Decision Making

&
Ethics ET-377
Engineering Economics
Spring 2011
 Distinguish between simple and complex
problems
 Understand the role and purpose of
engineering economic analysis
 Apply problem-solving / decision making
process
 Understand ethical dimension of decision-
making
 Solve simple problems associated with
engineering decision-making process
 This course will help develop the tools
needed to properly analyze and solve the
economic problems that are commonly
faced by engineers.
 Simple Problems
 Should I buy “prepaid oil” or pay every time?
 Should our company pay the vendor cash or credit?
 Intermediate Problems
 Should I buy or lease my next car?
 Which SCR machine should the company purchase?
 Complex Problems
 Feasibility study of a new lube oil purification system.
 Planning for shipyard/outage.
 A systematic tool for comparing alternatives
by their economic merits. Most suitable for
problems of significance that require
organized analysis of the economic aspects.

 Could apply to Product, Process, Design,

Purchase, Expansion Projects, Investment,
and many other decision-making
processes.
 1. Recognize Problem / Opportunity
Overall Mission /
Objectives
2. Define Goals/Objectives

3. Assemble Relevant Data 5. Select the Criterion

4. Identify Feasible Alts 6. Construct a Model

7. Predict Alts’ Outcomes

9. Audit the Results 8. Choose the Best Alt.

 Identify Needs for New or Improved
Products, Processes, or Facilities
 General or specific goals
 Multiple goals
 Conflicting goals
 Systems perspective
 Limiting factors
 SWOT (Strengths, Weaknesses,
Opportunities, and Threats) Analysis
 Investment/Financing
 Importance of Data Collection
 Relevance of Information
 Prioritization
 Dollar Amount and Time Horizon
 Sources of Information
◦ Financial Accounting System
◦ Cost Accounting Records
◦ Market Research
◦ Quotations
◦ Economic Indicators
◦ Other Published Information
 Vast amount of information
 What is “relevant”?
 How to categorize it?
 From who’s viewpoint?
◦ From the Logyard Forman
 Alt. 1 $1250/4 wire rope slings made in house in 2 days
vs.
 Alt. 2 $750/ Outside Vendor in 4 weeks
◦ From General Manager
 $1250 vs $750
 Operational changes
 Maintenance changes
 Resource changes
 Include as many as possible alternatives:
◦ Do-nothing option
◦ Simple solutions
 Change slings – planned obsolescence
 Change sling material
 Retrain operators
 Bounded rationality – Number of
alternatives should be keep reasonable so
that each can be thoroughly explored
 Multiple criteria
 Conflicting criteria
 Integrating criteria
 Most common criterion – Maximize
profit/Minimize downtime
Category Economic Criterion
Fixed input Maximize the benefits or other outputs
Fixed output Minimize the costs or other inputs
Neither input Maximize the profits (Value of outputs
nor output fixed – cost of inputs)
 Real systems and models
 A model describes the interrelationships
among the relevant data and predicts the
outcomes of various alternatives.
 Comparable outcomes
◦ Single criterion
 Risk and uncertainty
 Search for more information (loop)
 Modification of alternatives (loop)
 Selection criterion
 Other intangible considerations
◦ Effect on stakeholders
 Reality vs. prediction
 Learn from mistakes
 Replacement analysis
 The concept of distinguishing between right
and wrong in decision-making.
 Ethics includes:
◦ Establishing systems of beliefs and moral
obligations
◦ Defining values and fairness
◦ Determining duty and guidelines for conduct
Engineers, in the fulfillment of their professional duties,
shall:
1. Hold paramount the safety, health, and welfare of
the public.
2. Perform services only in areas of their competence.
3. Issue public statements only in an objective and
truthful manner.
4. Act for each employer or client as faithful agents or
trustees.
5. Avoid deceptive acts.
6. Conduct themselves honorably, responsibly,
ethically, and lawfully so as to enhance the honor,
reputation, and usefulness of the profession.
(http://www.nspe.org/ethics/eh1-code.asp)
Decision Process Step Example Ethical Lapses
1. Recognize the problem • “Looking the other way”, or not to
recognize the problem due to bribes or
fear of retribution
2. Define goals/objectives • Favoring one group of stakeholders by
focusing on their objective
3. Assemble relevant data • Using faulty or inaccurate data

4. Identify feasible alts. • Leaving legitimate alts out of

consideration
5. Select criterion to • Considering only monetary consequences
determine best alt when other significant consequences exist
Decision Process Step Example Ethical Lapses
6. Construct a model • Using a short horizon that favors one alt
over another
7. Predict alts’ outcomes • Using optimistic estimates for one alt and
pessimistic ones for the other alts
8. Choose the best alt • Choosing an inferior alt, one that is
unsafe, adds unnecessary cost for user,
harms the environment
9. Audit the result • Hiding past mistakes
 How well and how honestly the decision-
making process is conducted – the data,
method of analysis, recommendations, and
follow-up
 Recognize ethical issues exist and make them
an explicit part of decision-making process
 Gaining knowledge & building trust vs. favors
for influence
 Cost, quality, & functionality tradeoffs
 Environmental concerns
 Safety & cost
 Firm’s priorities & globalization
 If results of the decision occur in a very short
period of time, costs and benefits can be
added up quickly.
 Was the evaluation process comprehensive?
 1982
 Assembly of 1800 ft. TV communications
tower – Missouri City, Texas
 Antenna Engineering Inc designed and
manufactured the antenna
◦ Moderate sized firm that had similar previous
contracts
 Riggers Inc was contracted to erect antenna
◦ Small sized local firm that had a lot of experience
assembling similar towers
 Antenna subassemblies arrived preassembled
on site via tractor trailer
 Riggers lifted from trailers, uprighted and
raised subassemblies into place using a
“vertical climbing” crane
 Tower assemblies were three legged design,
8 inch solid steel legs, 40 feet long, 10000
lbs.
 Antenna construction without incident to
above 1000 foot mark.
 Two final sections arrived on site
 Different than the rest of the sections
because of the pre-installation of the
microwave “baskets”
 Sub-assemblies could be lifted horizontally
but during uprighting, the cabling fouled on
the baskets
 Antenna Engineering had previously
submitted the subassemblies “lifting lugs”
plan to Riggers Inc for approval & signoff
which was received
 SHOW VIDEO
 Figure 1
 Riggers Inc – onsite
“engineering”
analysis of
improvised lifting
lug arrangement
 Figure 2
 Riggers Inc – onsite
“engineering” analysis
of improvised lifting
lug arrangement
 Did not include affect
of “moment arm” of
improvised lifting lug
and the shear
imposed on the
attachments
 U-Bolts
 U-Bolts – Shear stress analysis of bolt
material was half of specification
 Bolt manufacturer sued – settled out of court
 Antenna Engineering suffered no monetary
losses
 Ethics?
 Morals?
 Social Responsibility?
 Legal Responsibility?