University of Dar es

Salaam Business
School
LE 201
Principles & Practices of
Management
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 Topic 2

Planning & Decision Making

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 Meaning
 Planning is a primary managerial activity
that involves:
– Defining the organization’s goals
– Establishing an overall strategy for
achieving those goals
– Developing action plans for
organizational work activities.

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 Rationale for Planning
 Purposes of Planning
– Provides direction
– Reduces uncertainty
– Anticipate problems
– Provides guidelines for decision making
– Minimizes waste and redundancy
– Sets the standards for controlling

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 Planning and Performance
 Formal planning is associated with positive
financial results.
 The quality of planning and implementation
affects performance more than the extent
of planning.
 The external environment can reduce the
impact of planning on performance,
 Formal planning must be used for several
years before planning begins to affect
performance.
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 Types of Plans
 Plans can be categorized based on their
breadth (coverage), time frame, specificity
and frequency of use.
 As a result, we have strategic vs.
operational plans, long-term vs. medium-
term vs. short-term plans, single-use vs.
standing plans.

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 Strategic vs. Operational plans
 When we describe plans by their breadth
we come up with strategic and operational
plans.
 Strategic plans apply to the entire
organization.
 Strategic planning establishes the
organization’s overall goals and seeks to
position the organization in terms of its
environment.

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 Strategic vs. Operational plans
 Operational plans specify the details of
how the overall goals are to be achieved.
 Operational planning defines ways to
achieve the organizational goals.
 As one goes high up the organizational
hierarchy planning becomes more of
strategic nature and vice versa.

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 Planning in the Hierarchy of Organizations

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 Long-term vs. Short-term plans
 Results classification of plans in terms of the
time frame to be covered.
 Long-term plans are plans that cover the
time frame of above five years.
 Medium-term plans cover a period of
between one and five years.
 Short-term plans: Refer to those that
cover one year or below.

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 Long-term vs. Short-term plans

 It should be noted that most firms have a

rolling planning cycle to amend plans
constantly.

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 Single vs. Standing plans
 Plans may be ongoing or used only once.
 Single-use plans are one-time plans
specifically designed to meet the needs of a
unique situation.
 Standing plans are ongoing plans that
provide guidance for activities performed
repeatedly.

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 Single vs. Standing plans

 Standing plans include policies, rules and

procedures that were defined in the previous
topic.

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 Types of Plans

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 The Planning Process
 Planning involves the following steps:
1. Developing the vision and mission
2. The setting goals
3. Analyzing the external environment
(Opportunities and Threats)
4. Analyzing the internal environment (Strengths
and Weaknesses)
5. Formulating strategies
6. Implementing strategies
7. Evaluating results
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 Developing the vision and mission
 Planning begins with clearly defining the
vision and mission of the organization.
 A vision is a road map of the organization’s
future. Ideally, it refers to the dream of the
organization.
 A mission is a statement of the purpose of
the organization. It is an answer to the
question: What is the reason for being in
the business or what business are we in?

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 Developing the vision and mission
 The vision of the UDBS is stated as “to
become a world class business school that
is responsive to development needs
through innovation in knowledge creation
and application”.
 Vision definition is a direction setting
exercise, concern with the deciding which
way the organization is going.

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 Developing the vision and mission
 The mission of the UDBS is stated as “to
provide quality management training,
research and advisory services for
development of Tanzania and the rest of the
world”.
 Mission focuses on the organization’s present
capabilities, products or services, customers
and concern for public image.
 A mission statement should be short easily
understood.
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 The setting goals

 Organizational goals are defined as

ends (desired outcomes) which the
organization seeks to achieve by its
existence and operation.
 Goal definition involves interpreting the
organization’s mission in line with the
needs of different stakeholders and
translating them into definite goals for
future direction.
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 The setting goals
 A well written goal should have the following
characteristics:
 Specific
 Measurable and quantifiable
 Attainable but challenging
 Realistic
 Time-bound
i.e. goals should be SMART
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 External Analysis
 Analysis of external environment requires
managers scan both, the specific and
general environment.
 They need to know, for example:
 The level of demand for their products,
 How the competition is doing, how new legislations
might affect the organization,
 how can the organization benefit from new
technologies,
 etc.

