CHAPTER 3

PLANNING
AND
DECISION MAKING
 Points of Focus
• Introduction
• Characteristics of Planning
• Criticisms of Formal Planning
• Planning tools and techniques
• Planning process
• Types of plan
• Management by Objective (MBO)
• Decision Making Conditions
• Decision Making Techniques
• Decision-Making Process
• Summary
 Introduction
 “If you fail to plan, you plan to fail”

Definition ??

 Planning is the act of determining the

organization’s goals and the means for
achieving them.
What is the importance of plan?
 It provides direction and sense of purpose
 It reduces uncertainties and preparing for change
 It provides basis for controlling
 It forces managers to see the organization as a system
 It promotes efficiency
 It provides the base for cooperative and coordinated
efforts
 It provides guideline for decision making
Characteristics of planning
 Characteristics of Planning
1. Planning is goal-oriented
 Planning is made to achieve desired objective of
business
 Planning identifies the action that would lead to
desired goals quickly & economically.
 It provides sense of direction to various activities.
 Characteristics of Planning Cont’d
2. Planning is all Pervasive.
 It is required at all levels of management and in all
departments of enterprise.
 Of course, the scope of planning may differ from
one level to another.
 The top level may be more concerned about
planning the organization as a whole whereas the
middle level may be more specific in departmental
plans and the lower level plans implementation of
the same.
 Characteristics of Planning Cont’d
4. Planning is Flexible
 Planning is done for the future.
 Since future is unpredictable, planning must
provide enough room to cope with the changes in
customer’s demand, competition, govt. policies etc.
 Under changed circumstances, the original plan of
action must be revised and updated to make it more
practical.
 Characteristics of Planning Cont’d
5. Planning is an intellectual process.
 Planning is a mental exercise involving creative thinking,
sound judgment and imagination.
 It is not a mere guesswork but a rotational thinking.
 A manager can prepare sound plans only if he has sound
judgment, foresight and imagination.
 Planning is always based on goals, facts and considered
estimates.
 Characteristics of Planning Cont’d
6. Planning involves choice & decision making.
 Planning essentially involves choice among various
alternatives.
 Therefore, if there is only one possible course of action,
there is no need of planning because there is no choice.
 Thus, decision making is an integral part of planning.
 A manager is surrounded by number of alternatives.
He has to pick the best depending upon requirements &
resources of the enterprises.
 Characteristics of Planning Cont’d
7. Planning is designed for efficiency.
 Planning leads to accomplishment of objectives at the
minimum possible cost.
 It avoids wastage of resources and ensures adequate
and optimum utilization of resources.
 A plan is worthless or useless if it does not value the cost
incurred on it.
 Planning leads to proper utilization of men, money,
materials, methods and machines.
 Criticisms of Formal Planning
 Planning may create rigidity.
 Plans can’t be developed for a dynamic
environment.
 Formal plans can’t replace intuition and creativity.
 Planning focuses managers’ attention on today’s
competition, not on tomorrow’s survival.
 Formal planning reinforces success, which may lead
to failure.
 Planning tools and techniques
• Forecasting
• Contingency planning
• Scenario planning
• Benchmarking
• Staff planners
• Participatory planning
 Planning tools and techniques….Cont’d
Forecasting tries to predict the future.
 Qualitative forecasting relies on expert opinions
 Quantitative forecasting relies on mathematical
models and statistical analysis
Contingency planning Identifying alternative courses of
action that can be implemented to meet the needs of
changing circumstances
Scenario planning (long term version of contingency
plan)crafts plans for alternative future conditions and
how to deal with them
 Planning tools and techniques….Cont’d

