PLANNING AND

DECISION-MAKING
Essentials of Planning and Decision-Making
Planning…
 The most fundamental and basic of all management
function
 Includes a rational approach in selecting and
achieving goals and objectives and deciding on the
actions to achieve them.
 It involves looking ahead and preparing for the
future. Thus, nothing can be done without a plan.
Close Relationship of
Planning and Controlling

 Planning and Controlling are inseparable.

 They are the Siamese Twins of Management.
New Plans

Controlling:
Implementation Comparing No undesirable
Planning
of plans plans with deviation from
results plans

Corrective action
Figure 1:
Close Relationship of Planning and Controlling
Close Relationship of
Planning and Controlling

 Any attempt to control without plans is

meaningless, since there is no way for people to tell
whether they are going where they want to go
(the result of the task of control) unless they first
know where they want to go (part of the task of
planning).
 Plans thus furnish the standards of control.
The Planning Period
 Short-run planning covers a period of 6 to 12
months.
 Intermediate-range plans are from 1 to 5 years

 Long-term planning may range from 5, 10 to

even 20 years.
How long should the planning period be?

The length of the period for which an enterprise

plan vary on
 the type of the enterprise

 the kind of industry

 the production cycle

 the quality of managerial practice

 and many other factors in the decision

Types of Plans
1. Visions
2. Missions or Purposes
3. Goals or Objectives
4. Strategies
5. Policies
6. Procedures
7. Rules
8. Programs
9. Budgets
Types of Plans
1. Vision
 A picture of the state of the desired outcome in
the future usually in the long term from current
time.
 It answers the question “where do we want to
go?” or “what do we want to become?”
 It may be a plan or a goal. Like objectives a
vision statement should be specific, measurable,
attainable, realistic and time-bound.
Developing a Vision
 Begins with thinking strategically
 About the firm’s future makeup;

 Forming vision of firm’s future in 5-10 years

 Task is to:

 Inject sense of purpose into firm’s activities;

 Provide LONG-TERM DIRECTION;
 Give the firm STRONG IDENTITY;
 Decide “WHO we are, WHAT we do, & WHERE we are
headed”
VISION STATEMENTS
FAMOUS COMPANIES
MAPUA UNIVERSITY

 “shall be among the best universities in the

world.”
NESTLE

 “To be a leading, competitive, Nutrition, Health

and Wellness Company delivering improved
shareholder value by being a preferred
corporate citizen, preferred employer,
preferred supplier selling preferred products.”
AMAZON.COM

 “to be Earth's most customer centric company;

to build a place where people can come to
find and discover anything they might want to
buy online.”
APPLE

 “is committed to bringing the best personal

computing experience to students, educators,
creative professionals and consumers around
the world through its innovative hardware,
software and Internet offerings.”
METROBANK
 “To be the country’s premiere financial
conglomerate, empowering our individual and
business clients to realize their goals and reach
their full potential. By creating and customizing
financial solutions in response to our
stakeholder’s needs, continuously expanding
our scope of reach, and leading in community
service, we live up to our “You’re in Good
Hands” promise that embodies who we are
and what we do.”
ST. LUKE’S HOSPITAL

 “will be an internationally recognized

academic medical center by the year 2020”
TOYOTA

 “Looking to the Future of "People, Cars and

Communities”
JOLLIBEE

 “To serve great tasting food, bringing the joy

of eating to everyone”
Types of Plans
2. Purposes or Missions
 Identifies the basic purpose or function or tasks of the organization
or any part of it.
 In every social system, enterprises have a basic function or task
assigned to them by society.
 For example,
 business - production and distribution of goods and services
 state highway department - design, building, and operation of a
system of state highways
 courts - interpretation of laws and their application
 university - teaching, research, and providing services to the
community
MISSION STATEMENTS
FAMOUS COMPANIES
NIKE

 “To bring inspiration and innovation to every

athlete* in the world”

* If you have a body, you are an athlete.

COCA-COLA

 “To refresh the world...

