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Chapter 4. PLANNING AND DECISION MAKING
Planning is the process by which managers examine their internal and external environments and ask fundamental questions about their organization's mission, goals, and objectives. If group effort has to be effective, people must know what they are expected to accomplish. Therefore, it is the first and the most important management function.
Planning requires selecting missions and objectives and the actions to achieve them.
Therefore planning requires Decision Making -i.e., choosing from alternatives the best possible option to solve the problem. Planning is charting the future course of action at present. Thus, we can, say that plans provide a rational approach and strongly imply managerial
Planning is an intellectually demanding process, the future course of action is consciously determined and decisions are based on purpose, knowledge and considered estimates. Without: planning events are left to chance. Planning is deciding in advance who will do what, at a certain time and what is to be achieved. In business, planning is an ongoing effort since changes are continuous. A plan is a predetermined course of action to achieve a specified aim or goal. It is a blueprint of action. Planning is an analytical thought process that covers:
• • • •
Assessment of future
Determination of objectives and goals Development of alternative courses of action
Selection of best course of action
Planning precedes all other functions -All plans must contribute to purpose and objectives. It is all pervasive activity -all levels of managers have to do planning. Plans are effective if they achieve their purpose at a reasonable cost (in terms of time and money). Planning has to be systematic to ensures a timely, orderly, and cost-effective process to achieve specific objectives. Planning should involve everyone centralized planning occurs when responsibility rests with top-level executives. Decentralized planning occurs when responsibilities rest with managers and workers who actually execute the tasks.
Types of Planning : Type of planning is determined by three factors, namely – Scope (The range of activities covered), Time frame (the
period covered by the plan) and Level of Detail (the specificity of the plan). Depending upon these factors, planning could be:
• • •
Strategic planning - comprehensive, long-term, and relatively general planning. Operational planning - focused, short-term, and specific planning. Tactical planning - more narrow, intermediate-term planning, more specific than strategic planning, but not as narrow as operational planning.
Types of Plans : As opposed to the various types of planning, different types of plans could be: 1. 2. 3. 4. Purpose or Mission - Basic function assigned by society to the organization: Objectives / Goals - Ends towards which activity is aimed and end point of the organization. Strategies - Broad areas of an enterprise operation, normally its in light of competitors. The firm has to decide on its growth goal
and desired profitability. Form a framework for guiding, thinking and action. Policies - General statements that guide decision-making. Policies encourage discretion and initiative within limits.
Procedures - Establish a required method of handling future activities, they are guides to action. o Rules - Specific required action, allowing no discretion. o Programs - Complex of goals, policies, procedures, rules, tasks, assignments steps to be taken, resources to be employed
and other elements necessary. Budget - Statement of expected results expressed in numerical terms i.e., numerical program
Steps in the Planning Process: Planning process involves four steps and then gives way to the implementation phase. These steps are: 1. 2. 3. 4. Assess Current Conditions: Determine the current situation, including examination of re- sources, market trends, economic
indicators, and competitors.
Determining Goals and Objectives: Goals are future states or conditions that contribute to the fulfillment of the organization's
mission. Objectives are short-term, specific, measurable targets that must be reached to accomplish organizational goals. Establishing an Action Plan: An action plan is a specific set of behavior that will lead to the attainment of an objective. Allocate Resources: Resources include people, money, and time.
TFP - (Total Factor Productivity) is a measure of a firm's effectiveness in using its resources to create product values. A budget is a predetermined amount of resources allocated to an activity which includes budgeting organizational resources for each step in the process. Implementation: The commitment of organizational resources through the delegation of tasks, objective-driven actions, and
feedback of data. Control the Implementation: The continuous management of plans to ensure that they meet objectives in the correct time horizon.
