Planning and Decision Making

What is a Plan?

  • A plan is a blueprint for resource allocation, schedules, and actions to achieve goals.

Planning

  • Planning is the predetermination of objectives and actions to effectively and efficiently achieve goals.

  • It involves deciding what, how, when, and who will take action.

  • Planning is the primary management function, focusing on future actions and specifying objectives.

Definitions of Planning

  • Rickey W. Griffin: Setting organizational goals and how to achieve them.

  • Richard Steers: Defining goals and ensuring their achievement.

  • Mary Coulter: Defining goals, establishing strategy, and developing plans to coordinate work.

Importance of Planning

  • Provides direction and purpose.

  • Provides a unifying framework for priorities and effort.

  • Economical by coordinating work and eliminating unproductive effort.

  • Reduces risks of uncertainty by anticipating the future.

  • Facilitates decision making by providing criteria for evaluating alternatives.

  • Encourages innovation and creativity by looking ahead.

Limitations/Criticisms of Planning

  • Rigidity: Plans can be inflexible, ignoring new opportunities.

  • Costly and time-consuming: Formulation and execution can be resource-intensive.

  • Employee resistance: Lack of involvement can cause resentment.

  • False sense of security: May lead to ignoring environmental changes.

Types of Plans

  • Strategic Plans

  • Tactical Plans

  • Operational Plans

  • Single-use Plans

  • Standing Plans

Strategic Plans

  • Involve planning at the top level of an organization.

  • Define the organization’s long-term vision and how to realize it.

Tactical Plans

  • Created by middle managers.

  • Specify resource use, budgets, and people for specific goals within 6 months to 2 years.

Operational Plans

  • Day-to-day plans by lower-level managers.

  • Focus on producing or delivering products and services within 30 days to 6 months.

Types of Operational Plans

  • Single-use plans: Used once and then discarded.

  • Standing plans

  • Budgets: Allocate money to achieve company goals.

Types of Standing Plans

  • Policies: General actions for specific events (e.g., return policy).

  • Procedures: Specific steps for particular events.

  • Rules and regulations: Guidelines for performing actions.

Steps in Planning Process

  1. Being Aware of Opportunity

  2. Establishing Objectives or Goals

  3. Developing Planning Premises

  4. Determining Alternatives

  5. Evaluating Alternatives

  6. Selecting the Best Alternative

  7. Formulation of Supporting Plan

  8. Establishing Sequence of Activities

Being Aware of Opportunities

  • Awareness leads to plan formulation.

  • Includes a preliminary look at opportunities.

  • Managers examine the organization’s strengths and weaknesses.

Setting Objectives

  • Establish objectives for the organization and work units.

  • Organizational goals direct subordinate departments.

  • Objectives should be specified in key result areas (KRAs).

  • Examples of KRAs: profitability, sales, R&D, manufacturing.

Developing Planning Premises

  • Assumptions about the environment.

  • Realistic forecasting.

  • Forecasting involves calculating future events, analyzing changes, and systematic investigations.

Identifying Alternative Courses of Action

  • Determine ways to achieve objectives.

  • Based on planning premises and objectives.

  • Reduce alternatives to the most promising ones.

  • Alternatives can be discovered through research, experimentation, and experience.

Evaluating Alternative Courses of Action

  • Evaluate alternatives based on premises and goals.

  • Analyze strengths and weaknesses.

  • Some alternatives may be more profitable but too expensive.

Selecting One Best Alternative

  • Adopting a plan through decision-making.

  • Selecting the alternative that best accomplishes goals.

Formulation of Supporting Plan

  • Derivative plans support the main plan.

  • Specific plans at the departmental level.

  • Examples: equipment, raw materials, personnel, new projects.

Quantifying Plan by Budgeting/Establishing Sequence of Activities

  • Determine the sequence of activities.

  • Decide who will do what and when.

  • Finance and accounts prepare budgets.

Decision Making

  • Decision: Making choices among alternatives.

  • Decision making is the core of planning.

  • Planning and decision-making are interrelated.

  • Fayol: Decision making involves identifying, gathering information, and assessing alternatives.

Definition of Decision Making

  • Harold Koontz and Heinz Weihrich: Selection of a course of action from alternatives.

  • Peter F. Drucker: Managers work through decision making.

Decision-Making Process

  1. Identification of the decision situation

  2. Identify decision criteria

  3. Allocate weights to the criteria

  4. Generate alternatives

  5. Evaluate each alternative

  6. Select the best alternative

  7. Implement the alternative

  8. Evaluate decision effectiveness

Steps in Detail

  • Step 1: Identify the Problem

  • Step 2: Gather Information

  • Step 3: Allocate Weights to Criteria

  • Step 4: Identify Alternatives

  • Step 5: Evaluate Alternatives (Costs, Resources, Acceptability, Reversibility)

  • Step 6: Choose Among Alternatives (Experience, Experimentation, Research & Analysis)

  • Step 7: Take Action

  • Step 8: Review Decision

Programmed and Non-Programmed Decisions

  • Programmed Decisions: Routine, repetitive problems solved with standard procedures; typically made by lower-level managers.

  • Non-Programmed Decisions: Difficult, unique situations without easy solutions; made at higher levels.

Programmed Decisions Example

  • Purchase of raw material, granting leave, supply of goods to employees.

Non-Programmed Decisions Example

  • Opening a new branch, high employee absenteeism, introducing a new product.

Characteristics Comparison

  • Programmed: Structured, repetitive, policies/rules, objective, certain, lower-level.

  • Non-Programmed: Unstructured, novel, managerial initiatives, subjective, uncertain, top-level.

Decision Making and Biases/Errors

  • Overconfidence

  • Immediate Gratification

  • Anchoring Effect

  • Selective Perception

  • Confirmation

  • Framing

  • Availability

  • Representativeness

  • Randomness

  • Sunk Costs

  • Self-serving

  • Hindsight

Overconfidence

  • Overvaluing one's knowledge and ability.

  • Confusing information quantity with quality.

Immediate Gratification

  • Prioritizing quick, visible results.

  • Example: Small bonus for temporary productivity.

Anchoring

  • Over-relying on initial information.

  • Example: Seeing a cheaper item as a bargain after seeing an expensive one.

Selective Perception

  • Noticing and interpreting information aligning with existing beliefs.

Confirmation Bias

  • Seeking information that supports beliefs.

  • Ignoring contradictory evidence.

Framing

  • Decisions affected by how information is presented.

Availability Bias

  • Relying on readily available information.

  • Judging likelihood based on recall ease.

Representativeness

  • Estimating probability based on similarity to known situations or stereotypes.

Randomness

  • Noticing nonexistent patterns in random data.

Sunk Cost

  • Letting past spending influence current decisions.

Self-Serving Bias

  • Taking credit for positive outcomes, blaming external factors for negative ones.

Hindsight Bias

  • Believing past events were predictable after they've occurred.

  • Leads to flawed assessments and overconfidence.