To inspire moments of optimism and
happiness...
To create value and make a difference.”
MAPUA UNIVERSITY
 “The University shall provide a learning
environment in order for its students to acquire the
attributes that will make them globally
competitive.
 The University shall engage in publishable and/or
economically viable research, development, and
innovation.
 The University shall provide state-of-the-art
solutions to problems of industries and
communities.”
FACEBOOK

 “To give people the power to build community

and bring the world closer together”
MC DONALD’S

 Good food
 Good people

 Good neighbor
NOKIA

 “Connecting people”
STARBUCKS

 “To inspire and nurture the human spirit – one

person, one cup and one neighborhood at a
time”
GOOGLE

 “Organize the world‘s information and make it

universally accessible and useful”
Types of Plans
3. Goals or Objectives

 Represent not only the end point of planning, but

also the end toward which organizing,
directing/leading, and controlling are aimed.
TYPES OF OBJECTIVES NEEDED by an
Organization:

1. Financial Objectives
 Outcomes that relate to improving firm’s financial
performance
SPECIFIC FINANCIAL CORPORATE
OBJECTIVES
 McCORMICK & COMPANY
• Improve returns from each of our existing operating groups.
• Achieve a 20% return on equity.
• Achieve net sales growth rate of 10% per year.
• Maintain an average earnings per share growth rate of 15%
per year.
SPECIFIC FINACIAL CORPORATE
OBJECTIVES
 QUAKER OATS COMPANY

 To achieve return on equity at 20% or above, “real” earnings

growth averaging 5% or better over time, be a leading
marketer of strong consumer brands, and improve the
profitability of low-return businesses or divest them.
TYPES OF OBJECTIVES NEEDED by an
Organization:

2. Strategic Objectives
 Outcomes that will result in greater competitiveness &
stronger long-term market position
SPECIFIC STRATEGIC CORPORATE
OBJECTIVES

 NIKE
 Protect & improve Nike’s position as the number one athletic
brand in America.
 Build a strong momentum in growing fitness market.
 Intensify the company’s effort to develop products that
customers need and want.
SPECIFIC STRATEGIC CORPORATE
OBJECTIVES
 ATLAS CORPORATION

 To become a low-cost, medium-size gold producer, producing

in excess of 125,000 ounces of gold a year and building gold
reserves of 1,500,000
Types of Plans
4. Strategies
 Defined as the determination of the basic long-
term objectives of an enterprise
 The art of using organizational resources to
reach the goals defined.
 Consists of competitive moves & business
approaches to produce successful performance
Types of Plans
 Strategies are management’s “game plan” for:
 Running the business
 Strengthening firm’s competitive position
 Satisfying customers
 Achieving performance targets
 Examples:
 Improving the market standing
 Increasing productivity goals
 Product innovation
 Systems development
 nking strategically: Three big strategic
uestions
Where are we now?
Where do we want to go?
ow will we get there?

A strategy without metrics is just a wish. And metrics

that are not aligned with strategy are a waste of time.
Types of Plans
5. Policies
 General statements or understandings that guide or
channel thinking in decision making.
 They help decide issues before they become
problems.
 Behavioral guidelines that set boundaries on
what managers can and cannot do; provide
criteria to follow in order to implement
operational objectives.
Sample Attendance Policy: No-Fault Point System

The goal of this attendance policy is to reward good attendance and

eliminate people with poor attendance. It uses a point system, and does
not excuse or unexcuse absences.

In a no fault attendance system, absences are recorded thus:

Each absence = 1 point (no multi-day occurrences)
Each late in (tardy) or early out = 1/2 point
Each no-show for work = 2 points
Each return with no prior call = 1 point
 Each absence-free quarter eliminates all points and rewards the
employee with a day off with pay.
 Each employee starts fresh, with no points, each year.

Progressive disciplinary action accompanies a no-fault attendance

system. If an employee earns:
7 points = verbal warning
8 points = written warning
9 points = 3 day suspension
10 points = termination
Types of Plans
6. Procedures
 Establish a chronological sequences of required actions in
handling future activities;
 Details of the exact manner in which certain activities must
be accomplished;
 Procedures are guides to action; therefore they are more
specific than policies. Policies define a broad field whose
area is determined and limited by the objectives of the
enterprise. Procedures show the sequence of concrete acts.
Example:
Policy statement: “The customer is always right”

In a department store, the procedure might be to send a

complaining customer to the supervisor, then to the
department manager and finally to the adjustment office.