Objectives: Objectives should be understandable and measurable. However, it has been observed that stretched goals lead to higher
performance than easy ones. Similarly, they should be prioritised to provide direction to employees. Objectives need to be met by a specific time; therefore managers must develop plans to meet short, intermediate and long-term objectives. They can be framed as per following alternatives -Short-term Vs Long-term, Profit margin Vs Competitive position, Profit Vs Non-profit objectives, or Low-risk environment Vs High-risk environment. Other types of objectives could be:
• • • • •
Profitability Objectives - based on the attainment of specific financial objectives such as re- turn on investment (ROI), or return on
assets (ROA), or change in net worth. Marketing Objectives - can be expressed as increases in unit sales, dollar volume, or market share. Productivity Objectives - an efficiency measure that assesses how many resources were used to produce one unit of output. Physical & Financial Objectives - the ability of the organization to use physical assets and capital to achieve objectives. Quality Objectives - ability to achieve product quality and service quality objectives. Your text lists measures that can be used to assess both product and service quality.
Importance of Planning: Good plans are simple and easily understandable, flexible or adaptable to new conditions. It is balanced and gives
equal importance to all vital areas of business. It uses available resources to the utmost before creating new resources. A good plan must lead the, organization forward on the path of progress and prosperity. Planning is necessary because it establishes a clear relationship between decision-making, mission, values, goals and objectives.
Good planning involves the following values:
• • • • •
Customer driven, not product-driven
Employee participation, not management authority. Fact-based decisions, not intuition. Emphasis on continuous, not periodic improvement. Prevention of defects, not detection of defects.
Planning focuses on the future direction, values and sense of purpose. It provides a unifying decision making framework and helps to identify potential opportunities and threats, and minimize risks. It sets standards for performance and helps to control events rather than be controlled by them. The need for planning arises from constant change in the environment.
• • • •
Pressure to Reduce Cycle Times - Cycle time reduction, or the time to complete a process and to be ready to begin anew is
deemed essential to success in current markets. Where economy of scale was a key concept, it is complemented today by economy of time. Reductions in time should not be made at the expense of quality or customer service. Increased Organizational Complexity - More products, more competitors, more product complexity, all yield greater complexity in
the planning process. Increased Global Competition - More diversity is present in global markets. Cultural diversity is just another form of uncertainty to
be reduced by the firm. Uncertainty in global exchanges is reduced through planning. Impact on Other Management Functions - Plans influence such organizational activities as organizing, managing, selling, and training, Without integrated plans, each function might use different, possibly, contradictory methods to meet objectives.
Benefits of Planning: Planning can be very beneficial in four major areas:
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Coordination of Effort Preparation for Change Development of Performance Standards Development of Managers
1. Integrated, constant and purposeful action is more easily achieved. All efforts are directed towards desired objectives or results. Unproductive work and waste of resources can be minimized. Through planning managers can relate decisions to each other and to
goals of the enterprise.
2. Planning enables a company to be competitive with other rivals. Progressive management likes to be proactive rather than reactive. 3. Through planning adverse situations can be anticipated and mistakes or delays avoided. Trouble can be more often easily corrected in its earlier stages than after a crisis "Forewarned is forearmed".
4. Planning helps to plan for changes and also helps in managing change effectively.
5. Planning leads to systematic and thorough investigation of alternative methods. 6. Plans are based on adequate information of the past, present and intelligent forecasting of the future.
7. Plans give control standards.
8. Planning facilitates effective delegation of authority and removes communication difficulties
Limitations of Planning: Planning is not a perfect measure against risk as reliability of forecasts are inversely proportional to time. Planning
is very costly and must justify its existence and often delays action. Planning may give a false sense of security as standing plans are repetitive and lead to resistance to change.
MANAGEMENT BY OBJECTIVES (MBO)
A good plan is based on clearly defined objectives -Management by objectives (MBO) is now widely used for planning, where objectives, policies and plans are set at all levels of management through meaningful participation between the superior and subordinate. Goals must be interconnected but often people within companies pursue paths good for their own departments but detrimental to the company as a whole. MBO is a comprehensive managerial system that integrates many key managerial activities in a systematic manner and is consciously directed towards the effective and efficient achievement of organizational and individual objectives.
