Lesson 6: Planning and Decision Making

Chapter 4

Discuss the benefits and pitfalls of planning. Planning is choosing a goal and developing a method for achieving it.

Planning offers four important benefits: provides direction, intensifies effort, reduces uncertainty, and facilitates decision making. However, planning also has three potential pitfalls. Companies that are overly committed to their plans may be slow to adapt to environmental changes. Planning is based on assumptions about the future, and when those assumptions are wrong, plans can fail. Finally, planning can fail when planners are detached from the implementation of plans.

Describe how to make a plan that works.

There are five steps to making a plan that works: (1) Set S.M.A.R.T. goals—goals that are specific, measurable, attainable, realistic, and timely. (2) Develop commitment to the goals. Managers can increase workers' goal commitment by encouraging worker participation in goal setting, making goals public, and getting top management to show support for workers' goals. (3) Develop action plans for goal accomplishment. (4) Track progress toward goal achievement by setting both proximal and distal goals and by providing workers with regular performance feedback. (5) Maintain flexibility by keeping options open.

Discuss how companies can use plans at all management levels, from top to bottom.

Proper planning requires that the goals at the bottom and middle of the organization support the objectives at the top of the organization. The goals at the top will be longer range than those at the bottom, as shown in Exhibit 4.1. Top management develops strategic plans, which start with the creation of an organizational vision and mission. Middle managers use techniques such as management by objectives (MBO) to develop tactical plans that direct behaviour, efforts, and priorities. Finally, lower level managers develop operational plans that guide daily activities in producing or delivering an organization's products and services. There are three kinds of operational plans: single-use plans, standing plans (policies, procedures, and rules and regulations), and budgets.

Explain the steps and limits to rational decision making.

Rational decision making is a six-step process in which managers define problems, evaluate alternatives, and compute optimal solutions. Step 1 is identifying and defining the problem. Problems are gaps between desired and existing states. Managers won't begin the decision-making process unless they are aware of the gap, are motivated to reduce it, and possess the necessary resources to fix it. Step 2 is defining the decision criteria used to judge alternatives. In Step 3, an absolute or relative comparison process is used to rate the importance of the decision criteria. Step 4 involves generating many alternative courses of action (i.e., solutions). Potential solutions are assessed in Step 5 by systematically gathering information and evaluating each alternative against each criterion. In Step 6, criterion ratings and weights are used to compute the optimal value for each alternative course of action. Rational managers then choose the alternative with the highest optimal value. Once the optimal alternative is chosen, Step 7 is to implement the decision and, following that, Step 8 entails evaluating the effectiveness of the decision. The rational decision-making model describes how decisions should be made in an ideal world without limits. However, bounded rationality recognizes that managers' limited resources, incomplete and imperfect information, and limited decision-making capabilities restrict their decision-making processes in the real world.

Explain how group decisions and group decision-making techniques can improve decision making.

When groups view problems from multiple perspectives, use more information, have a diversity of knowledge and experience, and become committed to solutions they help choose, they can produce better solutions than individual decision makers. However, group decisions can suffer from these disadvantages: groupthink, slowness, discussions dominated by just a few individuals, and unfelt responsibility for decisions. Group decisions work best when group members encourage c-type (cognitive) conflict. Group decisions don't work as well when groups become mired in a-type (affective) conflict. The devil's advocacy and dialectical inquiry approaches improve group decisions because they bring structured c-type conflict into the decision-making process. By contrast, the nominal group technique and the Delphi technique both improve decision making by reducing a-type conflict. Because it overcomes the problems of production blocking and evaluation apprehension, electronic brainstorming is more effective than face-to-face brainstorming.

Planning

Choosing a goal and developing a strategy to achieve that goal

S.M.A.R.T. goals

Goals that are specific, measurable, attainable, realistic, and timely

Goal commitment

The determination to achieve a goal

Action plan

The specific steps (how), people (who), resources (what), and time period (when) for accomplishing a goal

Options-based planning

Maintaining flexibility by making small, simultaneous investments in many alternative plans

Slack resources

A cushion of extra resources that can be used with options-based planning to adapt to unanticipated change, problems, or opportunities

Strategic plans

Overall company plans that clarify how the company will serve customers and position itself against competitors over the next two to five years

Vision statement

A statement of a company’s purpose and the ultimate destination it hopes to reach, acting as a guide to individuals in an organization

Mission statement

A broad statement of an organization’s purpose that distinguishes the organization from others of a similar type

Tactical plans

Plans created and implemented by middle managers that specify how the company will use resources, budgets, and people over the next six months to two years to accomplish specific goals within its mission

Operational plans

Day-to-day plans, developed and implemented by lower-level managers, for producing or delivering the organization’s products and services over a 30-day to six-month period

Single-use plans

Plans that cover unique, one-time-only events

Standing plans

Plans used repeatedly to handle frequently recurring events

Policy

A standing plan that indicates the general course of action that should be taken in response to a particular event or situation

Procedure

A standing plan that indicates the specific steps that should be taken in response to a particular event

Rules and regulations

Standing plans that describe

Budgeting

quantitative planning through which managers decide how to allocate available money to best accomplish company goals

Decision making

the process of choosing a solution from available alternatives

Rational decision making

a systematic process of defining problems, evaluating alternatives, and choosing optimal solutions

Problem

a gap between a desired state and an existing state

Decision criteria

the standards used to guide judgments and decisions

Absolute comparisons

a process in which each criterion is compared to a standard or ranked on its own merits

Relative comparisons

a process in which each criterion is compared directly to every other

Maximizing

choosing the best alternative

Satisficing

choosing a “good enough” alternative

Groupthink

a barrier to good decision making caused by pressure within a group for members to agree with one another

C-type conflict (cognitive conflict)

disagreement that focuses on problem-and issue-related differences of opinion

A-type conflict (affective conflict)

disagreement that focuses on individual or personal issues

Devil’s advocacy

a decision-making method in which an individual or a subgroup is assigned the role of a critic

Nominal group technique

a decision-making method that begins and ends by having group members quietly write down and evaluate ideas to be shared with the group

Brainstorming

a decision-making method in which group members build on one another’s ideas to generate as many alternative solutions as possible

Electronic brainstorming

a decision-making method in which group members use computers to build on one another’s ideas and generate many alternative solutions