CH 05

5
Planning and
Decision-making
Learning Outcomes
After studying this chapter, you should be

able to:
Define the concept of planning
Discuss how organizations use plans at all
management levels (from top to bottom)
Describe the different types of special-purpose plans
used by organizations (for change, contingencies,
product development and speed)
Principles of Management (Third Edition) All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2018 5–3
Learning Outcomes (cont.)
 Discuss the costs and benefits of planning

 Understand the nature of organizational goals, and
LEARNING OUTCOMES
how they facilitate performance (cont.)
 Explain how to plan successfully
 Understand management by objectives (MBO)
 Define decision-making, and describe the
organizational decision-making process

Introduction
Each and every one of us is often involved in some

form of planning. For example:
 Coordinating an event (a sporting event, a
charity event or fundraiser, your sibling’s wedding,
a school play, a book signing session, a bake sale,
a rock concert).
 Planning a meeting (a business meeting, an
office brainstorming session).

Introduction
 Planning a social gathering (a party, a reunion,

a holiday with family members, friends or
colleagues)
 Organizing a seminar or conference.

Planning Within
Organizations
 Planning is the initial process of management. Planning
is defined as the process of establishing goals,
developing alternatives and implementing them to
achieve organizational goals.
 The planning process includes specifying goals and
plans—these are the two major components of planning.
 A goal refers to a future target or end result that an
organization wishes to achieve.
 A plan, on the other hand, refers to the methods devised
to achieve an organizational goal.

Planning Within
Organizations (cont.)
 Planning is thus a management function which involves the
setting of goals and deciding how best to achieve them.
 Planning can also be defined as the process of choosing a goal
and developing a method or strategy to achieve that goal.

Planning Within
Organizations (cont.)
 Organizational vision
– A vision is a mental
picture that you have
and want to turn into a
reality in the future.
 Organizational mission
– Essentially, the planning process builds on the
mission of the organization, which is the
organization’s purpose or fundamental reason for
existence.
Planning From Top to Bottom
 Planning works best when the goals and plans at the

lower and middle level managements of an organization
support the goals and plans at the top level management.

Starting at the Top
There are four ways by which an organization

can set its mission:
Targeting
The common-enemy mission
The role-model mission
The internal-transformation mission

Bending in the Middle
Management by objectives (MBO) is a management

technique used at all levels of an organization to develop
and execute tactical plans. MBO is based on:
 Goals
 Participation
 Feedback

Ending at the Bottom
Standing plans save managers time because

they are created once and then used repeatedly
to handle frequently recurring events (unlike
single-use plans). There are three kinds of
standing plans:
 Policies
 Procedures
 Rules and regulations

Ending at the Bottom (cont.)
 Singleuse plans deal with unique, one-time only events

(they are created, executed and then never used
again). There are two main types of single-use plans:
– Programmes
• Dividing relevant tasks into parts or projects
• Determining the relationships among the parts and
developing a sequence
• Deciding who will take responsibility for each part
• Determining how each part will be completed and
what resources will be necessary

Ending at the Bottom (cont.)
• Estimating the time required for completion of each

part
• Developing a schedule for implementation of each
step
– Projects
• Plan that coordinates a set of limited-scope tasks or
activities
• Do not need to be divided into several components
in order to reach an important non-recurring goal
• Has its own budget

Special-purpose Plans
Organizations use special-purpose plans to

plan for:
 Change
 Contingencies
 Product development
 Speed

Planning for Change
 Planning for change involves stretch goals and

benchmarking.
 One way an organization is able to choose stretch
goals of just the right difficulty is by benchmarking
 Benchmarking is a process of identifying
outstanding practices, processes and standards in
other organizations and adapting them to an
organization

Planning for Contingencies
Planning for contingencies involve the following steps:

 Defining the scope of a scenario.
 Identifying the major stakeholders (customers,
suppliers, competitors, government) and the roles you
expect them to play in the scenario.
 Identifying basic political, economic, societal,
technological, competitive and legal trends that you
expect will occur in the scenario.

Planning for
Contingencies (cont.)
 Identifying key uncertainties and the likely
outcomes associated with them.
 Putting together your initial scenario using steps 1
to 4.
 For consistency and plausibility of facts and
assumptions in the scenario.
 Writing the final scenario and conducting a series
of planning sessions for management teams to
develop contingency plans for the scenario.

Planning for Product
Development
 Organizations develop aggregate product plans to

manage and monitor all new products in development
at any one time.
 Aggregate product plans should indicate the
resources (funds, equipment, facilities, materials and
employees) that are being used for each product, and
how all the products fit with the organization’s mission
and strategic plan.

Planning for Product
Development (cont.)
 Four key factors to faster product development are:
 Cross-functional teams
 Internal and external communication
 Overlapping development phases
 Frequent testing of product prototypes

Costs and Benefits of
Planning
Planning helps managers become more successful, but it
does not guarantee success. Planning has its advantages
and disadvantages, i.e.:
Planning ensures that managers and employees put
forth greater effort.
Planning can create a false sense of certainty, i.e.
planners sometimes feel that they know exactly what
the future holds for their competitors, suppliers and
organizations.