It is the selection of the appropriate alternative from a set of alternative courses of action. It is the core of planning. Decision making has been
identified as the primary responsibility of any manager. Decision making is at the core of all planned activities. Effective decision making must
be rational, i.e., for effective decision making the decision maker must generate all the possible alternatives, he must also have all the relevant information, be able to analyze and evaluate alternatives and must have a desire to achieve the best solution. Seldom can 100% rationality be achieved as future entails uncertainties so the manager must settle for limited rationality. Limitations are in terms of information, time and certainty. Alternatives are evaluated based on quantitative and qualitative factors. Selection is done based on experience, experimentation or research and analysis. The decision may be Programmed (structured) i.e., repetitive and routine or Non-programmed (unstructured) i.e., unique, strategic. Decisions are made under different conditions:
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Certainty conditions - Cause effect known Risk condition - Probabilities can be drawn Uncertainty condition - Meager database unsure whether situation will change or not
The degree of risk varies from decision to decision.
Objectives of the Decision Making Process
1. Improve the business by successfully solving problems that are causing external or internal customer dissatisfaction.
2. To ensure we do not jump to solutions before we have analysed the CAUSE(S) of our problems.
3. Provide a process (tool) that can be used by the team to maximise contribution from each individual and the creativity from the 4. Implement solutions to problems that really do eliminate the problem through PREVENTION processes.
5. Value addition to the product or services rendered. Decision making process requires a structured approach involving six steps: 1. Identify and select the problem: A 'problem' is a deviation between the ACTUAL results and the TARGET level at which the
results should be, or an OPPORTUNITY level at which the results could be. A problem statement should be written based on the measurements taken. The most serious problems are those the customer experiences. Implement holding action, if necessary,
2. 3. 4.
while solving the problem. Analyse the causes of the problem: Brainstorm all potential causes of the deviation. Usually, there are several causes of a
problem that require analysing and prioritising. This will require collecting data which provides the facts needed rather than opinions. Determine the root causes. Generate potential decisions: For most problems there are usually several solutions. The first idea is not always the best. 'Brainstorming' and 'building' on ideas are the most effective ways to find the right solutions. Use competitive benchmarking to adopt
other's ideas. Select and plan the decision to be implemented: Prioritise the solutions identified using cost-benefit analysis together with the
timetable demanded by the urgency of the problem. A specific ACTION PLAN must be prepared identifying the key activities with start and finish dates, and the named individuals who will carry them out. The proposed plan is then presented to the next higher
manager for approval, giving opportunity for team 'recognition'. Decide and implement: The Project Teams are responsible for implementing the decision. Regular review of the Project is
essential to control progress and costs, ensuring that the benefits are gained. Contingency plans may need to be activated to overcome practical difficulties arising. Evaluating the decision: Following successful implementation, the project must be monitored and evaluated. Has the problem been solved? Is the customer satisfied? What added value has been achieved? It may be necessary to use the Decision Making
How to define a problem? There are five key measurements for each 'output'
HINDRANCES TO EFFECTIVE DECISION MAKING
Many hidden factors hinder us in arriving at effective decisions. Some arise from our psychological make-up, others from the environment in which we try to solve problems. We must recognise and try to counteract these influences in order to become better decision-makers. How we respond to the world is shaped largely by experience that may result in providing skills necessary to solve a particular problem or we may learn things that actually hinder us. There are four main dimensions to our psychological make-up which can be affected -perception, expression, emotion and intellect.
Perception: Difficulties can arise when we don't accurately perceive a problem or the information needed to solve it. This includes:
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Seeing only what we expect to see. Not recognising problems effectively. Stereotyping -applying inappropriate labels. Not seeing a problem in proper perspective.
We tend to jump to conclusions, based on the obvious, and look no further. As a result we may take too narrow a view, recognising only a part of the problem or the information required for solving it. Following can be consequences of wrong perception:
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We may simply not recognise a problem. We may miss good opportunities if we do not see the full picture. Our solution may be inadequate. Our solution may not be workable as we failed to take into account certain information /factors.
Of all the psychological aspects of decision making, how we perceive situations is easiest to manipulate. Following steps will help to ensure that you see the full picture:
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Establish systems arid procedures to alert you to potential problems and opportunities. Don't rely on single or obvious measures. Define and analyse problems carefully, ensuring you gather all relevant information. Question whether you have used inaccurate information or made assumptions about what is and isn't relevant. Ask for other people's points of view. Use graphic representations to clarify the relationships between different aspects of a problem. .
