Decision Making In Engineering Economics

1. DECISION MAKING
Presentation by:
Presented to:

2. INTRODUCTION
Decision: A choice between two or more then
two alternatives is called decision.
Decision making is the
act of choosing one alternative
from among a set of alternatives.
We have to first decide that a decision has to
be made and then secondly identify a set of
feasible alternatives before we select one.

3. CHARACTERISTICS OF DECISION MAKING
•It is a process of choosing a course of action from
among the alternative course of action.
•It is a human process involving to a great extent
the application of intellectual abilities.
•It is the end process preceded by deliberation &
reasoning.
•It is always related to the environment. A manager
may take one decision in a particular set of
circumstances & another in a different set of
circumstances.

4. CHARACTERISTICS OF DECISION MAKING
•It involves a time dimension & time lag.
•It always has a purpose. Keeping this in mind,
there may be a decision not to decide.
•It involves all actions like defining the problem &
probing & analysing the various alternatives which
take place before a final choice is made.

5. DECISION MAKING STEPS

6. DECISION MAKING STEPS
Identify the Problem:
When making a decision a person
first needs to identify and define the
problem or conflict.
Identify Decision Criteria:
When a problem identified, the decision criteria
important to resolving the problem must be
identified. That is, managers must determine what
is relevant in making decision.

7. DECISION MAKING STEPS
Allocation of Weights to criteria:
If the relevant criteria are not equally important, the
decision maker must weight the items in order to
give them the correct priority in the decision.
Development of Alternatives:
Here the decision maker requires to list viable
alternative that could resolve the problem. This is
the step where a decision maker needs to be
creative.

8. DECISION MAKING STEPS
Choose One alternative:
After making all the alternatives,
the next step in decision making is to evaluate
these alternatives. Evaluation is required in order
to select the best alternative for implementation.
Implementation of the Alternative:
After choosing best alternative decision is to action
by conveying it to those effected and getting their
commitment to it.

9. DECISION MAKING STEPS
Evaluation of Decision effectiveness:
The last step the decision making process involve
evaluating the outcome or result of the
decision to see if the problem is resolve.

10. 6 C’S OF DECISION MAKING
1. Construct.
2. Compile.
3. Collect.
4. Compare.
5. Consider.
6. Commit.

11. Construct a clear picture of precisely what
must be
decided.
Compile a list of requirements that must be
met.
Collect information on alternatives that meet the
requirements
Compare alternatives that meet your
requirements.
Consider the “WHAT MIGHT GO WRONG”
C’S OF DECISION MAKING

12. DECISION TYPES
Individual & Group Decision
Organizational & Personal Decision
Routine & Strategic Decision
Policy & Operating Decision
Programmed & Non-Programmed

13. Individual: When a decision is taken by an
individual in the organization, it is known as
individual decision.
• Such decision are generally taken in small
organization.
Group : It refers to the decision which are
taken by a group of organizational members,
say Board of Directors or a committee.
DECISION TYPES – INDIVIDUAL & GROUP

14. Organizational: these are those which a
manager takes in his official capacity.
• Such decision can be a task to another
person.
Personal: These are related to the manager
as an individual & not as a member of the
organization, cannot be a task to another
person.
DECISION TYPES – ORGANIZATIONAL &
PERSONAL

15. Routine: These are made repetitively
following certain established rules,
procedures & policies.
•They neither require collection of new data
nor conferring with peoples.
Strategic: Decisions that are concerned with
whole environment in which the firm
operates, the entire resources and the people
who form the company and the interface
between the two.
DECISION TYPES – ROUTINE & STRATEGIC

16. Policy : Decisions that define the basic principles of
the organization and determine how it will develop
and function in the future.
Example : Vision, Mission, Aim, Budget and
Finance Practices, Allocation of Resources
Operating : Decisions that involve determining and
planning short-term objectives and goals
concerning routine tasks.
Examples : Budgeting for the number of employees,
determining the company's cash needs, scheduling
personnel or equipment.
DECISION TYPES – POLICY & OPERATING

17. Programmed : Decisions that are simple and
routine and have a pre established decision
making plan.
•These are made for solving routine &
repetitive
problems.
•These involve less use of judgment.
DECISION TYPES – PROGRAMMED & NON-
PROGRAMMED

18. DECISION TYPES – PROGRAMMED & NON-
PROGRAMMED
Non-Programmed : Decisions that are new
and complicated and require thought and
creativity.
•Decision are made by using experience,
creativity & innovativeness.
•These involve more use of experience &
judgment.