Whatever decision these various managers make will be

within the broad guideline of thinking that the customer is
right. Although the managers might not believe in a
particular instance that the customer is justified, the
complaint will be handled according to a prescribed
procedure from the policy of the store.
Sample Procedure for Hiring New Employees
1.Determine the need for a new or replacement position.
2.Develop and prioritize the key requirements needed from the position and
the special qualifications, traits, characteristics, and experience looked for in a
candidate. With HR department assistance, develop the job description and
salary range for the position.
3.Advertise or post the job opportunities in the bulletin board, company
website, print media, etc.
4.Send an all-company email to notify staff that a position has been posted
and that the company is open for hiring employees.
5.Interested candidates shall fill out the Position Application. Schedule an
interview for candidates, with the hiring supervisor, the manager of the hiring
supervisor or a customer of the position and HR. (In all cases, tell the
candidates the timelines you anticipate the interview process will take.)
6.Hold the interviews with each interviewer clear about their role in the
interview process. Interviewers shall fill out the Job Candidate Evaluation
Form.
7.If no candidates are selected for the position, make certain to clearly
communicate with the applicants that they were not selected. If a candidate is
selected for the position, prepare a written job offer that includes the new job
description and salary.
Types of Plans
7. Rules
 Spell out specific required actions or nonactions.
 Usually the simplest type of plan.
 The essence of rule is that it reflects a
managerial decision that a certain action must –
or must not – be taken.
 Rules are different from policies in that policies
are meant to guide decision making by marking
off areas in which managers can use their
discretion, while rules allow no discretion in their
application.
Sample of Simple Rules

NO
Eating
Drinking
Smoking
No littering
P
Classroom Rules:
1. Everyone deserves respect.
2. Come to class prepared.
3. Do your best.
4. Have a winning attitude.
5. Have fun and learn!
Types of Plans
8. Programs
 A complex of goal, policies, procedures,
rules, task assignments, steps to be taken,
resources to be employed, and other
elements necessary to carry out a given
course of action;
 They are ordinarily supported by budgets.
Sample Program: Emergency Action Program
Sample Program: Emergency Action Program
Sample Program: Emergency Action Program
Sample Program: Emergency Action Program
Sample Program: Emergency Action Program
Sample Program: Emergency Action Program
Types of Plans
9. Budgets
 A statement of expected results expressed in numerical terms; may
be called a “quantified” plan. The financial operating budget is
often called a “profit plan”.
 May be expressed in financial terms - in terms of labor-hours, units of
product, or machine-hours; or in any other numerically measurable
terms.
 Budgets are also control devices. However, making a budget is clearly
planning. The budget is the fundamental planning instrument in many
companies.
 The budget is necessary for control, but it cannot serve as a sensible
standard of control unless it reflects plans.
Examples of Budgets

 Business start-up budget – includes a list of all necessary

purchases including tangible assets (for example,
equipment, inventory) and services (for example,
remodeling, insurance), (working capital), sources and
collateral
 Corporate budget - a finished budget for the short-term
future, typically one year
 Government budget - a summary or plan of the intended
revenues and expenditures of that government
 Personal or family budget - all sources of income (inflows)
are identified and expenses (outflows) are planned with the
intent of matching outflows to inflows (making ends meet)
Steps in Planning

1. Being Aware of Opportunities

• All managers should:
 Take at preliminary look at possible future opportunities
and see them clearly and completely.
 Know where their company stands in the light of its
strengths and weaknesses.
 Understand what problems it has to solve and why.
 Know what it can expect to gain.
• Planning requires a realistic diagnosis of the opportunity
situation.
Steps in Planning
2. Establishing Objectives
 To be done for the long-term as well as for the short
range.

 Objective specify the expected results and indicate

the end points of what is to be done, where the
primary emphasis is to be placed, and what is to be
accomplished.

 Objectives must be SMART.

Steps in Planning
3. Developing Premises
 Establish, circulate, and obtain agreement to
utilize critical planning premises such as
forecasts, applicable basic policies, and existing
company plans.
 Premises are assumptions about the environment in
which the plan is to be carried out.
Steps in Planning
4. Determining Alternative Courses
 Search for and examine alternative courses of
action, especially those not apparent.
 The more common problem is not finding
alternatives but reducing the number of
alternatives so that the most promising may be
analyzed.
 Even with mathematical techniques and the
computer, there is limit of the number of
alternatives that can be thoroughly examined.
Steps in Planning
5. Evaluating Alternative Courses
 Evaluate the alternatives by weighing them
in the light of premises and goals.
Steps in Planning
6. Selecting a Course
 This is the point at which the plan is adopted – the
real point of decision making.

 Occasionally, an analysis and evaluation of

alternative courses will disclose that two or more
are advisable, and the manager may decide to
follow several courses rather than the one best
course.
Steps in Planning
7. Formulating Derivative Plans
 When a decision is made, planning is
seldom complete, and a seventh step is
indicated.

