Chapter: 07 (11th Edition)

Planning and Decision Making

• Learning Objectives

⮚ Summarize the functions of decision making and the planning process.

⮚ Discuss the purpose of organizational goals, identify different kinds of
goals, discuss who sets goals, and describe how to manage
multiple goals.
⮚ Identify different kinds of organizational plans, note the time
frames for planning, discuss who plans, and describe contingency
planning.
⮚ Discuss how tactical plans are developed and executed.
⮚ Describe the basic types of operational plans used by
organizations.

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Define Plan and Planning
• Plan is the blueprint of future courses of activity.
• Planning is the process of establishing goals and a suitable course of action for
achieving those goals. – James A. F. Stoner, R. Edward Freeman and Daniel R.
Gilbert Jr.

• Defining the organization’s objectives or goals

• Establishing an overall strategy for achieving those goals
• Developing a comprehensive hierarchy of plans to integrate and coordinate
activities

Planning is concerned with ends (what is to be done) as well as

with means (how it is to be done).

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Planning and Environmental Context
• The planning process takes place within an environmental context.
• Managers must develop a complete and thorough understanding of this
context to determine the organization’s mission and to develop its strategic,
tactical, and operational goals and plans. (Figure: 7.1, 11 th Edition)

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 Organizational Goal
• Henry Mintzberg: "Goals are desired future states or targets that
organizations strive to achieve. They provide a sense of purpose, guide
actions, and help align efforts toward a common vision."
• Purposes of goals
⮚ Guidelines and unified decisions people in the
organization
⮚ Facilitates planning
⮚ Source of motivation for employees
⮚ Effective mechanism for control

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 Kinds of Goals
• Level
⮚ Mission: A statement of an organization’s fundamental
purpose. It must consider purpose, premises, values, and
direction
⮚ Strategic goal: A goal set by and for top management of
the organization
⮚ Tactical goal: A goal set by and for middle managers of the
organization
⮚ Operational goal: A goal set by and for lower-level
managers of the organization

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 • Area- Depends on the organization’s
departments
⮚ Operations, Marketing, Finance, HR, Product
innovation R&D
• Time frame
⮚ Longer term- 10 years and above
⮚ Intermediate- around 5 years
⮚ Short-term – around a year

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3–7
 • Responsibilities of setting goals
⮚ Mission and strategic goals by Board of Directors and
top managers
⮚ Tactical goal is a collaborative work of top and middle
managers
⮚ Middle and lower-level managers are jointly
responsible for operational goals

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 • Managing multiple goals
⮚ Conflict and contradiction among different goals
⮚ Goal optimization

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Organizational plans
• Kind of organizational plan

⮚ Strategic plan: A general plan outlining decisions of resource allocation,

priorities, and action steps necessary to reach strategic goals
⮚ Tactical plan: A plan aimed at achieving tactical goals, developed to
implement parts of a strategic plan
⮚ Operational plan: Focuses on carrying out tactical plans to achieve
operational goals

• Time frames for planning

⮚ Long-range plans
⮚ Intermediate plans
⮚ Short-range plans
Responsibilities for Planning
• All managers engage in planning to some degree. Marketing sales
managers develop plans for target markets, market penetration, and sales
increases. Operations managers plan cost-cutting programs and better
inventory control methods.
• As a general rule, however, the larger an organization becomes, the more
the primary planning activities become associated with groups of managers
rather than with individual managers.

• Following the parties who plays roles in planning:

⮚ Planning Staff- professional planning staff.
⮚ Planning Task Force- comprises line managers with a special interest in
the relevant area of planning ( may have member from planning staff)
⮚ Board of Directors-
⮚ Chief Executive Officer- the president or the chair of the BoD.
⮚ Executive Committee- the top executives in the organization
⮚ Line Management- persons with formal authority and responsibility for
the management of the organization.
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Contingency Planning
• Contingency is the determination of alternative courses of action to be
taken if an intended plan is unexpectedly disrupted or rendered
inappropriate. These plans help managers to cope with uncertainty and
change.
• Crisis management, a related concept, is the set of procedures the
organization uses in the event of a disaster or other unexpected calamity.
Some elements of crisis management may be orderly and systematic,
whereas others may be more ad hoc and develop as events unfold.
Reasons for/ Importance of Planning
Limitations/ 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.