Benchmarking identifies best practices used by others

Best practices are methods that provide superior
performance
Staff planners provide special expertise.
Participatory planning improves implementation.
Promotes creativity in planning.
Increases available information.
Fosters understanding, acceptance, and commitment
to the final plan.
•Planning process
 Planning process
It encompasses the following steps:
1. Situational analysis
 gathering, interpreting, and summarizing all
information relevant to the planning issue under
consideration, within time and resource
constraints
2. Determining Alternative Goals and Plans
Plan:
 A blue print specifying the resource
allocations, schedules, and other actions
necessary for attaining goals
 Planning process cont’d
Goal :
 a desired future state that the organization attempts to
realize.
Characteristics: Specific, measurable, attainable, relevant,
time-bound – SMART
 Setting goals starts with top managers.
 The overall planning process begins with a mission statement
and strategic goals for the organization.
 Planning process cont’d
Organizational Mission
 Mission- the organization’s reason for existence.
 mission is at the top of goal hierarchy
 mission describes the organization’s:
 Values
 aspirations, and
 reason for being
 A well-defined mission is the basis for development of all subsequent
goals and plans.
 Mission statement is a broadly stated definition of basic business
scope and operations that distinguishes the organization from others
of a similar type.
 Planning process cont’d
 the content of mission statement often:
 focuses on the market and customer and
 identifies desired fields of endeavor
 some mission statements describe organization
characteristics such as corporate value, product
quality, location of facilities, and attitude toward
employees.
 Mission statement often reveal the organization’s
philosophy as well as its purpose.
 Planning process cont’d
Types of Goal:
Strategic Goals
 broad statements describing where the organization wants to be in the future
 Pertain to the organization as a whole
 often called official goals, because they are the stated intentions of what the
organization want to achieve
Tactical Goals
- Goals that define the outcomes that major divisions and departments must
achieve
Operational Goals
 Specific, measurable results Expected from:
departments,
work groups, and
individuals
 Planning process cont’d
Hierarchy of Goals
Traditional Responsibility Today

Mission

Top
Management Strategic Goals
•Shrinking middle
management
Middle Tactical
Management Goals
Tactical Goals •Employee
empowerment

1st line Mgt & Employees

Operational Goals
Workers
 Planning process cont’d
3. Goal and Plan Evaluation
 determination of advantages, disadvantages, and
potential effects of each alternative goal and plan
 prioritizing those goals and even eliminate some of
them
4. Goal and Plan Selection
 Selection of the option that is most appropriate and
feasible
 Planning process cont’d
5. Implementation
• Managers and employees must understand the plan,
have the resources to implement it, and be motivated
to do so
• Successful implementation requires a plan to be
linked to other systems in the organization,
particularly the budget and reward systems
6. Evaluation
 Managers must continually monitor the actual
performance of their work units against the unit’s
goals and plans.
•Types of plan
 Types of plan
Plans can be classified on different bases or
dimensions. These are:

 Scope/breadth dimension,

 Time dimension, and

 Use/repetitiveness
 Types of plan Cont’d

1. Scope/Breadth Dimension
 Scope refers to the comprehensiveness of the
plan, or it refers to the level of management
where plans are formulated.
This dimension creates hierarchy of plans.
 Based on scope/breadth we can classify plans
into: Strategic, Tactical and Operational.
 Types of plan Cont’d
Strategic plan
• Action Steps used to attain strategic goals
• Blueprint that defines the organizational activities and
resource allocations
• Tends to be long term
Strategy - A pattern of actions and resource allocations
designed to achieve the organization’s goals
Tactics are immediate decisions based on the executive’s
judgment and experience whilst facing an actual situation
Tactical plan
- Plans designed to help execute major strategic plans and to
accomplish a specific part of the organizations strategy
 Types of plan Cont’d
Operational plan
- Developed at the organization’s lower levels that
specify action steps toward achieving operational
goals and that support tactical planning activities.
- Tool for daily and weekly operations
- Schedules are an important component
- Schedules define precise time frames for the
completion of each operational goal required for the
organization’s tactical and strategic goals
 Types of plan Cont’d
2. Time dimension
 Long-range (five years or more), medium-range (between
one and five years) and short-range plans (one year or less).
 Time dimension and scope dimension are the same except
the former is about the length of time that the plan covers
and the later about the level of management where the plan
is formulated.
Note!
 All strategic plans are long-range plans.
 All tactical plans are medium-range plans.
 All operational plans are short-range plans
 Types of plan Cont’d
3. Use/repetitiveness
 standing plans
 single use plans