Regularly review the status quo.
Expression: the ability to express information and ideas clearly during problem solving is important. Difficulties with expression can include:
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Inability to articulate or express ideas adequately. Using the wrong "language" to work on a problem. Unfamiliarity with the application of a language.
Routinely we use words to communicate and these often dominate our thinking. However, not all problems are best tackled using words alone. In using language to express ideas to other people we must take account of their understanding of that language. Steps to improve our expressive abilities are as follows:
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Identify which languages are most likely to help you solve a particular problem. Get expert 'help with problems that necessarily involve a language you are not fluent in Try using languages other than the norm, e.g., visuals instead of words, charts instead of raw data. While communicating, adapt to the audience's level of understanding.
Emotion : Our emotional make up can cause difficulties when it conflicts with the needs of problem solving. For example –
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Fear of making mistakes or looking foolish.
Impatience. Avoiding anxiety.
Fear of taking risks.
Emotions exert an incredibly powerful influence over our thoughts and actions, even though we may regard ourselves as sober, rational individuals. Emotions can encourage us to indulge in survival behaviour or give rise to needs for achievement, recognition, belonging, self esteem and so on. Fear of making mistakes or looking foolish in front of others is the most common manifestation .of emotional conflict. This is more severe if senior colleagues are around. Our desire for security tends to make us set objectives within easy reach or accept common, solutions without going in for creative ones. Emotion is deep seated and an integral part of us. It is; not easy to change. Some practical steps can help us to recognise and avoid the
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Critically, question existing ideas and methods. Accept that some mistakes are inevitable while looking for better ways of doing something. Remember many people were ridiculed for what turned out to be great inventions. If you dislike change, do some "wishful thinking" to see what benefits change would bring. Follow a strictly methodical approach to curb impatience. Reduce anxiety by tackling problems in more manageable steps. Identify the possible unpleasant outcomes while taking risks, and look for ways to minimise them. If a problem does appear challenging, imagine the greatest benefit that could be achieved with a totally new solution.
Intellect: How we apply our intellect to our problems rather than our ability, is the primary source of difficulties. They include:
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Lack of knowledge or skills in problem solving process.
Not enough creative thinking.
Lack of flexibility in thinking.
Not being methodical.
Knowledge, understanding and reasoning are fundamental in problem solving. However, we all account difficulties in applying it. Its not "what you have got" but "how you use it", that is important. Even more difficult is translating a creative idea into something more structured and logical. With practice we can start applying our mind flexibly and creatively. Following strategies would help:
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Be methodical and work systematically. Consider what approach is best for each problem. Practice using the various aids to problem solving (quality tools, etc.).
COMMITTEE AND GROUP DECISION-MAKING
The purpose of formal organizations is to provide a framework for cooperation and to fix responsibilities, delegate authority and provide for accountability. A committee is a group charged with dealing with specific problems or problem areas. Committees are often criticised but the problem is not in the existence of committees but in the way they are conducted and where they are used. Group process in committees -
generally has four stages
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Forming ( getting to know each other) Storming ( determining objectives of meeting; here conflicts arise)
Norming ( group norms and behavioural rules are set)
Performance (these are not essentially in this order)
Committees can be just for information or for decision making
If the authority involves decision making affecting subordinates responsible to it, it is called a Line Committee. If authority relationship is to a superior i.e., it is advisory in nature then it's a Staff Committee.
Committees which are a part of the organization structure with specifically delegated duties and authority are FORMAL. Those without any specific delegation of authority (usually by someone designing a group decision on a problem) are informal committees. A formal committee may be temporary (if it is for solving only one problem). Committees are widely used in all types of organizations and are popular because
they lead to several benefits.
Advantages of committee approach to decision making: Group deliberation and judgment is considered better than individual judgment.
It also negates the fear of delegation. It provides representation to interested groups and coordination of departments, plans and policies, transmission and sharing of information and motivation through participation. It avoids too much authority in a single person and is easily accepted due to its representative style
Disadvantages of committee approach: One of the biggest disadvantages of group decision making is escalation of cost and time which
may sometimes lead to compromise of decision making. It also results in splitting of responsibility leading to indecision.
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