MODULE 2 Flashcards
It is one of the responsibilities
of an engineer manager
DECISION MAKING
It is a very important function of the engineer manager.
Decision Making
It can be determined by non-quantitative means, such as intuition, facts,
experiences and opinions.
Decision Making
The process of choosing a specific procedure or course of action from
among several possible alternatives.
Decision Making
It can also be determined by quantitative means such as operations
research, linear programming, simulation, Monte Carlo, gaming and
program evaluation review technique.
Decision Making
It is defined as the selection of a course of action from among
alternatives; it is at the core of planning.
Decision Making
A plan cannot be said to exist unless a decision has been made.
Decision Making
It is a commitment of resources, direction, or reputation
Decision
Managers sometime see it as their central job because they must constantly choose what is to be done, who is to do it, and when, where, and occasionally even how it will be done.
Decision Making
It helps to place the decision making
environment in its proper perspective.
Business system Model
Three levels of management
Operational, Tactical and Strategic.
They determine long-term strategies and set
corporate objectives and policy consistent with these objectives
Strategic-level Managers
They complete specific tasks as directed by the tactical-level managers.
Operational-level Managers
They are charged with the responsibility of
implementing the objectives and policies set forth at the strategic level of
management. To do this, the manager identifies specific tasks that need
to be accomplished.
Tactical-level Managers
Steps in Rational Decision Making
- Monitor the decision environment
- Define the decision problem
- Specify decision objectives
- Diagnose the Problem
- Develop alternative solutions
- Evaluate alternatives
- Choose the best alternatives
- Implement the chosen alternatives
The existence of a problem implies the need for a decision maker to make at least one decision, and typically a series of
decisions, to resolve a problem. In the first step, the decision maker _______ for the decision.
Sets Objectives
It limits the decision maker’s choices. It could be defined by legal, economic or political
considerations. Decision ___ are sometimes presented in terms of desired specification or performance standards.
Identify Constraints
Steps in Decision Making Process
- Set objectives
- Identify constraints
- Identify alternatives
- Gather appropriate information
- Evaluate alternatives
- Choose the most acceptable alternatives
The decision making process involves making a choice between two or more alternatives. In this step, the decision maker
identifies________ solutions that meet the constraints outlines in step 2. In most cases, these are chosen because they provided a solution to the problem, but often one of it is to do nothing.
Identify Alternatives
The information requirements for a given
decision vary considerably depending on the complexity and scope of the decision to be made. During this step, the decision maker gathers ____ that may provide insight as to which alternative to choose.
Gather appropriate information
In this step, the decision maker evaluates each _____. A decision can be rendered based on available information.
Evaluate alternatives
In this step, the manager examines the ranking of alternatives and selects the most acceptable alternatives, which is often the top-ranked alternative. On occasion, extending circumstances caused managers to look past the highest-ranking alternative
and select a lower-ranking alternative. Decisions, especially those made collectively by several managers, are often the result of creativity.
Choose the most acceptable alternatives
Major steps in Decision Making
- Identifying Alternatives and the Limiting Factor
- Evaluation of Alternatives
- Selecting an Alternative: Three Approaches
It is something that stands in the way of
accomplishing a desired objective.
Limiting Factor
Ability/ways to develop alternatives are by?
Ingenuity, research, and
common sense
This is the point of ultimate decision making, although decisions must also be made in the other steps of planning—in selecting goals, in choosing critical premises, and even in
selecting alternatives.
Evaluation of Alternatives
Because of complexities in evaluating alternatives, newer methodologies and applications and analysis are needed: (What are they?)
Advantages/ Disadvantages
Strengths/ Weaknesses
Cost-Benefit Analysis (C.B.A.)
Decision Trees
Three approaches of selecting an alternative
Experimentation
Research and Analysis
Reliance on the past
In a situation involving _____, people are reasonably sure about what will happen when they make a decision. The information is reliable and is considered to be reliable, and the cause and effect relationships are known.
Certainty
In a situation of _______ , on the other hand, people have only a meager database, they do not know whether or not the data are reliable, and they very unsure about whether or not the situation may change.
Uncertainty
Techniques used in Decision Making Process
- Marginal Analysis.
- Financial Analysis.
- Break-even Analysis.
- Ratio Analysis.
- Operations Research Techniques.
In a situation with ______, factual information may exist, but it may be
incomplete. To improve decision making, one may estimate the
objective probability of an outcome by using, for example,
mathematical models. On the other hand, subjective probability,
based on judgment and experience, may be used.
Risk
This tool is used in decision making to figure out how much more output will result if one or more variable (worker) is added. Samuelson defines a marginal product as the extra product or output added by one extra unit of that factor. While other factors are being held constant. This technique is particularly useful for evaluating alternatives in the decision making process.
Marginal Analysis.
This is another tool in decision making used for estimating the profitability of an investment, calculating the payback period, and analyzing cash inflows and outflows. Investment
alternatives can be evaluated using a discounted peso analysis of cash inflows and outflows.
Financial Analysis.
This is another tool which enable a manager to see the effects of alternatives available based on price, fixed cost, and variable cost per unit. With this tool it is possible to determine what will be the break-even point for a company as a whole or any of its product. At break-even point, total revenue equals total cost and there is no profit.
Break-even Analysis.
It is an accounting tool used for the interpretation of accounting information. The basic financial ratios compare costs and revenue for a particular period. These ratios bring out a relationship between two financial aspects.
Ratio Analysis.
Some ratios are:
Current Assets = Current Assets/Current Liabilities
Debt to Equity = Total Debt/ Equity
Inventory Turnover = Sale/Inventory
Net Operating Margin = Net Operating Profit/ Sales
Return on Capital = Net profit after taxes/ Net Worth
Operations research involves the application of quantitative methods to decision making. OR has been defined by Miller and Starr as “ Applied Decision Theory”, in which the decision maker seeks scientific, logical or mathematical means. Observation, analysis, hypothesis formulation and experimentation are the methods generally used in ORT.
Operations Research Techniques.
Method under Operations Research Techniques.
- Queuing or Waiting-ling Method.
- Linear Programming.
- Game Theory.
- Simulation.
- Decision Tree.
This method used mathematical techniques for balancing waiting lines and services
provided. When there is irregular demand, waiting lines occur and manager must decide how to handle the situation. If people are waiting in queues are not going to be provided quick service, they may go elsewhere.
Queuing or Waiting-ling Method.
This technique is used in decisions involving the allocation of resource or limited resources to reach a particular objective such as, least cost, highest margin and so on. When these resources have several alternative uses. This methods is used for solving simple, complex and routine problems. In order to apply this method, the situation must involve two or more activities competing for limited resources and all relationships in the situation must be linear.
Linear Programming.
This involves selecting the best strategy, taking into consideration one’s actions and action of one’s competitors. Thus, it is a “conflict of interest” situation where one individual tries to win. McDonald contends that the strategic situation is the theory which lies in the instruction between two or more individuals, each of whose actions is based on an expectation concerning the actions of others over whom he has no control. When one individual wins, the
other losses. Minimizing the maximum loss and maximizing the minimum gain are two concepts used in this game.
Game Theory.
This technique involves the building of a model that represents a real or an existing system. These models are useful in evaluating and selecting the best one. The blueprint of a proposed
building is an example of simulation. In recent years, computers are being widely used in this techniques. Role playing or teaching concepts through case studies are some form of this techniques.
Simulation
This is an interesting technique used in analyzing a decision. Through a graphic illustration, the alternative solutions can be identified and probability estimates are assigned to these alternatives and pay-offs relating to alternatives can be determined.
Decision Tree.
