Decision Making and Planning Processes

Decision-Making Conditions

• Certainty: A situation in which a manager can make an accurate decision because the outcome of every alternative choice is known.

• Risk: A situation in which the manager can estimate the likelihood (probability) of outcomes that result from the choice of particular alternatives.

• Uncertainty: Limited information prevents estimation of outcome probabilities for alternatives associated with the problem, forcing managers to rely on intuition, hunches, and "gut feelings".

Decision Making

• Definition: Making a choice from two or more alternatives.

The Decision-Making Process

1. Identify a problem and decision criteria, and allocate weights to the criteria.

2. Develop, analyze, and select an alternative solution.

3. Implement the selected alternative.

4. Evaluate the decision’s effectiveness.

Steps in Decision-Making

• Step #1: Identify & define the problem.

  • Gather information and decide what should be accomplished.

  • Common mistakes include:

  • Defining problems too broadly or narrowly.

  • Focusing on symptoms instead of causes.

  • Choosing the wrong problem to deal with.

• Step #2: Generate & evaluate alternative solutions.

• Step #3: Decide on a preferred course of action.

• Step #4: Implement the decision.

• Step #5: Evaluate the results.

Identifying & Defining the Problem

• Gather information & decide what should be accomplished.

Cognitive Styles in Decision Making

Information Evaluation

• Thinking and Feeling

• Information Processing: Sensing & Intuition.

  • #1: Thinking & Sensing (Sensation Thinkers, STs) – like facts, goals.

  • #2: Thinking & Intuition (Intuitive Thinkers, ITs) – idealistic, theoretical.

  • #3: Feeling & Sensing (Sensation Feelers, SFs) – like facts, feelings.

  • #4: Feeling & Intuition (Intuitive Feelers, IFs) – thoughtful, flexible.

Problem-Solving Roles

• #1: The Analyst - gathers concrete facts, evaluates through logic.

• #2: The Strategist - gathers patterns, predicts future possibilities.

• #3: The Operator - analyzes facts, considers people and relationships.

• #4: The Visionary - evaluates through values and human meaning.

Approaches to Problem Solving

• Systematic Thinking: Approaching problems in a rational and analytical manner.

• Intuitive Thinking: Approaching problems in a flexible & spontaneous way.

Identifying Decision Criteria, Generating, and Evaluating Alternatives

• Identifying Decision Criteria:

  • Costs incurred (investments required).

  • Risks likely to be encountered (chance of failure).

  • Desired outcomes (growth of the firm).

• Assign Weights to These Criteria: Not all factors are equally important.

• Develop Alternatives: Compare different plans based on these criteria.

• Analyze the Alternatives:

  • Assign scores based on how well each plan meets the criteria.

  • Analyze trade-offs, consider costs, risks, feasibility, ethics.

Problem-Solving Approaches

• Problem Avoiders: Prefer not to make decisions and ignore problems.

• Problem Solvers: React to problems as they occur.

• Problem Seekers: Anticipate threats & opportunities proactively.

Generating & Evaluating Alternatives

• Identify possible courses of action.

• Evaluate based on criteria such as cost, risk, growth, and relationships.

• Different leaders weight criteria differently, requiring structured comparison.

Three Mindsets Under Uncertainty

• Maximax: Focus on the best possible upside; the optimist chooses the highest best outcome.

• Maxmin: Protect against the worst case; the pessimist selects the least bad option.

• Minimax: Hedge to reduce regret; calculate potential regret for each choice.

Choosing a Preferred Alternative

Decision-Making Models

1. Classical Model (Optimizing): Describes the idealized approach where managers act with full information and make perfectly rational decisions.

2. Behavioral Model (Bounded Rationality & Satisficing): Recognizes that people don’t have unlimited time or perfect knowledge; satisficing refers to selecting the first acceptable option rather than the best one.

3. Realistic Model (Evidence-Based Decision-Making): Managers strive to overcome bounded rationality through data, analysts, and expert insights.

Implementation Matters

Common Pitfalls

• Lack of resources.

• Stakeholder resistance.

• Poor communication.

Best Practices

• Clearly define responsibilities.

• Communicate the rationale behind decisions.

• Monitor early results for adjustments.

Implementation Quality

• Ensures coordinated launch, with aligned content and timing.

Evaluating Outcomes Under Uncertainty

Core Evaluation Questions

• Did the decision solve the defined problem?

• Were there unintended consequences?

• What lessons can improve future decisions?

Current Reality Insights

• Cable continues to decline, streaming growth remains uncertain.

• Competitor strategies are crucial; e.g., Fox competing aggressively at lower price points.

Evaluation Model Connection

• Step 5: Evaluate effectiveness; under uncertainty, evaluation is ongoing.

