Introduction to Decision MakingPreamble to the Planning Process

Classical Decision Theory

The Rational-Economic Model Basic principles:

humans are rational we seek to optimize our

outcomes The classical model suggests that

decisions are made in a logical series of steps

Steps in Classical Decision Theory

1. Opportunity or problem of situation exists

2. Opportunity is recognized to exist3. Opportunity is defined4. Alternatives are generated5. Information is gathered6. Alternatives are evaluated7. One alternative is selected8. Alternative is implemented and

evaluated in terms of effectiveness

Problems with the Model

The assumptions are flawed humans are not perfectly rational information is not costless or complete

Assumes that all alternatives will be considered

Assumes that the consequences of each alternative will be explored

Assumes that we can cognitively cope with all this information

Behavioral or Administrative Model

Acknowledges the real-world limitations on manager’s decision making

Managers in this model operate with bounded rationality in making decisions

Recognizes that: All possible alternatives and their

associated consequences cannot be generated

Obstacles to Effective Decision-Making

Most common obstacles: Escalation of commitment Willingness of groups to take

risks

The Planning Process

Planning as a Crucial Management Function

planning attempts to define the organization’s future, and influence that future in ways that the managers wish

managers must cope with and adapt to change and uncertainty

What is Planning?

Centralized planning a system in which responsibility for

planning lies with the organization’s highest level, or top management

Decentralized planning a system in which responsibility for

planning lies with employees at certain levels of the organization and participation in the planning process is widespread

many companies have found that moving from centralized to decentralized planning can improve quality, productivity, and competitiveness governments have downsized and

undergone devolution

Planning, Managers, and Organizations

Planning is a prerequisite for the successful performance of the other managerial functions

Planning occurs in the present, but is oriented toward the future

Planning focuses on the means used to achieve an organization’s ends

Planning may be formal or informal

Planning...cont’d

Planning is an ongoing process Planning does not imply inflexibility Planning is an analytical process Planning involves scanning both internal

and external environment Planning helps an organization cope

with environmental change and uncertainty

Planning does not guarantee success

Managers and Planning

Typical manager’s day is characterized by different activities, frequent interruption, and a need to cope with unexpected problems that demand immediate solutions

Managers plan implicate, rather than explicitly

Planning is crucial for managerial success

Benefits of Planning

Coordination of Effort specify goals and objectives both for

the total organization and for each of its parts

Preparation for Change include contingency plans that permit

flexibility to adapt to unforeseen changes in the environment

Development of Performance Standards levels of behaviour or output that are

defined by plans standards and benchmarks for evaluating

performance definition of competencies for each job

Development of Managers managers must be prepared to act on

a variety of scenarios - “what if?” managers must be proactive - make

things happen, not wait for them to happen

managers must be constantly trained, motivated, and enthusiastic

Mission Goals Plans

Goal Achievement

efficiency and

effectiveness

TM 6-2

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Planning Hierarchy

Planning at Different Management Levels

Top Managers Develop

organizational objectives

Spend large amount of time on planning function

Focus on external, internal factors

Lower-Level Mangers Develop plans that fit

overall objectives Spend small amount

of time on planning function

Focus largely on internal organizational factors when planning

Benefits of Planning

Helps identify opportunities for the organization

Helps identify possible problems Forces managers to set objectives Forces managers to set standards Coordinates organizational activity

Problems in Planning

Lack of support from top management Poor information Resistance to change Over- or under commitment to plans Managers not involved in planning

process Managers are too busy to plan Lack of competence in planning

Planning and Organizational Performance

Companies with formal planning procedure do perform better than those without formal procedures

They typically find that they improve on their own past performance

Some unexpected short run events can lead to lowered performance

Planning Process

The Organization’s MissionPurpose Premises Values Directions

The Organization’s MissionPurpose Premises Values Directions

Strategic goalsStrategic goals

Tactical goalsTactical goals

Operational goalsOperational goals Operational plans

Tactical plans

Tactical plans

Strategic plans

Strategic plans

Operational plansOperational plans

The Environmental Context

The Planning Process

1.Set Organizational Objectives2.Determine Gap Between Actual and

Desired Position3.Develop Plans to Achieve Objectives4.Implement Plans5.Evaluate Planning Effectiveness

Set Organizational Objectives

Objectives: are the results that the organization wants to achieve

Objectives focus employee attention on tasks that are consistent with the organizations mission

Goal setting is used to focus employee activity on goals that are critical for success

Strategic goals, tactical goals, operational goals

Types of Goals Mission – a statement of an organization’s

fundamental purpose

Strategic goal – a goal set by & for top management of the organization

Tactical goal – a goal set by & for middle managers of the organization

Operational goal – a goal set by & for first-line managers of the organization

Problems in Goal Setting

Managers should be wary of the following: Different real and stated objectives

goals may be inconsistent with the goals it pursues

Conflicting objectives employees put in position of achieving

contradictory objectives Goal Distortion

managers get sidetracked, and emphasize the achievement of objectives that are at odds with the organizations mission

