It refers to organizational activities within a firm that surrounds decision-making.

Chapter 2 DECISION –MAKING

Components of Environment

WHAT IS DECISION-MAKING?  The process of identifying and choosing alternative courses of action in a manner appropriate to the demands of the situation.  According to Nickels et al, “it is the heart of all the management functions”.

The internal environment refers to organizational activities within the firm that surrounds decision-making.

DECISION-MAKING PROCESS 1. Diagnose problem 2. Analyze environment 3. Articulate problem or opportunity 4. Develop viable alternatives 5. Evaluate alternatives 6. Make a choice 7. Implement decision 8. Evaluate and adapt decision results Diagnose Problem  To make an intelligent decision, the manager’s first move must be identify the problem.  An expert said “identification of the problem is tantamount to having the problem solved.” What is a Problem?  A problem exists when there is a difference between actual situation and a desired situation. Analyze Environment  The objective of environmental analysis is the identification of constraints, which may be spelled out as either internal or external limitation. Internal Limitations 1. Limited fund available for the purchase of equipment. 2. Limited training on the part of employees. 3. Ill-designed facilities. External limitations 1. Patents are controlled by other organizations. 2. A very limited market for the company’s products and services exists. 3. Strict enforcement of local zoning regulations.

The external environment refers to variables that are outside the organization and not typically within the short-run control of top management.  Organizational Aspects  Marketing Aspects  Personnel Aspects  Production Aspects  Financial Aspects Develop Viable Alternatives 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. Evaluate Alternatives  This is important because the next step involves making a choice. Proper evaluation makes choosing the right solution less difficult.  The alternatives will be evaluated depending on the nature of problem, objectives of the firm, and the nature of alternatives presented. Make a Choice  Choice-making refers to the process of selecting among alternatives representing potential solutions to a problem.  Webber advises that particular effort should be made to identify all significant consequences of each choice. Implementing Decision  Implementation refers to carrying out the decision so that the objectives sought will be achieved.  At this stage, the resources must be made available so that decision may be properly implemented.  According to Aldag and Stearns, those who will be involved must understand and accept the solution. Evaluate and Adapt Decision Results  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.

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Controls refers to actions made to ensure that activities performed match the desired activities or goals, that have been set.

APPROACHES IN SOLVING PROBLEMS 1. Qualitative Evaluation 2. Quantitative Evaluation Qualitative Evaluation - evaluation of alternatives using intuition and subjective judgment. 1. The problem is fairly simple. 2. The problem is familiar. 3. The costs involved are not great. 4. Immediate decisions are needed. Quantitative Evaluation -evaluation of alternatives using any technique in a group classified as rational and analytical 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 A. Economic order quantity model B. Production order quantity model C. Back order inventory model D. Quantity discount model 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 Production Order Quantity Model  This is an economic order quantity technique applied to production orders.

Back Order Inventory Model  This is an inventory model used for planned shortages.

Quantity Discount Model  An inventory model used to minimize the total cost when quantity discounts are offered by suppliers. Queuing Theory  Is the one that describes how to determine the number of service units that will minimize both customer waiting time and cost of service. Network Model  The Program Evaluation Review Technique (PERT)  The Critical Path Method (CPM)  Program Evaluation Review Technique  A techniques which enables engineer managers to schedule, monitor, and control large and complex projects by employing three time estimates for each activity. Critical Path Method  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. Forecasting  The collection of past and current information to make predictions about the future. Regression Analysis  forecasting method that examines the association between two or more variables. It uses data from previous periods to predict future events. Simulation  model constructed to represent reality, on which conclusions about real-life problems can be used. Linear Programming  It is a quantitative technique that is used to produce an optimum solution within the bounds imposed by constraints upon the decision. Sampling Theory  It is a quantitative technique where samples of populations are statistically determined to be used for a number of processes, such as quality control and marketing research. Statistical Decision Theory  Decision theory refers to the “rational way to conceptualize analyze, and solve problems in situations involving limited, or partial information about the decision environment”

What refers to organizational activities within a firm that surrounds decision

What is decision

What refers to the evaluation of alternatives using any technique in a group classified as rational and analytical?

What is the process of defining the problem and identifying and choosing alternative courses of action in manner appropriate to the demands of the situation?