Cognitive Biases in Decision-Making

Availability Heuristic (Recency Bias)

• Uses readily available information to assess situations, assuming the most memorable events are the most common.

Representative Heuristic (Stereotyping Bias)

• Assesses the likelihood of an event based on resemblance to stereotypes, ignoring actual probabilities.

Anchoring and Adjustment Heuristic

• Over-reliance on initial information (anchor) when making judgments can lead to biased comparisons.

Framing Error

• Same information can be interpreted differently based on presentation style.

Sunk Cost Fallacy and Escalating Commitment

• Continuing investment based on past investments instead of future potential; leads to unwise decisions.

Decision Framework

1. Decision Context (certainty, risk, uncertainty).

2. Cognitive Style (evaluation and information).

3. Thinking Style (systematic and intuitive).

4. Behavioral Orientation Approaches.

5. Uncertainty Mindsets:

   • Availability heuristic.

   • Representative heuristic.

   • Anchoring.

   • Sunk cost & escalating commitment.

   • Confirmation bias.

   • Groupthink.

   • Overconfidence.

The Planning Process

Implementation Steps

1. Define your objectives clearly.

2. Assess current standing in relation to objectives.

3. Develop premises regarding future conditions and generate alternative scenarios.

4. Make a detailed plan describing actions needed to achieve objectives.

5. Implement the plan and continuously evaluate results.

Principles of Effective Planning

• Good Planning Improves Focus: Ensures action-oriented, priority-driven, and change-ready approaches.

• Good Planning Improves Coordination and Control: Links objectives with organizational efforts, guiding efficiency.

Types of Plans

• Strategic Plans: Define the long-term direction and guide organizational actions.

• Goals Alignment: Ensure lower objectives support higher ones.

• Operational Plans: Include management by objectives (MBO), single-use and standing plans.

MBO Benefits

• Aligns manager and employee efforts toward goal attainment.

• Improves performance across all levels and increases motivation.

Budgets as Plans

• Budgets commit resources to specific projects and activities:

  • Financial budgets track cash flows.

  • Operating budgets anticipate sales and revenue.

  • Nonmonetary budgets allocate resources effectively.

  • Fixed and flexible budgets relate to activity levels.

  • Zero-based budgets reset annually to align allocations with needs.

Contingency Planning

• Involves identifying alternative responses when problems arise, with an emphasis on WHEN rather than IF situations occur.

• A Trigger Point: A measurable threshold activating a backup plan to ensure prompt action.

Scenario Planning

• Identifies alternative future scenarios, generating tentative plans for each plausible outcome.

  • Different from forecasting; scenario planning accepts unpredictability.

  • Plans for “worst” and “best” case scenarios requiring different strategies.

  • Avoids complacency by preparing for diverse outcomes.

Benchmarking

• Uses external comparisons to identify insights for planning and performance improvements.

  • Internal benchmarking facilitates learning from various departments within the organization.

Goal Setting

• Defines Stretch Goals: Targets that elevate performance expectations, pushing boundaries of achievement.

• Managed Goals: Unrealistically high goals can lead to negative outcomes (stress, poor performance, unethical behavior).

• Participatory Planning: Engages those affected, increasing commitment and motivation in the planning process.

Control as a Management Function

• Control measures performance to ensure effective execution of plans, identifying issues before escalation.

• Good control is about stability and preventing disasters, rather than micromanagement.

Control Process Steps

1. Establish objectives and standards.

2. Measure actual performance.

3. Compare results to standards.

4. Take corrective action.

Types of Controls by Timing

• Feedforward Control: Proactive measures that enable success.

• Concurrent Control: Real-time monitoring and adjustments.

• Feedback Control: After-event evaluation.

Internal and External Controls

• Internal controls rely on self-discipline.

• External controls include bureaucratic structures, culture, and market strategies.

Strategy Overview

• Strategy Definition: A comprehensive plan for allocating resources to achieve long-term goals within a competitive environment.

• Mission and Strategic Intent: Explain the foundational purpose of an organization along with its aspirational goals.

Competitive Advantage

• Importance of sustainability; strategies that are difficult to imitate yield lasting benefits.

Levels of Strategy

1. Corporate Strategy: Determines overall direction and market participation.

2. Business Strategy: Focuses on competitive actions within specific markets.

3. Functional Strategy: Supports business strategy through department alignment.

Growth Strategies

• Various methods for expansion including concentration, related diversification, and integration strategies (backward and forward).

Effectiveness Ranking of Strategies (Least to Most Sustainable)

1. Unrelated diversification (highest risk).

2. Backward vertical integration (control suppliers).

3. Forward vertical integration (control distribution).

4. Related diversification (most sustainable).

Control Tools & Techniques

Standards

• Output Standards: Measure results (e.g., defect rates, customer satisfaction).

• Input Standards: Measure efforts and activities related to productivity.