Barriers to Goal Setting

Inappropriate goals

Improper reward system

Complex environment

Resistance to change

Constraints

Understand purpose of goals

Planning communication & participation

Consistency, revision & updating

Effective reward systems

BarriersBarriers Overcoming the BarriersOvercoming the Barriers

StrategicGoals

OperationalGoals

TopManagement

Middle-levelManagement

First-levelManagement

Level Goals Are Set by Different Levels in an Organization

Types of Plans

Strategic plan – plans developed to achieve strategic goals

Tactical plan – plans developed to achieve tactical goals

Operational plan – plans developed to achieve operational goals

Develop Plans to Achieve Objectives

Strategic Plans Tactical Plans Operational Plans Single - Use - Plans Standing Plans Forecasting

quantitative forecasting qualitative forecasting

Contingency Planning

Strategic Planning

Comprehensive, long-range planning, focusing on broad, enduring issues to increase the organization’s effectiveness

Price Penetration Strategy the strategy of setting low prices to

create a mass market rapidly requires high volumes

Operational Planning

Short-term, focused, specific planning that provides direction for implementing the organization’s broad concepts in the strategic plan into clear objectives for operations

Tactical Planning

more specific and for a shorter period than strategic planning, but less specific and for a longer period than operational planning

Time Frames for Planning

1 year or less 1 – 5 years 6 to 20 years1 year or less 1 – 5 years 6 to 20 years

Short –Range plans

Intermediate

plans

Long–Range

plans

Operational Plans

Single-use planCarry out course of action , not repeated in future

Program Single use plan for larger set of activities

ProjectSingle use plan of less scope & complexity than that of a program

Standing PlanFor activities that recur regularly over a period of time

PolicyOrganization’s general response to a designated problem or situation

Standard Operating Procedure

Standing plan outlining steps to followed in particular circumstances

Rules & RegulationsStanding plan describing exactly how specific activities are to be carried out

Implement Plans

Introducing any change, including new plans, is likely to meet with resistance from employees

A plan is effective if it helps an organization reach it’s objectives

Evaluating the effectiveness of plans may be difficult

Final step in the planning process must be an assessment of the effectiveness of plans

1. Develop organizational goals & plans

2. Collaborative goal setting & planning

3. Communicating goals & plans

4. Periodic Review

5. Evaluation

Management by Objective

Management by Objectives

MBO is a system in which managers and subordinates set mutually agreed upon goals

MBO emphasizes the achievement of results

Encouraging employee participation in goal setting will improve employee motivation and performance

MBO Process

1.Set Strategic Objectives2.Set Departmental Objectives3.Set Individual Objectives4.Develop Action Plans5.Implement Plans and Review

Performance6.Take Corrective Action

MBO Process cont’d ..

Set Strategic Objectives-requires management to set the organization overall objectives

Set Departmental Objectives-each of the departments must set more specific goals that will help achieve the overall goals

Set Individual Objectives-managers and workers negotiate specific goals

MBO Process cont’d..

Develop Action Plans-detail the specific tasks that must be done in order to fulfill the objectives that have been set

Implement Plans and Review Performance-manager and subordinate meet to review the subordinate’s performance

Take Corrective Action-speaks for itself

Steps in the Planning Process

Purposes may be summarized in two questions:

What do we want the future to be?

What must we do now to increase the chance that this desired future will be achieved?

Step 1: Assessing the Organization’s Environments

internal strengths and weaknesses, external opportunities and threats SWOT analysis

change is the only constant attention to technological innovation increasingly global and competitive political climate

Step 2: Deciding on a Mission Statement and Establishing Goals and Objectives

A mission statement defines the organization’s purpose and intentions, its long-term vision, that distinguishes it from other organizations

must be customer focused must state aspirations and be achievable must serve as a source of motivation for

all levels must describe specific strategies

Step 3: Creating an Action Plan

Forecasting a prediction of future events, based

on experience, past and current, and expectations for the future

Communicate the plan clearly and precisely to those who are expected to take actions, and to others who may be affected by those actions

Step 4: Allocating Resources

Resources financial, physical, human, time, and

other assets of an organization that can be used to fulfil its missions, goals and objectives

Budget a document that both predicts future

resources and allocates resources for various purposes within the organization

Step 5: Implementing the Plan

Implementation putting a plan into action by assigning

people and other resources to it, and by acting to achieve its design

Authority decision making power that stems

from a formal position in the hierarchy, as contrasted with persuasive power that stems from the personal attributes of the person holding the position