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Chapter 4

Decision Making . Chapter 4. Is a responsibility of the manager. May be defined as the process of defining the problem and identifying and choosing alternative courses of action in a manner appropriate to the demands of the situation.

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Chapter 4

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  1. Decision Making Chapter 4

  2. Is a responsibility of the manager. • May be defined as the process of defining the problem and identifying and choosing alternative courses of action in a manner appropriate to the demands of the situation. • Decisions are made at various management levels (i.e., top, middle, and lower levels) and at various management functions. Since this is so, decision-making is regarded as “the heart” of all management functions. Decision Making

  3. Diagnosing the problem Analyzing the environment Articulating the problem or opportunity Developing viable alternatives Evaluating the alternatives Making a choice Implementing the decision Evaluating and adapting the decision results The Decision-Making Process

  4. Diagnosing the problem – if the manager wants to make an intelligent decision, his first move must be to identify the problem. If the manager fails in this aspect, his next moves will be useless. The Decision-Making Process

  5. 2. Analyzing the environment The objective of the environmental analysis is the identification of constraints, which may be spelled out as either internal or external limitations. Examples are: Internal: limited funds available , limited training, ill designed facilities External: products patents, limited market, The Decision-Making Process

  6. 3. Articulating the problem or opportunity A problem is really an opportunity to improve one’s standing. If one wants to benefit from solving a problem or exploiting an opportunity, a solution that will effectively address the situation is required. A good solution must be chosen from among several alternatives. The Decision-Making Process

  7. 4. Developing viable alternatives 1. prepare a list of alternatives solutions; 2. determine the viability of each solution; 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 a new agreement between the firm and one of its clients. The Decision-Making Process

  8. Improve capacity of the firm by hiring more workers and building additional facilities; Secure the services of subcontractors; Buy the needed additional output from another firm; Stop serving some of the company’s customers Delay serving some clients. The list of solutions prepared by the manager shows the ff. alternative courses of action:

  9. 5. Evaluating the alternatives Proper evaluation makes choosing the right solution less difficult. How the alternatives will be evaluated will depend on the nature of the problem, the objective of the firm, and the nature of the alternatives presented. Each alternative must be analyzed and evaluated in terms of value, cost, and risk characteristics. The Decision-Making Process

  10. 6. Making 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. The Decision-Making Process

  11. 7. Implementing the decision • 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. Those who will be involved in the implementation must understand and accept the solution. The Decision-Making Process

  12. 8. Evaluating and adapting the decision results 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. The Decision-Making Process

  13. Qualitative evaluation Quantitative evaluation Approaches in Solving Problems

  14. Qualitative evaluation – refers to evaluation of alternatives using intuition and subjective judgment. This is used when: - the problem is fairly simple - the problem is familiar - the costs involved are not great. - immediate decisions are needed Approaches in Solving Problems

  15. 2. Quantitative evaluation – refers to the evaluation of alternatives using any technique in a group classified as rational and analytical. Techniques which may be useful 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 Approaches in Solving Problems

  16. Economic order quantity model – 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 out the items in inventory. Production order quantity model – an economic order quantity technique applied to production orders. Back order inventory model – in this model, it is assumed that stocks outs( and backordering) are allowed. Quantity discount model - used to minimize the total cost when quantity discounts are offered by suppliers. Inventory models

  17. One that describes how to determine the number of service units that will minimize both customer waiting time and cost of service. • This theory is applicable to companies where waiting lines are a common situation. Queuing theory

  18. These are models where large complex tasks are broken into smaller segments that can be managed independently. The two most prominent network models are: Program evaluation review technique (PERT)- Critical Path method (CPM) Network Models

  19. Forecasting - Pertains to collecting past and current information to make predictions about the future. Simulation is a model constructed to represent reality, on which conclusions about real-life problems can be based. Forecasting and Simulation

  20. (forecasting method) 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 involve, it is called multiple regression. Regression Analysis

  21. Linear programming is a quantitative technique that is used to produce an optimum solution within the bounds imposed by constraints upon the decision. Sampling theory is a quantitative technique where sample of populations are statistically determined to be used for a number of processes, such as quality control and marketing research. Linear programming & Sampling theory

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