 Derivative or action plans are almost

invariably required to support the basic
plan.
Steps in Planning
8. Quantifying Plans by Budgeting
 Quantify decisions and plan by converting them into
budgets.
 The overall budget of an enterprise represents the sum
total of income and expenses, with resultant profit or
surplus, and the budgets of major balance sheet items
such as cash and capital expenditures.
 If done well, budgets become a means of adding
various plans and set important standards against which
planning progress can be measured.
PLANNING TOOLS &
TECHNIQUES
1. Gantt Chart
2. Pert-CPM Chart
3. Systems Flowchart
4. Cause & Effect Diagram
5. Process Maps
6. SWOT Analysis
7. TOWS Matrix
Gantt Chart
 first project planning and control technique to emerge
during 1940’s in response to the need to manage
complex defense projects and systems better
 a tool for planning and scheduling an Analyst
performance during a systems project and for machine
supplies delivery during the installation phase of a
project
 shows the anticipated completion times for various
project activities as bars plotted against time on the
horizontal axis
Gantt Chart – Work Schedule
Gantt Chart – Project Development
Program Evaluation & Review Technique (PERT) /
Critical Path Method (CPM) Charts

 a planning and control tool that graphically portrays the

optimum way to attain some predetermined objective,
generally in terms of time
 presents a graphic illustration of a project as a network
diagram consisting of numbered nodes (either circles
or rectangles) representing events, or milestones in the
project linked by labeled vectors (directional lines)
representing tasks in the project. The direction of the
arrows on the lines indicates the sequence of tasks.
PERT/CPM Chart – PC Card
Systems Flowchart

 explains how a system works using a diagram.

The diagram shows the flow of data through a
system.
 The different shaped symbols used are:

Start/end of
the process Decision

Operation
Connector
Systems
Flowchart
Cause and Effect Diagram

 also known as “fishbone diagram”, developed

by Ishikawa in the early 1950s

 method consists of defining an occurrence of a

typically undesirable event or problem (effect)
and then identifying contributing factors
(causes)
Cause & Effect Diagram
Cause & Effect Diagram
Process Map

 visually depicts the sequence of events to build a

product or produce an outcome
 shows all the process associated activities, including
volumes of input and output, approvals, exceptions,
and cross-functional hand-offs.
 the basic goal is to provide a unifying vision of business
processes so that participating organizations and
individuals can have an understanding of their specific
role in the overall system
Deployment
Flowchart
–
New Product
Development
SWOT Analysis

 a strategic planning method used to evaluate the

Strengths, Weaknesses, Opportunities, and Threats
involved in a project or in a business venture
 involves specifying the objective of the business
venture or project and identifying the internal and
external factors that are favorable and unfavorable
to achieve that objective
 A SWOT analysis must first start with defining a
desired end state or objective and may be
incorporated into the strategic planning model
SWOT Analysis

 Strengths - characteristics of the business or team that

give it an advantage over others in the industry.
 Weaknesses - characteristics that place the firm at a
disadvantage relative to others.
 Opportunities - external chances to make greater
sales or profits in the environment.
 Threats - external elements in the environment that
could cause trouble for the business.
An Illustration: The Procter & Gamble Company
Profile
The Procter & Gamble Company (P&G) boasts boatloads of
brands. The world's #1 maker of household products courts
market share and billion-dollar names. It's divided into three
global units: health and well being, beauty, and household care.
The company also makes pet food and water filters and produces
a soap opera. Some two-dozen of P&G's brands are billion-
dollar sellers, including Fusion, Always/Whisper, Braun, Bounty,
Charmin, Crest, Downy/Lenor, Gillette, Iams, Olay, Pampers,
Pantene, Pringles, Tide, and Wella, among others. P&G shed its
coffee brands in late 2008. Being the acquisitive type, with
Clairol and Wella as notable conquests, P&G's biggest buy in
company history was Gillette in late 2005.
 Procter & Gamble SWOT Analysis:
STRENGTHS WEAKNESSESS
•New Management •Top Brands Losing Market Share
•Gross Margin 15 Times the Industry Average •Health and Beauty Women Only
•One of the best marketers in the world •Lagging behind in online media presence & leadership
•Diversified brand portfolio: more than 300 brands with more than •Missing opportunity: Refuses to manufacture private label products
79 billion in Revenue for its retail customers
•Tightly integrated with the largest retailers in the US and around •Slow Process Heavy Culture
the world •Weak brands (Duracell, Iam, Braun, Pringles)
•Product innovation •Views Product Performance only
•Talented management
•Distribute to 80 Countries
•Distribution channels all over the world
•New Billion Dollar brands