Standing Plans: are plans that provide an ongoing

guidance for performing recurring activities. They
are
 policy
 rule
 procedure
 Types of plan Cont’d
Policies: Broad guidelines for making decisions and
taking action in specific circumstances.
Rules: spell out specific required action or non-actions
- allowing no discretion in a given situation.
E.g. No smoking, cheating is prohibited.
Procedures: are statements that detail the exact
manner in which certain activities must be
accomplished
 Types of plan Cont’d
Single use plans:

 aimed at achieving a specific goal and dissolved when

these have been accomplished
 are detailed courses of action
The major types of single use plans are:
Programs: is a comprehensive plan that coordinates a
complex set of activities related to a major non-recurring
goal
Projects: One-time activities that have clear beginning
and end points
Budgets: commit resources to activities, projects, or
programs.
• Management by Objective (MBO)
 Management by Objective (MBO)
MBO is a method whereby mangers and employees:
 define goals for every departments, project , and
person and
 use them to monitor subsequent performance.
Process of MBO:
1. Set goal: the most difficult step in MBO
 involves employees at all levels and looks beyond day-to day
activities to answer the question “what are we trying to
accomplish?”
Management by Objective (MBO) Cont’d
2. Develop action plans:
 action plan defines the course of action needed to achieve
the stated goals
 action plans are made for both individuals and departments
3. Review progress
 Important to ensure that action plans are working
 Allows managers and employees to see whether they are on
target or whether corrective action is necessary
4. Appraise overall performance:
Benefits of MBO
 Focus efforts on activities that will lead to goal attainment
 Performance can be improved at all organization level
 Employees are motivated
 Departmental and individual goals are aligned with organization
goals.
Management by Objective (MBO) Cont’d

Limitations of MBO:
 Failure to teach the philosophies of MBO
 Difficulty in setting goals
 Emphasis on short-run goals
 Danger of inflexibility
 Frustration
Prerequisites for installing MBO Program
1. Purpose of MBO
2. Top - Management support
3. Training for MBO.
4. Participation
5. Feedback for self – direction and self – control
Decision Making
 Decision Making