19. ASSETS OF GROUP DECISION MAKING
Assets +
• Group can accumulate more knowledge and
facts.
• Groups have a broader perspective and
consider more alternatives.
•Individuals who participate in group decision are
more satisfied with the decision and are more
likely to support it.
•Group decision processes serve an important
communication function as well as a useful

20. LIABILITIES OF GROUP DECISION MAKING
Liabilities –
• Groups often work more slowly than individuals.
• Group decision involve considerable compromise
that may lead to less than optimal decision.
• Groups are often dominated by one individual or
a small clique, thereby negating many of the
virtues of group processes.
• Overreliance on group decision making can
inhibit management’s ability to act quickly and
decisively when necessary.

21. MODERN APPROACH TO PROBLEM SOLUTION
Brainstorming
• Generate as many ideas as possible.
• Hold off on decision until idea generation is
over.
• Quantity over quality.
• Build upon others’ ideas.
• Maximum number of ideas in short period of time.
• Once all the ideas are on the table, the best
possible solution under the circumstances should

22. MODERN APPROACH TO PROBLEM SOLUTION
Nominal Group Technique (Refined
Brainstorming)
• No one knows who suggested idea or what one
they prefer.
The NGT consist of 4 phases
 Individual Members meet in group & sits silently
& generate their ideas.
 No discussion of the idea is allowed at this time
The ideas are summarized & recorded
The final outcome is determined by pooled
outcome of the members vote on the issue.

23. MODERN APPROACH TO PROBLEM SOLUTION
Delphi Technique
• Gather judgments of experts for use in decision
making
• Experts give alternatives
• Alternatives summarized and returned back to
experts for voting
• Experts choose “best” alternative
• This technique never allows decision participant to
meet face to face.

24. MODERN APPROACH TO PROBLEM SOLUTION
Globalization
• It is a tendency to integrate activities on a co-
ordinated world wide basis.
• Firms are pushed in the direction of globalization.
• The benefits gained from volume efficiencies or
economies of scale.
• the minimally efficient production scale is beyond
that could be supported in a single market.

25. FACTORS EFFECTING DECISION MAKING
Inadequate information
Time & cost
Perception of decision maker
Experience of decision maker
Decision maker’s personality
Values of decision maker
Capacity of decision maker

26. Inadequate information
Decision maker have inadequate information
about the problem, possible alternatives & their
strengths & limitations.
Time & Cost
This are the limiting constraints throughout the
decision making process.
Perception of Decision maker
Decision maker’s perception in identifying the
problem, selecting alternatives may ignore the
actual critical problem.
FACTORS EFFECTING DECISION MAKING

27. Experience of decision maker
If decision are to be taken with less information
than extensive experience with situation becomes
the key input.
Decision Maker’s Personality
The perfectionist decision maker may postpone
taking decision, preferring to seek the ideal
alternative.
The impulsive decision maker might hurry through
the decision process thinking that just to finish it at
the earliest.
FACTORS EFFECTING DECISION MAKING

28. Values of Decision Maker
A decision maker must not reflect his own personal
values rather than company’s need or the personal
values must not influence both the goals & the
result of the decision process.
Capacity Of Decision Maker
Even after gathering perfect information, it is the
intelligence & calculating capacity of the manager
which limits the success of any plan & decision.
FACTORS EFFECTING DECISION MAKING

29. CONCLUSION
All decision-making involves elements of risk and reward.
For every decision there are risks. Many organisations are
structured so that major decisions are taken at the highest
levels. This is because decisions at the top can have major
effects for the whole organisation.
The engineers of today and tomorrow are people who
make important and sometimes vital decisions. They have
to be problem-solvers who enjoy working with people in
teams and with real problems related to materials,
processes and equipment. The excitement of a career in
engineering comes from knowing that you will develop
solutions to problems which haven't yet been thought of.

30. BIBLIOGRAPHY
Reference Links :
http://www.managementstudyguide.com
http://simplestudies.com
http://businesscasestudies.co.uk
Reference Books :
Technical Publication : V.S Bagad
Sun India Publication : T.N Chhabra

32. Any Queries???