OPPORTUNITIES THREATS
•Health and Beauty for Men •Substitute brands that have a cheaper price
•Doubling Environmental Goals •Private label growth
•Adding Value for the Conspiracy •Slowdown in consumer spending in the US & globally
•Utilizing online social networks •Key competitors expanding their product portfolios through
•Going Green/Eco Friendly acquisitions
•Capitalizing on online media •Increase in raw material price
•Continue to divest brands that don't align with the company's •Commodity cost and currency exchange rate placed tremendous
long-term goals (i.e., Folgers) pressure on the business
•Emerging markets
•New acquisition opportunities
•Selling directly to consumers
•Design for better product experience
The TOWS Matrix: A Modern Tool for
Analysis of the Situation
 The TOWS Matrix has been introduced for analyzing
the competitive situation of the company that leads to
the development of the four distinct sets of strategic
alternatives.
 The TOWS Matrix has a wider scope and a different
emphasis from the business portfolio matrix and SWOT
analysis.
 The TOWS Matrix is a conceptual framework for a
systematic analysis that facilitates matching of the
external threats and opportunities with the internal
weaknesses and strengths of the organization.
The TOWS Matrix: A Modern Tool for
Analysis of the Situation
Internal
factors
External
factors
External opportunities (O)
(consider risks also) e.g., current
and future economic conditions;
political and social changes; new
products, services, and
technology.
External threats (T)
e.g., energy shortage,
competition, and areas similar to
those shown in the
“opportunities” box above.
Internal strengths (S)
e.g., strengths in management,
operations, finance, marketing,
research and development,
engineering.
SO strategy: Maxi-Maxi
Potentially the most successful
strategy, utilizing the
organization’s strengths to take
advantage of opportunities.
ST strategy: Maxi-Mini
Use of strengths to cope with
threats or to avoid with threats.
Internal weaknesses (W)
e.g., weaknesses in areas shown
in the “strengths” box.
WO strategy: Mini-Maxi
e.g., development strategy to
overcome weaknesses in order to
take advantage of opportunities.
WT strategy: Mini-Mini
e.g., retrenchment, liquidation, or
joint venture to minimize both
weaknesses and threats.
Decision Making
 It is defined as the selection of a course of action
from among alternatives; it is at the core of planning.
 A plan cannot be said to exist unless a decision–a
commitment of resources, direction, or reputation–has
been made.
 Managers sometime see decision making as their
central job because they must constantly choose what
is to be done, who is to do it, and when, where, and
occasionally even how it will be done.
Four-step Decision Making Model

Step 1 Step 2
Identify the need for a Develop alternative
decision (for example: responses to choose from
based on vision, problem, (possible courses of
or opportunity actions)

Step 4 Step 3

Choose appropriate
Implement chosen
alternative
alternative
(based on situation)
Considerations in Making Decisions
1. Consider limiting factors - something that stand in the way of
accomplishing a desired objective.
The principle of the limiting factor states that by
recognizing and overcoming those factors that stand
critically in the way of a goal, the best alternative course
of action can be selected.

2. In evaluation of alternatives, several methodologies and

applications and analysis may be applied. These include:
 Advantages/ Disadvantages
 Strengths/ Weaknesses
 Cost-Benefit Analysis (C.B.A.)
 Decision Trees
Considerations in Making Decisions
3. In choosing appropriate alternative, three approaches
may be used:
Bases for selecting from among alternative courses of action

Experimentation

How to select from

Reliance on the
among Choice made
past
alternatives?

Research and
analysis
Decision Making under Certainty,
Uncertainty, and Risk
1. Certainty
 In a situation involving certainty, people are reasonably sure about what will
happen when they make a decision. The information is reliable and is considered
to be reliable, and the cause and effect relationships are known.
2. Uncertainty
 In a situation of uncertainty, people have only a meager database, they do not
know whether or not the data are reliable, and they very unsure about whether
or not the situation may change.
3. Risk
 In a situation with risks, factual information may exist, but it may be incomplete.
To improve decision making, one may estimate the objective probability of an
outcome (by using for example, mathematical models) and the subjective
probability (based on judgment and experience).
Contingency Planning
 Contingency plans set out in advance how managers
will respond to possible future events that could
disrupt the organization’s existing plans.
 Plans that managers hope will never need to be
implemented.
 One thing to consider is to monitor the potential
sources of crises. Crises – events that have a major
effect on the ability of an organization’s members to
carry on their daily tasks – are the most intense type
of contingency (i.e. earthquake, flood, computer virus,
strikes).
Contingency Planning
To limit the impact of such a crisis, managers can:
1. Perform preventive work to avoid or minimize the
effect of crisis.
2. Prepare for a crisis by assembling information and
defining responsibilities and procedures that will
be helpful in a time of crisis.
3. Make a timely response to a crisis.

References : Management - A Global Perspective by Weihrich and Koontz 11th Edition

Management by Dyck and Neubert