Costs and Benefits of
Planning (cont.)
 Planning can cause the detachment of planners. In

theory, strategic planners and top level managers are
supposed to focus on the big picture and not concern
themselves with the details of implementation
(carrying out a plan).

Nature of Organizational
Goals
Organizational goals are one of the important

elements in a planning process. Benefits of goals:
Goals can increase performance
Goals help to clarify expectations
Goals facilitate the controlling function
Goals can increase motivation

Levels of Goals
The three levels of goals, strategic, tactical and

operational which form a hierarchy of goals.

Levels of Goals (cont.)
 Strategic goals
– Broadly defined goals or targeted outcomes set by top
level management
– These goals address issues concerning an organization
as a whole
 Tactical goals
– Goals or targeted outcomes set by middle level
management.
– These goals specify what has to be done by the
departments or units to achieve the results outlined in
the strategic goals
Levels of Goals (cont.)
 Operational goals
– Goals or targeted outcomes set by lower level
management.
– These goals address specific measurable outcomes
required from the lower levels.

How Goals Facilitate
Performance

Keys to Successful Planning
 Goals and plans are closely related.

 Goals will have little purpose if careful consideration of
how they will actually be achieved is not taken.
 While goals are the desired ends, plans are the means
used to bring about those ends.
 Linking Goals and Plans
 Being Determined to Achieve Goals
 Developing Effective Action Plans

Keys to Successful
Planning (cont.)
 Another crucial step in planning is developing
an effective action plan.
 An action plan lists the specific steps, people,
resources and time horizon for the
accomplishment of a goal.
 An action plan is a description of what needs to
be done, how, when, where and by whom in
order to achieve a goal.

Planning Techniques
 There are many planning techniques that can be

used by organizations to plan effectively. These
techniques are commonly used by organizations to
ensure that the following three purposes are met:
– To analyse the environment the organization is
functioning in
– To allocate resources to the organization
– To get planning done and jobs completed on
time

The Techniques
 Forecasting
– Used to predict future events and to facilitate
decision-making.
– An important planning technique especially for
organizations functioning in a volatile global
setting.
– Used in environment scanning.
– There are two approaches, quantitative and
qualitative.

The Techniques (cont.)
 SWOT analysis
– Defined as a study of the internal and external
environmental factors that are critical components of
the planning process.
– The information obtained is useful in matching the
organization’s resources and abilities to the
environment in which it operates.
– It is one of the most popular strategic analysis models
and can provide a clear basis for examining an
organization’s business performance and prospects.

 PEST analysis
– Identifies the external forces that affect the
organization. It is the political, economic, social,
technological and legal environment in which an
organization operates.
– It is a very useful tool when used together with the
SWOT analysis.
– The process can be defined as the collection of
information which helps organizations find out where
they are lacking and what exactly they need, which
helps in formulating their strategies.

 Benchmarking
– It is the search for the best practices among
competitors or non-competitors that lead to their
superior performance, or a process where an
organization learns how to be the best in one or
more areas by analysing in detail the practices of
other organizations.

 Benchmarking
– There are four steps in benchmarking:
• Form a benchmarking team
• Gather and collect internal and external
information from best organizational practices
• Analyse data to identify performance gaps
• Prepare and implement action plans

 Budgeting and scheduling
– Often used to allocate organizational resources.
– Budgeting is defined as numerical plans for
allocating resources to specific activities.
– Scheduling is a process of detailing what
activities need to be done, the order in which
they are to be completed, who is to do each, and
when they are to be completed. Examples
include Gantt charts and Program Evaluation
and Review Technique (PERT) Network
Analysis.
 Balanced scorecard (BSC)
– A performance metric used in strategic management
to identify and improve various internal functions of a
business and their resulting external outcomes.
– Three purposes of a balanced scorecard:
• Clarify strategy
• Monitor progress
• Define and manage action plans
– They help organizations by providing a map or
directions of where they want to go and how they
intend to get there.
 Key performance indicators (KPIs)
– Provide a way to measure how well companies,
business units, projects or individuals are
performing in relation to their strategic goals and
objectives.
– It breaks down the organizational goals to
smaller, manageable key indicators and as such
is a useful decisional tool, assisting in decision-
making and help improve organizational
performance.

 Scenario and contingency planning
– Scenario planning allows managers and leaders to
explore and prepare for several alternative futures. It
examines the outcomes a company might expect under
a variety of operating strategies and economic
conditions.
– Contingency planning measures what effect abrupt
market changes or business disruptions might have on
an organization and formulates strategies to deal with
them.
– Allows management to test plans and forecasts, and
prepares the company to handle unexpected problems.
 Management by objectives (MBO)
– Defined as a process through which specific goals are set
collaboratively by managers and employees for an
organization.
– There are six steps in the MBO process:

Assessing MBO
Strengths and weaknesses of MBO

Decision-making
 Quality and timely decision-making is essential for

the success of any organization.
 How an organization chooses to design its decision-
making rules are one of the most fundamental
aspects of its internal design.
 An organization’s ability to make good decisions is
particularly important in the face of increasing global
competition and greater uncertainty from exposure
to more competitors.

