Planning and Decision Making

Module 5:

PLANNING
·       a particular kind of decision making that addresses the specific future that managers desire for their
organization (Stoner Freeman, & Gilbert, 2005)
Importance of planning:
•       Planning provides direction
•       Planning reduces the risk of uncertainty
•       Planning reduces overlapping and wasteful activities
•       Planning promotes innovative idea
•        Planning facilitates decision making
•       Planning establishes standards for controlling

Steps in Planning
•       Choose goals
•       Identify actions
•       Allocate responsibility
•       Review Performance
•       Make adjustments
 
Levels of Planning 
Strategic plan – a plan that outlines the major goals of an organization and the organization wide
strategies for attaining the goals
a. Corporate-level strategy – strategy concerned with deciding which industries a firm should compete
in and how the firm should enter or exit the business
b. Business-level strategy – strategy concerned with deciding how a firm should compete in the
industries in which it has selected to participate
c. Operating strategy – strategy concerned with the actions that should be taken at the level of
individual functions
-Operating plans – plans that specify goals, actions, and responsibility for individual functions
- Unit plans – plans for departments within functions, work, teams, or individuals
 
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.
•       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.
•       Prevention – prevent it from happening in the first place if possible
•       Preparation – not all crises can be prevented; requires an organization to designate a crisis
management team and a spokesperson that will cope with crises that arise
•       Containment – concerned with the steps that need to be taken after a crisis has occurred to limit its
effects
•       Scenario planning:  Plans that are based on “what if” scenarios about the future.
 
Scenario Planning
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
 

The Strategic Planning Process

 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.
 
Mission checklist
•       Ends, not means
•       Effort
•       Verbs
•       Nouns embodying activities
•       The Unidentifiable
•       Brevity
•       Broad vs. narrow
•       Value added
•       Unique
 
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
•       Measurable
•       Tangible
•       Written
•       Shared
•       Consistent with your values
 
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
 Decision making
•       The process of identifying and selecting a course of action to solve a specific
•       Decision making connects the organization’s present circumstances to actions that will take the
organization into the future
 
The Rational Decision-Making Model
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.
 
Decision-Making Heuristics and Cognitive Biases
q  Decision heuristics /Rules of thumb: broadly accurate guide or principle, based on experience or
practice rather than a theory
ü  80-20 Rule (Pareto Principle) – a heuristic stating that 80 percent of the consequences of a
phenomenon stem from 20 percent of the causes
Performing in your 20 percent if you’re:
•       Engaged in activities that advance your overall purpose in life
•       Doing things you have always wanted to do not what others want you to do
•       Hiring people to do the tasks you are not good at or don't like doing.
•       Smiling.
q  Cognitive biases – decision-making errors that we are all prone to making and that have been
repeatedly verified in laboratory settings or controlled experiments with human decision makers
Ø  Prior hypothesis bias – decision makers who have strong prior beliefs about the relationship between
two variables tend to make decisions on the basis of these beliefs, even when presented with evidence
that their belief is wrong
Ø  Escalating commitment – arises when decision makers, having already committed significant
resources to a project, commit even more resources if they receive feedback that the project is failing
Ø  Reasoning by analogy – the use of simple analogies to make sense out of complex problems
Ø  Representativeness – generalizing from a small sample or even a single vivid anecdote
Ø  Illusion of control – the tendency to overestimate one’s ability to control events
Ø  Availability error – arises from our predisposition to estimate the probability of an outcome based on
how easy is to imagine
Ø  Framing bias – bias arising from how a problem or decision is framed

Improving Decision Making

•       Devil’s advocacy:  The generation of both a plan and a critical analysis of the plan by a devil’s
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.