chapter

Planning and
Decision Making
McGraw-Hill/Irwin
Principles of Management

2008 The McGraw-Hill Companies, Inc., All Rights

Reserved.

5-3

Learning Objectives
1. Describe the different levels of planning in an organization.
2. Explain the difference between strategic, tactical, operating,
and unit plans.
3. Outline the value of simple-use plans, standing plans, and
contingency plans.
4. Describe the main components of a typical strategic planning
system.
5. Identify the main pitfalls that managers encounter when
engaged in formal planning processes, and describe what can
be done to limit those pitfalls.
6. Discuss the major reasons for poor decisions, and describe
what managers can do to make better decisions.

5-4

Steps in Planning
Choose goals
Identify actions
Allocate responsibility
Review Performance
Make adjustments

5-5

Levels of Planning

Business-level strategic plan

(heads of businesses)

Operating plans (heads of functions)

Unit plans (heads of departments, teams, individuals

Shaped by input from

Sets the context for

Corporate-level
Strategic plan (CEO)

Types of Plans
Strategic plans: A plan that outlines the major goals of an
organization and the organizationwide strategies of attaining
those goals.

Operating plans: Plans that specify goals, actions, and

responsibility for individual functions.

Tactical plans: The action managers adopt over the short to

medium term to deal with a specific opportunity or threat that
has emerged.

Unit plans: Plans for departments within functions, work

teams, or individuals.

5-6

5-7

Types of Plans
Single-use plans: Plans that address unique events that do not
reoccur.

Standing plans: Plans used to handle events that reoccur

frequently.

Contingency plans: Plans formulated to address specific

possible future events that might have a significant impact on

the organization.

Crisis management planning: Plan formulated specifically

to deal with possible future crises.

Scenario planning: Plans that are based on what if

scenarios about the future.

5-8

Scenario Planning
Identify different
Possible futures
(scenarios)

Formulate
plans to deal
with those
futures

Switch strategy if
tracking of signposts
shows alternative
scenarios becoming
more likely

Invest in one
plan but

Hedge your bets

by preparing for
other scenarios
and

5-9

Question
Can scenario planning apply
and be useful to you as a
student? Explain. Develop
three scenarios for your
post-graduation future and
possible plans to deal with
them.

5 - 10

Scenario Planning
Traps
Treating scenarios as forecasts
Failing to make scenarios global enough in scope
Failing to focus scenarios in areas of potential
impact
Treating scenarios as informational only
Not using an experience facilitator

Source:www.valuebasedmanagement.net

The Strategic Planning

Process
Feedback

External
analysis
(opportunities and
threats)

Mission, vision,
values, and goals

SWOT analysis
formulate strategies

Draft action plans

Review progress
against plan

Implement

Internal
analysis
(strengths and
weaknesses)
Assign subgoals,
roles,
responsibilities,
timelines,
and budgets

5 - 11

Setting the Context:

Mission, Vision, Values, and
Goals
Mission: The purpose of an organization.
Vision: A desired future state.
Values: The philosophical properties to which
managers are committed.

Goals: A desired future state that an organization

attempts to utilize.

5 - 12

5 - 13

Question
In describing the purpose of the organization, _____
should be _______-oriented.
a. mission; customer
b. vision; product
c. values; product
d. goals; customer

5 - 14

Mission Checklist
Ends, not means
Effort
Verbs
Nouns embodying
activities
The Unidentifiable
Source: raise-funds.com

Brevity
Broad vs. narrow
Value added
Unique

5 - 15

Characteristics of Goals
They are precise and measurable.
They address important issues.
They are challenging but realistic.
They specify a time period in which they
should be achieved.

10 Ingredients for
Successful Goals
Specific
Simple
Significant
Strategic
Rational

Source:www.topachievement.com

Measurable
Tangible
Written
Shared
Consistent with your
values

5 - 16

5 - 17

The Benefits of
Planning
Planning gives direction and purpose to an organization; it is a
mechanism for deciding the goals of the organization.
Planning is the process by which management allocates scarce
resources, including capital and people, to different activities.
Planning drives operating budgets-strategic, operations, and
unit plans determine financial budgets for the coming year.
Planning assigns roles and responsibilities to individuals and
units within the organization.
Planning enables managers to better control the organization.

Countering the Pitfalls of

Planning
Pitfall

Solution

Too centralized;
top-down

Decentralized
planning

Failure to
question
assumption

Scenario planning;
devils advocate

Failure to
implement

Link to goals;
tie to budgets

Failure to
anticipate
rivals actions

Role-playing

5 - 18

The Rational
Decision-Making Model
Identify the
problem

Does not meet

expectations
Meets
expectations

Identify
decision
criteria

Evaluate
outcome

Continue with course of action

Weight
criteria

Implement
alternative

5 - 19

Generate
alternative
courses of
action

Choose one
alternative

Bounded Rationality
and Satisficing
Bounded rationality: Limits in human ability to
formulate complex problems, to gather and process the
information necessary for solving those problems, and
thus to solve those problems in a rational way.

Satisfice: Aiming for a satisfactory level of a

particular performance variable rather than its
theoretical maximum.

5 - 20

Decision-Making
Heuristics
and
Cognitive
Biases
Decision
heuristics
80-20 rule
Cognitive bias
Prior hypothesis bias
Framing bias

5 - 21

5 - 22

80-20 Rule
Performinginyour20percentifyoure:
Engagedinactivitiesthatadvanceyouroverall
purposeinlife
Doingthingsyouhavealwayswantedtodonotwhat
otherswantyoutodo
Hiringpeopletodothetasksyouarenotgoodator
don'tlikedoing.
Smiling.
Source: Family Practice Management, September 2000

5 - 23

Improving Decision Making

Devils advocacy: The generation of both a plan and a
critical analysis of the plan by a devils advocate.

Dialectic injury: The generation of a plan (a thesis) and a

counterplan (an antithesis) that reflect plausible but conflicting
courses of action.

Outside view: Identifying a reference class of analogies past

strategic initiatives, determining whether those initiatives
succeeded or failed, and evaluating a project at hand against
those prior initiatives.