Decision-making (cont.)
The Decision-making Process:
1. Identifying and diagnosing the problem
2. Generating alternative solutions
3. Evaluating alternatives
4. Making the choice
5. Implementing the decision
6. Evaluating the decision
The decision-making process never ends. If the decision has not
met the identified need, the organization may want to repeat
certain steps of the process to come to a new decision.

Group Decision-making
 Group decision-making is a situation where

people are brought together to solve problems
by sharing their opinions and inputs.
Methods of Group Decision-making:
1. Authoritarian style
2. Brainstorming
3. Voting based method

(cont.)
– Advantages of group decision-making
• Helps to combine individual strengths of group members
• Individual opinions can be biased or affected by pre-
conceived notions. A group decision always means
enhanced collective understanding of the course of action
to be taken after the decision is made.
• Gains greater group commitment since every member
shares in the decision-making process.
• Fosters a strong sense of team spirit amongst group
members and helps the group to think together in terms of
success as well as failure.
(cont.)
– Disadvantages of group decision-making
• More time consuming than the process of individual
decision-making
• Takes longer to be finalized since there are many opinions
to be considered and valued
• In the case of an authoritarian or a minority group decision-
making process, the members whose opinions are not
considered tend to be left out from the process. This causes
team spirit to diminish.
• The responsibility and accountability of decisions are not
shared equally in some cases which leads to a split in the
group. This hampers overall efficiency of the group.
Organizational Decision-
making Process
 Involves proper and efficient implementation of
strategic plans and methods to achieve desired
business objectives.
 Multiple divisions are involved in the overall
decision-making process—can have different
implications for each respective division
 Organization wide support is crucial
 Key areas that affect the overall process include:

Contemporary Planning and
Decision-making Issues
 The organization must address the contemporary issues

in order to remain competitive.
 By doing so organizations will be successful in their
planning and decision-making functions.

Contemporary Planning and
Decision-making Issues (cont.)
Some of these issues include:

Legal issues
Technological issues
Financial support
Effective marketing strategies
Innovation
Creativity
Intellectual capital


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5

After studying this chapter, you should be

Principles of Management (Third Edition) All Rights Reserved

 Discuss the costs and benefits of planning

Principles of Management (Third Edition) All Rights Reserved

Each and every one of us is often involved in some

Principles of Management (Third Edition) All Rights Reserved

 Planning a social gathering (a party, a reunion,

Principles of Management (Third Edition) All Rights Reserved

Principles of Management (Third Edition) All Rights Reserved

Principles of Management (Third Edition) All Rights Reserved

 Planning works best when the goals and plans at the

Principles of Management (Third Edition) All Rights Reserved

There are four ways by which an organization

Principles of Management (Third Edition) All Rights Reserved

Management by objectives (MBO) is a management

Principles of Management (Third Edition) All Rights Reserved

Standing plans save managers time because

Principles of Management (Third Edition) All Rights Reserved

 Singleuse plans deal with unique, one-time only events

Principles of Management (Third Edition) All Rights Reserved

• Estimating the time required for completion of each

Principles of Management (Third Edition) All Rights Reserved

Organizations use special-purpose plans to

Principles of Management (Third Edition) All Rights Reserved

 Planning for change involves stretch goals and

Principles of Management (Third Edition) All Rights Reserved

Planning for contingencies involve the following steps:

Principles of Management (Third Edition) All Rights Reserved

Principles of Management (Third Edition) All Rights Reserved

 Organizations develop aggregate product plans to

Principles of Management (Third Edition) All Rights Reserved

 Four key factors to faster product development are:

Principles of Management (Third Edition) All Rights Reserved

Principles of Management (Third Edition) All Rights Reserved

 Planning can cause the detachment of planners. In

Principles of Management (Third Edition) All Rights Reserved

Organizational goals are one of the important

Principles of Management (Third Edition) All Rights Reserved

The three levels of goals, strategic, tactical and

Principles of Management (Third Edition) All Rights Reserved

Principles of Management (Third Edition) All Rights Reserved

Principles of Management (Third Edition) All Rights Reserved

 Goals and plans are closely related.

Principles of Management (Third Edition) All Rights Reserved

Principles of Management (Third Edition) All Rights Reserved

 There are many planning techniques that can be

Principles of Management (Third Edition) All Rights Reserved

Principles of Management (Third Edition) All Rights Reserved

Principles of Management (Third Edition) All Rights Reserved

Principles of Management (Third Edition) All Rights Reserved

Principles of Management (Third Edition) All Rights Reserved

Principles of Management (Third Edition) All Rights Reserved

Principles of Management (Third Edition) All Rights Reserved

Principles of Management (Third Edition) All Rights Reserved

Principles of Management (Third Edition) All Rights Reserved

 Quality and timely decision-making is essential for

Principles of Management (Third Edition) All Rights Reserved

Principles of Management (Third Edition) All Rights Reserved

 Group decision-making is a situation where

Principles of Management (Third Edition) All Rights Reserved

Principles of Management (Third Edition) All Rights Reserved

 The organization must address the contemporary issues