Decision = choice made from available alternatives

Decision Making = process of identifying problems

and opportunities and resolving them
 Importance of Decisions
Basically some decisions are more important than
other. The importance of decisions can be seen
from:
 The degree of influence the decision has on the
future business activities
 The impact of the decision on other functional
areas
Programmed and non programmed
 Major and minor
 Routine and strategic
 Simple and complex
 Categories of Decision
Programmed Decisions
 a simple, routine matter for which a manager
has an established decision rule
Non-programmed Decisions
a new, complex decision that requires a creative
solution
Major and minor
Categorized based on the importance.
 Categories of Decision Cont’d
Routine and strategic
Routine decisions are:
 repetitive decisions and are called tactical or
household decisions.
 supportive to the major decisions and have a
main purpose of achieving efficiency.
 Strategic decisions are long range decisions that
have significant impact on the entire organization.
• Decision Making Conditions
 Decision Making Conditions Cont’d
Decision making under Certainty:
 Decision maker are relatively sure about what will happen when they
make decisions.
 Information is available and is considered to be reliable and cause
and effect relationship are known.
Decision making under Risk
● decision has clear-cut goals
● good information is available
● future outcomes associated with each alternative are subject to
chance
Attitude towards risk
– Decision maker’s aversion to or acceptance of risk depends on:
 Individual difference
 Size of the risk
 Level of management in organization
 Source of funds involved
 Decision Making Conditions Cont’d
Decision making under uncertainty:
managers know which goals they wish to achieve
 information about alternatives and future events is
incomplete
 managers may have to come up with creative approaches to
alternatives
Decision making under Ambiguity
 by far the most difficult decision situation
 goals to be achieved or the problem to be solved is unclear
 alternatives are difficult to define
 information about outcomes is unavailable
• Decision making techniques
 Decision making techniques
• Group decision making
• Nominal group technique (NGT)
• Delphi technique
• Brainstorming
• Fishbone diagram (causes and effect)
• Paired Comparison Analysis
• Six thinking hats - Looking at a Decision
from All Points of View
• Decision grid
 Decision making techniques Cont’d
1. Group decision making
 Group problem solving directs the manager in the role of
facilitators and consultant.
 Compare to individual decision making , group can provide more
input and better decision.
2. Nominal group technique (NGT)
 It is eliciting written questions, ideas, and reactions from group
members.
Consists of :
 Silently generating ideas in written.
 Round-robin presentation by group members of their ideas on a
flip chart.
 Discussing each recorded idea and evaluate.
 Voting individually on priority ideas, with group solution being
derived mathematically through rank ordering.
 Decision making techniques Cont’d
3. Delphi technique
 It is judgments on a particular topic are systematically gathered
from participants who do not meet face to face.
 Useful when expert opinions are needed .
4. Brainstorming
 The idea generating technique wherein a Group members meet
and generate diverse ideas about the nature, cause , definition, or
solution to a problem without regard to questions of feasibility
or practicality.
 Through this technique, individuals are encouraged to identify a
wide range of ideas. Usually, one individual is assigned to record
the ideas on a chalkboard.
 most effective at the beginning, once a problem has been stated
 most effective for simple, well-defined problems
 Decision making techniques Cont’d
5. Fishbone diagram (causes and effect)
 Is drawn after a brainstorming session, the central problem is
visualized as the head of the fish, with the skeleton divided into
branches showing contributing causes of different parts of the
problem.
6. Pareto Analysis
 Selecting the Most Important Changes To Make.
 It uses the Pareto principle - the idea that by doing 20% of work
you can generate 80% of the advantage of doing the entire job
 is a formal technique for finding the changes that will give the
biggest benefits.
 Decision making techniques Cont’d
7. Paired Comparison Analysis
 Working Out the Relative Importance of Different Options.
 helps you to work out the importance of a number of
options relative to each other.
 particularly useful where you do not have objective data to
base this on.
 easy to choose the most important problem to solve, or
select the solution that will give you the greatest advantage .
 Decision making techniques Cont’d
8. Six thinking hats - Looking at a Decision from All Points of
View
 It is used to look at decisions from a number of
important perspectives.
 This forces you to move outside your habitual thinking
style, and helps you to get a more rounded view of a
situation.
'6 Thinking Hats‘
How to the Tool:
 Each 'Thinking Hat' is a different style of thinking.
 Decision making techniques Cont’d
White Hat:
 With this thinking hat you focus on the data available.
Look at the information you have, and see what you can
learn from it.
Red Hat:
 you look at problems using intuition, gut reaction,
and emotion .
 Try to understand the responses of people who do not
fully know your reasoning.
Black Hat:
 look at all the bad points of the decision .
 Decision making techniques Cont’d
Yellow Hat:
 The yellow hat helps you to think positively.
 It is the optimistic viewpoint that helps you to see all the
benefits of the decision and the value in it
Green Hat:
 The Green Hat stands for creativity.
 This is where you can develop creative solutions to a problem
Blue Hat:
 The Blue Hat stands for process control.
 This is the hat worn by people chairing meetings.
 When running into difficulties because ideas are running dry,
they may direct activity into Green Hat thinking.
 When contingency plans are needed, they will ask for Black
Hat thinking,
 Decision making techniques Cont’d
9. Decision grid:
 is a matrix for comparing multiple options when there
are also several criteria to consider.
 It has many names, including Pugh matrix, solution matrix,
decision making matrix, decision grid, problem selection
grid.
 It is a rational model and is also classed as a visual decision
tool.
When the complexity of the decision increases these
decision making tools and techniques can prove useful.
 Especially as the number of options and criteria increase.
 Decision-Making Process

