chapter 5 Planning and Decision Making McGraw-Hill/Irwin Principles of Management © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

chapter 5Planning and

Decision Making

McGraw-Hill/IrwinPrinciples of Management

© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

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Learning Objectives

1. Describe the different levels of planning in an organization.2. Explain the difference between strategic, tactical, operating,

and unit plans.3. Outline the value of simple-use plans, standing plans, and

contingency plans.4. Describe the main components of a typical strategic planning

system.5. Identify the main pitfalls that managers encounter when

engaged in formal planning processes, and describe what can be done to limit those pitfalls.

6. Discuss the major reasons for poor decisions, and describe what managers can do to make better decisions.

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Steps in Planning

• Choose goals

• Identify actions

• Allocate responsibility

• Review Performance

• Make adjustments

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Unit plans (heads of departments, teams, individuals

Levels of Planning

Operating plans (heads of functions)

Business-level strategic plan(heads of businesses)

Sha

ped

by in

put f

rom

Sets

the

cont

ext f

orCorporate-level

Strategic plan (CEO)

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Types of Plans

• Strategic plans: A plan that outlines the major goals of an organization and the organizationwide strategies of attaining those goals.

• Operating plans: Plans that specify goals, actions, and responsibility for individual functions.

• Tactical plans: The action managers adopt over the short to medium term to deal with a specific opportunity or threat that has emerged.

• Unit plans: Plans for departments within functions, work teams, or individuals.

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Types of Plans

• Single-use plans: Plans that address unique events that do not reoccur.

• Standing plans: Plans used to handle events that reoccur frequently.

• Contingency plans: Plans formulated to address specific possible future events that might have a significant impact on the organization.

• Crisis management planning: Plan formulated specifically to deal with possible future crises.

• Scenario planning: Plans that are based on “what if” scenarios about the future.

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Scenario Planning

Identify different

Possible futures

(scenarios)

Formulate plans to deal with those

futures

Invest in oneplan but …

Hedge your betsby preparing forother scenarios

and …

Switch strategy iftracking of signposts

shows alternativescenarios becoming

more likely

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Question

• Can scenario planning apply and be useful to you as a student? Explain. Develop three scenarios for your post-graduation future and possible plans to deal with them.

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Scenario Planning Traps

• Treating scenarios as forecasts• Failing to make scenarios global enough in scope• Failing to focus scenarios in areas of potential

impact• Treating scenarios as informational only• Not using an experience facilitator

Source:www.valuebasedmanagement.net

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The Strategic Planning Process

FeedbackMission, vision,values, and goals

SWOT analysisformulate strategies

Draft action plans

ImplementReview progress

against plan

Externalanalysis

(opportunities andthreats)

Internalanalysis

(strengths andweaknesses)

Assign subgoals,roles,

responsibilities,timelines,

and budgets

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Setting the Context: Mission, Vision, Values, and Goals

• Mission: The purpose of an organization.

• Vision: A desired future state.

• Values: The philosophical properties to which managers are committed.

• Goals: A desired future state that an organization attempts to utilize.

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Question

• In describing the purpose of the organization, _____ should be _______-oriented.

a. mission; customer

b. vision; product

c. values; product

d. goals; customer

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Mission Checklist

• Ends, not means• Effort• Verbs• Nouns embodying

activities• The Unidentifiable

• Brevity• Broad vs. narrow• Value added• Unique

Source: raise-funds.com

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Characteristics of Goals

• They are precise and measurable.

• They address important issues.

• They are challenging but realistic.

• They specify a time period in which they should be achieved.

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10 Ingredients for Successful Goals

• Specific• Simple• Significant• Strategic• Rational

• Measurable• Tangible• Written• Shared• Consistent with your

values

Source:www.topachievement.com

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The Benefits of Planning

• Planning gives direction and purpose to an organization; it is a mechanism for deciding the goals of the organization.

• Planning is the process by which management allocates scarce resources, including capital and people, to different activities.

• Planning drives operating budgets-strategic, operations, and unit plans determine financial budgets for the coming year.

• Planning assigns roles and responsibilities to individuals and units within the organization.

• Planning enables managers to better control the organization.

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Countering the Pitfalls of Planning

Pitfall

Too centralized;top-down

Failure to question

assumption

Failure toimplement

Failure toanticipate

rivals’ actions

Decentralizedplanning

Scenario planning;devil’s advocate

Link to goals;tie to budgets

Role-playing

Solution

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The Rational Decision-Making Model

Identify theproblem

Identifydecisioncriteria

Weightcriteria

Generatealternativecourses of

action

Choose onealternative

Implementalternative

Continue with course of action

Evaluate

outcome

Does not meetexpectations

Meetsexpectations

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Bounded Rationality and Satisficing

• Bounded rationality: Limits in human ability to formulate complex problems, to gather and process the information necessary for solving those problems, and thus to solve those problems in a rational way.

• Satisfice: Aiming for a satisfactory level of a particular performance variable rather than its theoretical maximum.

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Decision-Making Heuristics and Cognitive Biases

• Decision heuristics

• 80-20 rule

• Cognitive bias

• Prior hypothesis bias

• Framing bias

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80-20 Rule

Performing in your 20 percent if you’re: • Engaged in activities that advance your overall

purpose in life• Doing things you have always wanted to do not what

others want you to do • Hiring people to do the tasks you are not good at or

don't like doing. • Smiling.

Source: Family Practice Management, September 2000

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Improving Decision Making

• Devil’s advocacy: The generation of both a plan and a critical analysis of the plan by a devil’s advocate.

• Dialectic injury: The generation of a plan (a thesis) and a counterplan (an antithesis) that reflect plausible but conflicting courses of action.

• Outside view: Identifying a reference class of analogies past strategic initiatives, determining whether those initiatives succeeded or failed, and evaluating a project at hand against those prior initiatives.