a decision option as correctly as possible. Since they have that power, they are responsible for whatever outcome their decisions bring. The higher the management level is, the bigger and the more complicated the decision-making becomes.

An example may be provided as follows:

The production manager of a certain company has received a written request from a section regarding the purchase of an air-conditioning unit. Almost simultaneously, another request from another section was forwarded to him requiring the purchase of a forklift. The production manager was informed by his superior that he can only buy one of the two requested items due to budgetary constraints.

The production manager must now make a decision. His choice, however, must be based on sound arguments for he will be held responsible, later on, if he had made the wrong choice.

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.

Decisions are made at various management levels (i.e., top, middle. And lower levels) and at various management functions (i.e., planning, organizing, directing, and controlling). Decision-making, according to Nickels and others, “is the heart of all the management functions.

Rational decision-making, according to

David H. Holt, is a process involving the following steps: 1. Diagnose the problem 2. analyze the environment 3. articulate problem or opportunity 4. develop viable alternative 5. evaluate alternatives 6. make a choice 7. implement decision 8. evaluate and adapt decision results

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 exists when there is a difference between actual situation and a desired situation. For instance, the management of a construction company entered into a contract with another party for the construction of a 25-storey building on a certain site. The actual situation of the firm is that it has not yet constructed the building. The desired situation is the finished 25-storey building. In this case, the actual situation is different from the desired situation. The company, therefore, has a problem and that is, the construction of the 25-storey building.

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 as either internal or external limitations. Examples of internal limitations are as follows: 1. Limited funds available for the purchase of equipment 2. Limited training on the part of employees 3. Ill-designed facilities Examples of external limitations are as follows: 1. Patents are controlled by other organizations 2. A very limited market for the company’s product and services exists. 3. Strict enforcement of local zoning regulations.

When decisions are to be made, the internal and external limitations must be considered. It may be costly, later on, to alter a decision because of a constraint that has not been previously identified.

An illustration of failure to analyze the environment is as follows: The president of a new chemical manufacturing company made a decision to locate his factory in a place adjacent to a thickly populated area. Construction of the building was made with precision and was finished in a short period. When the clearance for the commencement of operation was sought from local authorities, this could not be given. It turned out that the residents opposed the operation of the firm and made sure that no clearance is given.

The president decided to relocate the factory but not after much time and money has been lost. This is a clear example of the cost associated with management disregarding the environment when decisions are made. In this case, the president did not consider what the residents could do.

The environment consists of two major

concerns: 1. internal 2. external

The internal environment refers to organizational activities within a firm that surrounds decision-making. Shown in Fig. 2.1 are the important aspects of the internal 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.

Fig. 2.1 The Engineering Firm and the Internal Environment in Decision-making

THE ENGINEERING FIRM

Figure 2.2 The Engineering Firm and its External Environment

Oftentimes, Problems may be solved by any of the solutions offered. The best among the alternative solutions must be considered by the 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 solutions 3. Revise the list by striking out those which are not viable

To illustrate: An engineering firm has a problem of increasing its output by 30%. This is the result of new agreement between the firm and one of its clients.

The list of solutions prepared by the engineering manager shows the following alternative courses of action: 1. Improve the capacity of the firm by hiring more workers and building additional facilities; 2. secure the services of subcontractors 3. buy the needed additional output from another firm 4. stop serving some of the company’s customers 5. delay servicing some clients

The list was revised and only the first three were deemed to be viable. The last two were deleted because of the adverse effects in the long-run profitability of the firm.

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. Souder suggests that “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. An example may be described as follows: a net profit of Php 10 million per year if the alternative is chosen.

The cost the alternative refers to out-of-pocket costs (like Php 100 million for construction facilities), opportunity costs (like the opportunity to earn interest of Php 2 million per year if money is invested elsewhere), and follow-on costs(like Php 3 million per year for maintenance of facilities constructed).

The risk characteristics refer to the likelihood of achieving the goals of the alternatives. If the probability of a net profit of Php 10 million is only 10%, then the decision-maker may opt to consider an alternative with a Php 5 million profit but with an 80% probability of success.

Another example of an evaluation of alternatives is shown below:

An engineer manager is faced with a problem of choosing between three applicants to fill up a lone vacancy for a junior engineer. He will have to set up certain criteria for evaluating the applicants. If the

evaluation is not done by a professional human resources officer, then the engineer manager will be forced to use predetermined criteria

A typical evaluation of job applicants will appear as follows:.

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. At this point, Webber advises that “… particular effort should be made to identify all significant consequences of each choice.”To make the selection process easier, the alternatives can be ranked from the best to worst on the basis of some factors like benefit, cost, or risk.

After a 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 they 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. Those who will be involved in implementation, according to Aldag and Stearns, must understand and accept the solution.

In implementing the decision, the results expected may or may not happen. It is therefore, important 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 that 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. If the desired result is achieved, one may assume that the decision made was good. If it was not achieved, Ferrell and Hirt suggest that further analysis is necessary. Figure 2.3 presents an elaboration of this last step.

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; 2. Quantitative evaluation

This term refers to evaluation of alternatives using intuition and subjective when: 1, the problem is fairly simple 2. the problem is familiar 3. the cost involved is not great 4. immediate decisions are needed.

An example of an evaluation using the qualitative approach is as follows: A factory operates on three shifts with the following schedule: First shift – 6:00 A.M. to 2:00 P.M. Second shift - 2:00 P.M. to 10:00 P.M. Third shift - 10:00 P.M. to 6:00 A.M

Each shift consists of 200 workers manning 200 machines. On September 16, 1996, the operations went smoothly until the factory manager, an industrial engineer, was notified at 1:00 P.M. that the five workers assigned to the second shift could not report to work because of injuries sustained in a traffic accident while they were on their way to the factory.

Because of time constraints, the manger made an instant decision on who among the first shift workers would work overtime to man the five machines.

This term refers to the evaluation of alternatives using any technique in a group classified as rational and analytical.

Figure 2.3 Feedback as a Control Mechanism in the Decision-Making Process

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. Simulation 7. Linear Programming 8. Sampling Theory 9. Statistical Decision Theory

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.

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. Example 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.

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 estimates for each activity. 2. 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

There are instances when engineer

managers 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 operations. 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 maybe defined as “the collection of past and current information to make predictions about the future.”

The regression model is a forecasting

method that examines the associations between two or more variables. It uses data from previous periods to predict future events.

Regression analysis may be simpler 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.

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.

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.

Sampling theory is a quantitative technique where samples of populations are statistically determined to be used for number of processes, such as quality control and, marketing research.

When data gathering is expensive, sampling

provides an alternative. Sampling, in effect, saves time and money.

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

A more elaborate explanation of decision theory is the decision making process presented at the beginning of this chapter. What has not been included in the discussion on the evaluation of alternatives, but it is very important, is subjecting the alternatives to Bayesian analysis.

The purpose of Bayesian analysis is to revise and update the initial assessments of the event probabilities generated by the alternative solutions. This is achieved by the use of additional information.

When the decision-maker is able to assign probabilities to the various events, the use of probabilistic decision rule, called the Bayes criterion, become possible. 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.

chapter 2

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term refers

queuing theory

control large

engineer manager

inventory

linear programming

php 10 million

demand requirements