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 External Analysis
 Scanning of external environment enables
managers to spot the opportunities they should
exploit and know the threats they must
counteract.

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 External Analysis
 Internal analysis scanning gives important
information about the organization’s
specific resources and capabilities.
 Internal environmental analysis seeks
answers to the questions like:
 What makes the organization distinctive?
 How efficient is our manufacturing?
 How skilled is our workforce?
 What is our market share?
 What financing is available?

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 External Analysis
 Internal analysis enables managers to
identify organizational strengths and
weaknesses.

 Note: The combined external and

internal analysis is normally referred to as
SWOT analysis (strengths, weaknesses,
opportunities and threat).

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 Formulating strategies
 Strategies must be aimed at exploiting the
organization’s strengths and opportunities
while protecting it from external threats and
correcting any critical weaknesses.
a) Corporate strategies: Concerned with the determination of
what business an organization is in, should be in, or wants
to be in.
b) Business (competitive) Strategy: Focus on how the
organization can compete in each of its businesses.
c) Functional Strategy: Support the business (competitive)
strategy.

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 Corporate strategies:
i. Growth strategy:
 Concentration,
 Vertical integration,
 Horizontal integration and
 Diversification)
ii. Stability strategy
iii. Renewal strategy:
 Retrenchment strategy,
 Turnaround strategy
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 Business Strategy
 Business (competitive) Strategy is
normally formulated based on Michael
Porter’s competitive forces:
 Threat of new entrants
 Threat of substitutes
 Bargaining power of buyers
 Bargaining power of suppliers
 Current rivalry

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 Business Strategy
 There are three types of business
strategies:
 Cost leadership
 Differentiation
 Niche (focus).

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 Functional Strategy

 Functional strategies are formulated by lower-

level managers in organization’s various
functional departments.
 They are meant to support the business
(competitive) strategy.

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 Implementing strategies
 Implementation of strategy consists of
securing resources, organizing these
resources and directing the use of these
resources within and outside the
organization.
 It involves hiring new employees,
transferring or laying out some current
employees, employing new machinery and
technologies, etc.
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 Evaluating results
 This is the monitoring of the progress or
providing for follow-up to assure that plans
are carried out properly and on time.
 Adjustments may need to be made to
accommodate changes in the external
and/or internal environment of the
organization.

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 Effective Planning
1. Develop plans that are specific but flexible.
2. Understand that planning is an ongoing
process.
3. Change plans when conditions warrant.
4. Persistence in planning eventually pay off.
5. Flatten the organizational hierarchy to
foster the development of planning skills at
all organizational levels.
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 Decision Making
• Decision making is an indispensable
component of management process.
• Managers spend much of their time in
making decisions; they therefore must
develop skills necessary for making good
and effective decisions.
• Decision making is a comprehensive
process that involves selecting an alternative
course of action that will solve a problem.

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 Types of Decisions
• There are different ways in which
organizational decisions may be classified
including:
1. Grouping them according to the nature of
the decision i.e. as routine (programmed)
and non-routine (non-programmed)
decisions
2. Grouping them according to the level of
management at which the decision is
made i.e. strategic and tactical decisions
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 Programmed and Non-programmed Decisions
• Programmed decisions: Are based on
routine and repetitive problems that have well
established framework for solving them.
• Rules, policies and procedures are established
well in advance to solve recurring problems in
the organization.
• A procedure is a series of interrelated
sequential steps that a manager uses to
respond to a structured problem. e.g. a
procedure for purchases, recruitment, etc.
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Programmed and Non-programmed Decisions

• A rule is an explicit/clear statement that

tells a manager what can or cannot be
done. e.g. action to be taken on
employee’s absenteeism, lateness etc.
• A policy is a guideline for making a
decision, which establishes general
parameters for decision making.
• Examples include treatment of credit returns,
recruitment of employees, promotion of
employees, purchase of materials, etc.

