BSE Bachelor of Science in Engineering Management: Strategic Decision Making 2 — Questions and Answers
Question 1: Which decision-making framework explicitly separates the problem identification phase from the solution generation phase to reduce cognitive bias?
- Satisficing model
- Rational decision model
- Kepner-Tregoe method (Correct answer)
- Bounded rationality model
Correct answer: Kepner-Tregoe method
The Kepner-Tregoe method structures decision making into distinct phases—situation appraisal, problem analysis, decision analysis, and potential problem analysis—keeping problem definition separate from solution generation.
Question 2: An engineering manager must choose between two capital projects with identical NPVs. Project A has a payback period of 2 years; Project B has a payback period of 5 years. Under uncertainty, which project is generally preferred and why?
- Project B, because longer projects yield more cumulative returns
- Project A, because shorter payback periods reduce exposure to uncertainty (Correct answer)
- Project B, because NPV always dominates payback period as a criterion
- Project A, because payback period is the most accurate financial metric
Correct answer: Project A, because shorter payback periods reduce exposure to uncertainty
When NPVs are equal, a shorter payback period reduces the firm's exposure to future uncertainty and risk, making Project A preferable under uncertain conditions.
Question 3: In game theory applied to strategic engineering management decisions, a Nash Equilibrium represents a state where:
- All players achieve their maximum possible payoff simultaneously
- No player can improve their outcome by unilaterally changing their strategy (Correct answer)
- The dominant strategy is chosen by all players regardless of competitors
- Cooperative agreements produce the highest collective outcome
Correct answer: No player can improve their outcome by unilaterally changing their strategy
A Nash Equilibrium occurs when each player's strategy is the best response to the strategies of all other players, so no single player benefits by deviating alone.
Question 4: When applying the Analytic Hierarchy Process (AHP) to a vendor selection decision, the consistency ratio (CR) should be:
- Greater than 0.10 to indicate adequate variation
- Less than or equal to 0.10 to confirm judgment consistency (Correct answer)
- Exactly 1.00 to indicate perfect consistency
- Between 0.50 and 0.75 for engineering decisions
Correct answer: Less than or equal to 0.10 to confirm judgment consistency
AHP requires a CR ≤ 0.10 (10%) to confirm that pairwise comparisons are sufficiently consistent; higher values indicate the judgments should be revisited.
Question 5: A company uses a decision tree and calculates the Expected Monetary Value (EMV) of launching a new product as $250,000 and not launching as $80,000. What is the Expected Value of Perfect Information (EVPI)?
- $170,000
- $330,000
- $80,000
- Cannot be determined without probabilities (Correct answer)
Correct answer: Cannot be determined without probabilities
EVPI requires knowing the EMV under certainty (best outcome for each state of nature weighted by probabilities), which cannot be calculated from EMV alone without the underlying probability and payoff data.
Question 6: The concept of 'bounded rationality' in engineering management decision making suggests that managers:
- Always select the mathematically optimal solution given sufficient data
- Seek a satisfactory rather than optimal solution due to cognitive and information limits (Correct answer)
- Rely exclusively on quantitative models to eliminate subjectivity
- Expand decision criteria boundaries until an optimal choice emerges
Correct answer: Seek a satisfactory rather than optimal solution due to cognitive and information limits
Herbert Simon's bounded rationality concept holds that decision makers 'satisfice'—choosing an option that is good enough—because cognitive limitations and incomplete information prevent true optimization.
Question 7: In multi-criteria decision analysis (MCDA), which weighting method requires decision makers to directly assign numerical weights that sum to 1.0 across all criteria?
- TOPSIS
- Direct rating method (Correct answer)
- ELECTRE
- AHP pairwise comparison
Correct answer: Direct rating method
The direct rating method asks decision makers to assign explicit numerical weights (summing to 1.0) directly to each criterion, without the comparative structure used in AHP.
BSE Bachelor of Science in Engineering Management: Strategic Decision Making 2
Which decision-making framework explicitly separates the problem identification phase from the solution generation phase to reduce cognitive bias?