Decision Making in Operations Management

Rogelio G. Balo Ph.D.

Introduction                                 

An essential part of our lives is making decisions. We make decisions on a daily occurrence; from the food we choose to eat, the dress that we buy, the friends that we keep and many other daily activities that we do. In many of these cases, decision making is something that we do without much thought, without hesitation, without concern. However, in important issues we tend to think twice assessing the situation giving us moments of hesitation, doubts and fears on the outcome of a bad decision. Choosing a career, life partner and business ventures are classic example of crucial concerns that necessitate careful study and assessment before making decisions. Matters that will significantly affect our lives and our families are subjects that are included in this type. 

Every decision that we make is basically our own choice although most decisions are forced upon us every day by uncontrollable circumstances surrounding the issues. Oftentimes, good and bad decisions shaped one’s success or failure in a lifetime. While a right decision concludes a subject of concern, it would take another or several decisions to rectify an initial wrong decision. Unfortunately, there are wrong decisions on vital matters that are irrevocable and the damages as a result are irreversible causing torturous times for the decision maker and others who are affected by a bad decision. A family man who decides to indulge in big time gambling and loses his fortune will not only realize his dismal failure as a person but most importantly his culpability as a husband and father as a result of a bad decision.

Decision Making in Management

In both individuals and organizations, decisions are made by taking into account all conditions in an environment that can be certain, risky and uncertain.  If one is confronted with a certain environment then decision making is easy and simple, however under risk and uncertain environments decision making is always tough and cumbersome. The impact of the decision may be significant. Each situation has its own set of uncertainties and consequences. In terms of interpersonal issues, it can be difficult to predict how other people will react. With these difficulties in mind, the best way to make a complex decision is to use an effective process.

A logical and systematic decision-making process helps you address the critical elements that result in a good decision. By taking an organized approach, you're less likely to miss important factors, and you can build on the approach to make your decisions better and better. Basically, there are steps to making an effective decision such as creating a constructive environment of certainty, generating good alternatives, surveying these alternatives and opting for the best alternative. It is also imperative that you check and communicate your decision before you take action.

In decision making there is usually some degree of certainty which inevitably leads to risk. Under the risk environment, it helps to look at threats objectively. It is highly practical to use a structured approach for assessing threats, and for evaluating the probability of events to occur. Another way to look at options is to consider the potential consequences of each alternative.  At this point, you should apply validation by determining if resources are adequate, if the solution matches your objectives and whether the decision is likely to work for a long term.

In both public and private organizations, the success and effectiveness of managers are best measured by their competence and skills in making decisions.

In production and operations management, a decision theory represents a strategic approach to decision making in a wide range of functions including capacity planning, location planning, product service and design and equipment selection. A decision theory should provide the major elements usually composed of the probable future conditions that will have a bearing on the results of the decision, a list of alternatives from which the manager can choose from, and the known pay-off under each alternative under each possible future conditions.  

At the present time, successful organizations apply statistical and mathematical models to decision-making. For example, managers can use the decision theory system to reach a verdict by collecting the necessary data from within the company, applying statistical and mathematical models against that data and then using the results to decide their choice.

When presented with a choice, the manager first assigns an outcome to each possible decision until he takes into account all possible combinations, constraints and limitations. The manager then applies statistical and mathematical equations to the problem. The result of this number crunching will be a list of decision options with assigned probabilities of success.

This concentration is intended for scholars interested in academic or decision-making careers requiring advanced knowledge of complex tools in management sciences and is appropriate for students whose academic interests are related to both quantitative and qualitative studies in management.

Courses are oriented for future managers or engineers willing to develop modeling abilities and expertise in the use of decision support tools, as well as researchers in the field of quantitative methods for management.

 In both public and private organizations, the success and effectiveness of managers are best measured by their competence and skills in making decisions. In production and operations management, a decision theory represents a strategic approach to decision making in a wide range of functions including capacity planning, location planning, product’s service and design and equipment selection, among many others.  A decision theory provides the major elements usually composed of the probable future conditions that will have a bearing on the results of the decision, a list of alternatives from which the manager can choose from, and the known pay-off under each alternative under each possible future conditions.

 In decision making, managers are fully aware that there is usually some degree of certainty which inevitably leads to risk. Under the “risk environment”, it helps to look at threats objectively. It is highly practical to use a structured approach for assessing threats and for evaluating the probability of events to occur. Most effective executives utilize environmental scanning in determining the internal and external environments of their businesses The SWOT Analysis (Strengths, Weaknesses, Opportunities and Threats) is a highly popular method in business environmental scanning that was proven successful in project management including political campaigns.  

The very reason why big corporations allocate a sizeable amount of budget for Research and Development is to transform the business environment of uncertainty and risk into a condition of certainty, whether it is for research for new products and services or maintain its lead in a highly competitive field.

Another way to look at options is to consider the potential consequences of each alternative.  At this point, you should apply validation by determining if resources are adequate, if the solution matches your objectives and whether the decision is likely to work for a long term.

Successful operations managers apply statistical and mathematical models to decision-making. For example, managers can use the decision theory system to reach a verdict by collecting the necessary data from within the company, applying statistical and mathematical models against that data and then using the results to inform their decision.

When presented with a choice, the manager first assigns an outcome to each possible decision until he takes into account all possible combinations, constraints and limitations. The manager then applies statistical and mathematical equations to the problem. The result of this number crunching will be a list of decision options with assigned probabilities of success.

Conclusion

Nowadays it becomes imperative for effective managers equipped with good decision-making skills to possess an advanced knowledge of the complex tools in management sciences related to both quantitative and qualitative studies in management.

Among others, mathematical theories and models such as Forecasting, Pareto Analysis, Decision Tree, Transportation Model, Benchmarking and Simulation Cost-Benefit Analysis have been used by seasoned managers and executives in decision- making.

All quantitative theories and models are comprehensively discussed and applied in sample cases in Operations and Production Management and Quantitative Analysis for Management Decision in the Graduate Schools in the Philippines and elsewhere.