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 Non-programmed Decisions
• These are concerned with the solving a
unique or unusual or novel problem i.e.
problems that have not been encountered or
addressed before.
• Unusual problems need evaluation of
different alternatives and making a choice
among them.
– If the organization wants to expand its size, it may have
several alternative routes e.g. entering a new market or
developing a new product or taking over an existing
company etc.
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 Strategic and Tactical decisions
• Based on the level of management at which
decisions are made, they can be categorized
into two groups namely technical/tactical
decisions and strategic decisions.
• Strategic decisions are related to
problems that affect the entire organization.
• They are concerned with long-term planning
and policy formulation i.e. the organization’s
survival in the future.

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 Strategic and Tactical decisions
• A strategic decision is normally a non-
programmed decision which is made under
the condition of partial ignorance.
• Technical or operational decisions,
these are decisions involving problems
related to actual production of the
organization’s product or service i.e.
decisions about the process of converting
inputs into output.

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 Strategic and Tactical decisions
• Tactical decisions relate to day-to-day
working of the organization and are made
in the context of well-set policies, rules
and procedures.
• These decisions are routine and require a
lot of technical information and expertise.
• Tactical decisions are normally made at the
middle and lower management levels.

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 The Decision Making Process
• Decision making involves a process and not
just choosing alternatives.
• Normally the manager thinks through all
aspects of the problem by answering the
following the following questions:
– What seems to be the trouble?
– What are the causal factors?
– What can be done in all possibilities?
– Are all these possibilities workable?
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 The Decision Making Process
– What are the probabilities of success for
each of the solutions?
– What is the appropriate alternative?
– When and how can the solution be
implemented?
– Has the solution solved the original
problem?

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 The Decision Making Process
• The decision making process has the
following steps:-
1. Problem identification
2. Search for alternatives
3. Evaluation of alternatives
4. Choice of alternative
5. Implementation (Action)
6. Evaluation of decision effectiveness

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 Problem identification
• A problem is a discrepancy between an
existing (what actually happens) and a
desired (what is wanted) state of affairs.
• A problem also exists if the manager faces
a question whose answer involves doubt
and uncertainty.
• Problem identification needs the manager
to go through diagnosis of the symptoms
and analysis of the problem.
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 Problem identification
• In management symptoms are visible
circumstances or conditions that
indicate the existence of the problem.
• Examples of symptoms include:
 The rise in the rate of employee turnover
 The decrease in the number of
customers
 Employee complaints that the processing
of financial claims takes too long
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 Problem identification
• Managers need to be careful in problem
identification and should avoid treating
symptoms as problems.
• Unclear definition of the problem may lead
to ineffective action being taken.
• The analysis of the problem requires
managers to set the criteria by which
various alternatives solutions can be
assessed to come up with the best one.

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 Problem identification
• For example, to speed up the processing of
employees’ financial claim may require the
accounting unit to be automated by buying
and installing an accounting package.

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 Problem identification
• Buying is not a problem because a
procedure for procurement would be
available. However, owing to the fact that
accounting packages are many the problem
would which one should be purchased.
• As part of the analysis the criteria must be
set and these would include price,
convenience, coverage capability, user
support, etc.

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 Search for Alternatives
• A problem can be solved in several ways,
however, all the ways cannot be equally
satisfying.
• The manager must therefore, try to find out
the various alternatives available in order to
get the most satisfactory result of a decision.
• Some of the alternatives may not be
considered, because of obvious limiting
factors such as finance, technology,
expertise, etc.
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 Search for Alternatives

• The decision maker can use several sources for

identifying alternatives:
a) His own experience – past experience of the
decision maker may be one of the alternatives
b) Experience of others – alternatives used by
successful decision makers.
c) Search in relevant magazine or webpage
d) Consulting relevant experts
e) Brainstorming with employees - groups are
presented with a problem and asked to develop
as many solutions as possible.
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 Search for Alternatives
• In our computer package example above,
alternatives like AccPack, Myob, Tally,
Epicol & Scala, etc may be identified.