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Steps of Planning
1. Being Aware of Opportunities
• Opportunities of a firm exist in the external environment.
• The situation that fits with the strengths and weaknesses of a firm is an opportunity
to that firm.
• So, prior condition of opportunity identification is internal environment analysis to
know strengths and weaknesses of a firm.

2. Establishing Objectives
• Objectives are destinies or end results that a firm wants to achieve. Objectives may
be short-term and long-term. Objectives are established on the SWOT analysis of
the firm.
• Objectives should be realistic, achievable, accepted, understood, measurable and
monitorable.

3. Developing Premises
• Premises are assumptions about the environment in which the plan is to be carried
out. It is the given conditions or environmental constraints within which plan will
operate. It involves with external environmental conditions upon which
management has no control, applicable basic policies of the organization and
existing company/organizational plans.
Steps…..
4. Developing Alternative Courses of action to achieve set objectives.
• It is set with present and future field level information and brainstorming.

5. Evaluating Alternative Courses.

• It is done on the measure of three counts- Cost, Benefits and Risks.

6. Selecting a Course: A course is selected that best fit with the firm
conditions.

7. Formulating Derivative Plans:

• Derivative plans are those that are derived from the selected course of
action. Such as marketing plan, production plan, financing plan, human
resource plan etc. to achieve the core plan.

8. Quantifying Plans by Budgeting.

• Budget is quantitative expression of plan. When a plan is made in any
number term that is budget. Such a financial budget, production budget,
human resource budget, machine hour budget etc.
Types of Plans: from different perspectives

BREADTH TIME SPECIFICITY FREQUENCY OF

USE FRAME OF USE (OP*)

Strategic Long term Directional Single use

Tactical Intermediate
Operational* Short term** Specific Standing
**(Short-term plan also: action plan and reaction plan)
*(Operational plan also: single use and standing plan)

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1. Breadth of Use: Strategic, Tactical and Operational Plans
• Strategic plans
⮚ Plans that are organization-wide, establish overall
objectives, and position an organization in terms of its
environment
• Strategic plans
⮚ Apply broadly to the entire organization
⮚ Establish the organization’s overall objectives
⮚ Seek to position the organization in terms of its
environment
⮚ Provide direction to drive an organization’s efforts to
achieve its goals.
⮚ Serve as the basis for the tactical plans.
⮚ Cover extended periods of time
⮚ Are less specific in their details 3–18
Breadth of Use: Strategic, Tactical and Operational Plans
• Tactical plans
⮚ Plans that specify the details of how an organization’s overall
objectives are to be achieved

• Tactical plans
⮚ Apply to specific parts of the organization.
⮚ Are derived from strategic objectives
⮚ Specify the details of how the overall objectives are to be achieved.
⮚ Cover shorter periods of time
⮚ Must be updated continuously to meet current challenges

• Operational plans (Single use plan and Standing plan)

⮚ Operational Plans An operational plan focuses on carrying out tactical
plans to achieve operational goals.
⮚ Developed by middle and lower-level managers, operational plans
have a short-term focus and are relatively narrow in scope.
⮚ Each one deals with a fairly small set of activities.
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2. Based on Time Frame: Short and Long-term
• Short-term plans (Action plan and Reaction Plan*)
⮚ Plans that cover less than one year is short-term plan.
⮚ Action plan- A plan used to operationalize any other kind of plan
⮚ Reaction plan- A plan developed to react to an unforeseen
circumstance
• Intermediate plans- Plans that cover one to five years
• Long-term plans- Plans that extend beyond five years
3. Frequency of Use: Operational plans
• Single-use plans
⮚ A plan that is used to meet the needs of a particular or
unique situation
❖Single-day sales advertisement
• Standing plan
⮚ A plan that is ongoing and provides guidance for
repeatedly performed actions in an organization
❖Customer satisfaction policy
Operational Plans: Single use and Standing