 
Evaluation Recognition of
and Decision
Feedback Requirement


Implementation Diagnosis
of Chosen Decision- and Analysis
Alternative Making of Causes
Process


Selection of Development of
Desired Alternatives
Alternative


65
Decision-Making Process…Cont’d

• Recognition of Decision Requirement

• Diagnosis and Analysis of Causes
• Development of Alternatives
• Selection of Desired Alternative
• Implementation of Chosen Alternative
• Evaluation and Feedback
 Decision Making Model
Selecting a Decision Making Model Depends
on:
 the manager’s personal preference
 Whether the decision is programmed or non-
programmed
 Extent to which the decision is characterized by risk,
uncertainty, or ambiguity
Three Decision-Making Models

 Classical model
 Administrative Model
 Political Model
 Classical Model
 Logical decision in the organization’s best economic
interests
Assumptions
 Decision maker operates to accomplish goals that are known
and agreed upon
 Decision maker strives for condition of certainty – gathers
complete information
 Criteria for evaluating alternatives are known
 Decision maker is rational and uses logic
Normative = describes how a manager should make decision
and provides guidelines for reaching an ideal outcome for the
organization
Administrative Model - Herbert A. Simon
 Managers actually make decisions in difficult
situations characterized by non-programmed
decisions, uncertainty, and ambiguity
 Two concepts are instrumental in shaping the
administrative model
● Bounded rationality: people have limits or
boundaries on how rational they can be
● Satisficing: means that decision makers choose the
first solution alternative that satisfies minimal
decision criteria
Administrative Model Cont’d

 Decision goals often are vague, conflicting and

lack consensus among managers;
 Rational procedures are not always used
 Managers’ searches for alternatives are limited
 Managers settle for a satisficing rather than a
maximizing solution
 Based on intuition (uncertainty, limited facts &
data, time, less scientific predictability)

Descriptive = how managers actually make

decisions - not how they should
 Political Model

 Closely resembles the real environment in which

most managers and decision makers operate
 Useful in making non-programmed decisions
 Decisions are complex
 Disagreement and conflict over problems and
solutions are normal
Coalition = informal alliance among managers who
support a specific goal
 Summary

• Introduction
• Characteristics of Planning
1.Planning is goal-oriented
2.Primacy of Planning
3.Planning is a Continuous Process
4.Planning is all Pervasive.
5.Planning is Flexible
6.Planning is an intellectual process.
7.Planning involves choice & decision making.
8.Planning is designed for efficiency.
 Summary… Cont’d

• Criticisms of Formal Planning

• Planning tools and techniques
• Planning process
1.Situational analysis
2.Determining Alternative Goals
3.Goal and Plan Evaluation
4.Goal and Plan Selection
5.Implementation
6.Evaluation
 Summary… Cont’d

• Types of plan
1.Scope/breadth dimension,
2.Time dimension, and
3.Use/repetitiveness

• Management by Objective (MBO)

1.Set goal: the most difficult step in MBO
2.Develop action plans:
3.Review progress
4.Appraise overall performance:
 Summary… Cont’d
• Decision making techniques
• Group decision making
• Nominal group technique (NGT)
• Delphi technique
• Brainstorming
• Fishbone diagram (causes and effect)
• Paired Comparison Analysis
• Six thinking hats - Looking at a Decision from All
Points of View
• Decision grid
• Three Decision-Making Models
• Classical model, Administrative Model &
Political Model
“The End of Chapter “