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 Evaluation of Alternatives
• Once the alternatives have been identified,
a decision maker must analyze each one by
rating it against the criteria established
during the problem identification.
• By use of the pre-set criteria and their
relative weights the strength and
weaknesses of each alternative may
critically analyzed.

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 Evaluation of Alternatives
• This can be assisted by the manager's
experience, past judgment, facts, advice from
others, or even a hunch (feeling).
• The score of each criterion is multiplied by
the respective weight for each of the
alternatives.
• Various quantitative techniques may also be
used in determining the impact of various
alternatives as shall be discussed later in the
same topic.
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 Choice of Alternative
• The actual process of decision making ends
with the choice of an alternative which the
organizational objectives can be achieved.
• The alternative that generates the highest
score in the previous step is chosen.
• It is important that the decision maker
should have an alternative plan in case the
chosen alternative would fail.

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 Decision Implementation
• Once the solution is chosen, it is put into
action.
• The decision must first be shared with
those whose work will be affected to get
their commitment.
• Participation in the process of the people
who must implement the decision will
make them support its outcome and foster
their commitment.

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 Decision Implementation
• With their commitment, the decision maker
has a reasonable degree of assurance that
the outcome will be accepted.
• It should be noted that decisions are
implemented by effective planning,
organizing and leading.

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Evaluating Decision Effectiveness
• The results of the decision must correspond
with the objectives.
• Managers must take follow-up action in the
light of feedback received from the results to
check whether there is deviation between
objectives and results.
• If the evaluation shows that the problem still
exists the manager would need to assess
what went wrong during the previous steps.

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 Evaluating Decision Effectiveness
• The decision maker must assess whether:
 The problem was incorrectly defined;
 Errors were committed in the evaluation of the
various alternatives;
 The right alternative was selected but poorly
implemented.
• The manager may decide to redo some steps
or repeat the entire decision process if the
problem persists or a new problem has been
generated by the solution.
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 Guidelines for Making Effective
Decision
• Any decision can be made effective if the
decision making process is followed properly.
• The aim should be to make a realistic decision
rather than an ideal one. This can be
achieved if the following factors are taken
into consideration.
1.Categorical Interpretation: The real
problem should be interpreted and identified
with in-depth study and observation.
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 Guidelines for Making Effective
Decision
2. Application of Limiting Factor: Factors
which are limiting and critical to
attainment of desired objectives should be
identified and solved accordingly.
3. Adequate Information: Information is
the life blood of the organization. More is
the quantity of reliable information, higher
is the validity of decision.

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 Guidelines for Making Effective
Decision
4. Considering other’s views: It is
desirable that while making a decision
others views should be considered
adequately.
5. Timeliness: For a decision to be
effective must be made at proper time. A
delay in decision making may result into
loss of opportunities.

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 Decision Making Conditions
• Depending on the availability of
knowledge about the problem decisions
are normally made under following
conditions:
 Certainty
 Risk
 Uncertainty

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 Certainty
• This is the situation in which sufficient
information exists to determine the outcome
of every alternative prior to implementation.
• It is possible under this situation for
managers to make accurate decisions.
• E.g. when the manager is deciding in which
bank to deposit the company’s retained
profit he/she knows exactly the interest rate
being offered by each bank and the amount
of money that will be generated.
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 Risk
• Risk is a state in which the problem is
known but there is no complete information
about the available alternatives.
• This means that there is chance that the
selected alternatives may not yield what the
decision-maker expects.
• However, by use of historical data it is
possible for managers to determine the
probabilities of success for each alternative.
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 Uncertainty
• This is the decision situation in which the
problem is known but there is insufficient
information on the possible alternatives and
their likely outcomes.
• The available information is not adequate for
manager to make reasonable probability
estimates.
• Most business decisions in organizations are
made under this situation.