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4. Based on Specifications: Directional versus Specific Plans
• Specific plans
⮚ Plans that have clearly defined objectives and leave no room for
misinterpretation
❖“What, when, where, how much, and by whom” (process-focus)

• Directional plans
⮚ Flexible plans that set out general guidelines
❖“Go from here to there” (outcome-focus)
Barriers to Goal Setting and Planning
• As part of managing the goal-setting and planning processes, managers
must understand the barriers that can disrupt them. Managers must also
know how to overcome the barriers.
• Several circumstances can serve as barriers to effective goal setting and
planning; as well as overcoming the barriers are listed in Table 7.2

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Management by Objectives
⮚ MBO is a formal goal-setting process involving collaboration
between managers and subordinates; the extent to which goals
are accomplished is a major factor in evaluating and rewarding
subordinates’ performance
⮚ A system in which specific performance objectives are jointly
determined by subordinates and their supervisors, progress
toward objectives is periodically reviewed, and rewards are
allocated on the basis of that progress.
⮚ Links individual and unit performance objectives at all levels
with overall organizational objectives
⮚ Focuses operational efforts on organizationally important results.
⮚ Motivates rather than controls

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 The Formal Goal-Setting Process
• Formal goal setting is an effective technique for integrating goal setting and
planning. The basic mechanics of the formal goal-setting process are shown in
Figure 7.5.
• This figure portrays the general steps that most organizations use when they adopt
formal goal setting. Of course, most organizations adapt this general process to fit
their own unique needs and circumstances.

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 Decision making and its Types:
• Decision-making is the study of identifying and choosing
alternatives based on the values and preferences of the decision
maker.
• Decision making is the process of making choices by setting goals,
gathering information, and assessing alternative occupations.

• Two types of decision making:

⮚ Programmed Decisions
❖A decision that is a fairly structured decision or recurs
with some frequency or both.
– Example: Starting your car in the morning.
⮚ Non-programmed decisions
❖A decision that is relatively unstructured
and occurs much less often than a
programmed decision.
– Example: Choosing a vacation destination.
 Decision-Making Conditions

The
decision
maker faces
conditions
of...

Certainty Risk Uncertainty

Level of ambiguity and chances of making a bad decision

Lowe Moderate Higher

r

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4.1
Decision-Making Conditions (cont’d)
• Decision Making Under Certainty
⮚ A condition in which the decision maker knows with reasonable
certainty what the alternatives are and what conditions are associated
with each alternative.

• Decision Making Under Risk

⮚ A condition in which the availability of each alternative and its
potential payoffs and costs are all associated with risks.

• Decision Making Under Uncertainty

⮚ A condition in which the decision maker does not know all the
alternatives, the risks associated with each, or the consequences of
each alternative.

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 Steps of decision making
• As you can see, there are seven steps in effective decision
making.
❖Step 1: Identify the decision to be made.
❖Step 2: Gather relevant information.
❖Step 3: Identify alternatives.
❖Step 4: Weigh evidence.
❖Step 5: Choose among alternatives.
❖Step 6: Take action.
❖Step 7: Review decision and consequences.

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Steps in Rational Decision Making
By following the steps of rational decision making, managers ensure
that they are learning as much as possible about the decision situation
and its alternatives. (Table 9.1)

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Behavioral Aspects of Decision Making
• Bounded Rationality- The concept that decision makers are limited by
their values and unconscious reflexes, skills, and habits.

• Satisficing- The tendency to search for alternatives only until one is found
that meets some minimum standard of sufficiency to resolve the problem.
• Coalition- A political force in decision making which consists of an
informal alliance of individuals or groups formed to achieve a goal.
• Intuition- An innate belief about something without conscious
consideration.
• Escalation of Commitment- A decision maker is staying with a decision
even when it appears to be wrong.
• Risk Propensity- The extent to which a decision maker is willing to
gamble when making a decision.

• Ethics and Decision Making- Individual ethics (personal beliefs about

right and wrong behavior) combine with the organization’s ethics to create
managerial ethics. 4–31
That’s all for Today!

Thank you!