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 Rationality in Decision Making

• There are two contrasting views or models

on how decision making is carried out.
• These are:
– Economic man model
– Administrative man model

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 Economic Man Model
• Under economic man model it is assumed
that decision making is completely rational
in the means-ends sense.
• The decision maker is assumed to be an
economic rational man who would be
fully objective and logical and therefore can
make consistent, value-maximizing choices
within specified constraints.

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 Economic Man Model
 Under the economic man view, decision
making process is based on the
assumptions described below:
i. Managers have access to all the information
needed to reach a decision;
ii. The problem is clear and unambiguous;
iii. A single, well defined goal is to be achieved;
iv. All alternatives and consequences are known;
v. Preferences are clear, constant and stable;
vi. No time or cost constraints exist;
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 Economic Man Model
vii. Final choice will maximize the payoff
(outcome);
viii. The decision is made in the best interests of
the organization.
• Unfortunately, managers often do not
have all the required information and
therefore they make decisions based on
incomplete information.

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 Administrative Man Model
• Decision makers do not have full knowledge
of all alternatives and their consequences.
– There is therefore a limit on rationality, which
is technically called bounded rationality.
– Managers make decisions rationally while being
limited (bounded) by ability to process
information.
– They do not have the time or money to search
for information in all alternatives as a result
they have to decide based on incomplete
information.
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 Administrative Man Model
• Many decisions that managers make do
not fit the assumptions of economic man
model.
• Administrative man model assumes that in
choosing among alternatives, the decision
maker attempts to look for the alternative
which is satisfactory or good enough (e.g.
adequate market share, adequate profit,
fair price, etc).

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 Administrative Man Model
• Since they cannot possibly analyze all
information on all alternatives, managers
do satisfice, rather than maximize.
• Satisficing refers to the tendency by
decision makers to explore a limited
number of options and choose an
acceptable decision rather than the
optimum decision.

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 Intuition in Decision Making
• Managers also use their intuition in making
their decisions and therefore rationality and
intuition complement each other.
• Intuitional Decision Making refers to the
tendency of making decision based on ones
accumulated experience, feelings, judgment.
• Research studies indicate that almost half of
the number of company chief executives use
intuition more than formal analysis to run
their companies.
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 Decision Making Biases
• As seen above, managers sometimes use
intuition (rule of thump) to simplify their
decision making.
• Rules of thumb are useful when dealing
with complex, uncertain and ambiguous
information.
• However, intuition is not reliable because it
sometimes leads to errors and biases in the
processing of information.

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 Decision Making Biases
• Below are some of the common errors or
biases that managers must avoid:
a) Overconfidence bias: This is when a
decision maker tends to think he/she knows
more than what he/she does or holding
unrealistic positive view of himself/herself.
b) Immediate gratification bias: This is
concerned with managers who intend to
want immediate rewards and avoid
immediate costs.

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 Decision Making Biases
c) Selective perception bias: Is about
managers who are selective in organizing and
interpreting information based on their biased
perceptions.
d) Confirmation bias: This refers to decision
makers who seek out information that reaffirms
the decisions they made in the past.

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 Decision Making Biases
e) Representation bias: The decision
maker assesses the likelihood of any event
based on how it resembles other events
i.e. incorrectly generalizes a decision from
a small sample or one incident.
f) Availability bias: This is when decision
makers tend to deal only with events that
are the most recent in their memory.
• As a result judgments and probability
estimates are distorted.
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 Decision Making Biases
g) Sunk cost bias: Decision makers are
incorrectly preoccupied by the past cost
in assessing choices rather than future
consequences.
• They cannot forget sunk cost.
h) Escalation of commitment bias:
This refers to an increased commitment
to a previous decision despite evidence
that it may have been wrong.

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Decision-Making Techniques
• Most managerial decisions are made under
conditions of uncertainty.
• Various decision-making techniques have
been devised to assist managers in making
satisficing decisions under conditions of
uncertainty.
• These include; payoff matrix, decision trees,
simulation models, linear programming and
decision support systems (DSS).

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