Professional Documents
Culture Documents
Foundations
of
Planning and Decision
Making
7–1
LEARNING OUTLINE
What Is Planning?
• Define planning.
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LEARNING OUTLINE
7–3
What Is Planning?
• Planning
⮚ Planning involves:
❖Defining an organization’s goals.
❖Establishing an overall strategy (i.e., courses of actions)
for achieving those goals.
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Why Do Managers Plan?
• Purposes of Planning:
⮚ Provides direction to managers as well as non-managers
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Planning and Performance
• The Relationship Between Planning And
Performance:
⮚ Formal planning is associated with:
❖Higher profits and returns of assets.
❖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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Elements of Planning
⮚ Plans
❖Documents that outline how goals are to be
accomplished
❖Describe how resources are to be allocated and
establish activity schedules
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Planning Process
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Types of Goals
• Mission
⮚ A statement of an organization’s fundamental purpose
and identifies the scope of the business’s operations in
product and market terms.
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Types of Goals
• Strategic Goals
⮚ These goals are set by top management of the organization.
⮚ They are long-term objectives.
⮚ They focus on improving organization’s overall business position
and competitiveness.
Examples:
✔ Starbucks has a strategic goal of increasing the profitability of
each of its coffee stores by 25 percent over the next five years.
✔ Goal of increasing firm’s market share.
✔ Goal of overtaking key rivals on quality or customer service or
product performance.
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Market share is the percentage of the total revenue or
sales in a market that a company's business makes up.
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Types of Goals
• Tactical Goals
⮚ Tactical goals are set by and for middle managers.
⮚ Their focus is on how to operationalize actions
necessary to achieve the strategic goals.
Examples:
✔ To achieve Starbucks’ goal of increasing its per-store
profitability, managers are working on tactical goals related to
company-owned versus licensed stores and the global
distribution of stores in different countries.
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Types of Goals
• Operational Goals
⮚ These goals are set by and for lower-level managers.
⮚ Their concern is with short-term goals to support the
tactical goals.
Examples:
✔ An operational goal for Starbucks might be to boost the
profitability of a store in each of the next five years.
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Types of Plans
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Levels of Goals and Plans
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Levels of Goals and Plans
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Types of Plans
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Plans on the basis of Breadth
• Tactical Plans
⮚ Are developed to support the implementation of
strategic plans.
⮚ Are developed by mid-level managers.
⮚ Are more specific and concrete than strategic plans.
• Operational Plans
⮚ Are made for supporting the implementation of
tactical plans and achievement of operational goals.
⮚ Clearly specify the things needed to be done in the
short run.
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Time Frames for Planning
• On the basis of Time, plans are of two types:
• Long-Range Plans
⮚ A plan that cover many years, perhaps even decades.
⮚ Common long-range plans are for five years or more.
• Intermediate Plans
⮚ A plan that generally covers from one to five years.
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Time Frames for Planning
• Short-Range Plans
⮚ A plan that generally covers a span of one year or
less.
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Types of Plans (cont’d)
• On the basis of Frequency of Use, plans are of
two types:
Single-Use Plan
⮚ A one-time plan specifically designed to meet the
need of a unique situation.
• Standing Plans
⮚ Ongoing plans that provide guidance for activities
performed repeatedly.
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Types of Standing Plans
• Policy
⮚ A general guideline for making a decision about a
structured problem.
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Types of Standing Plans
• Procedure
⮚ A series of interrelated steps that a manager can use
to respond (applying a policy) to a structured problem.
⮚ Example: procedure for applying for admission.
• Rule
⮚ An explicit statement that limits what a manager or
employee can or cannot do in carrying out the steps
involved in a procedure.
⮚ Example: Smoking is fully prohibited inside the
campus.
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Approaches to Establishing Goals
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Approaches to Establishing Goals
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Approaches to Establishing Goals
Steps in MBO:
1. The organization’s overall objectives and strategies
are formulated.
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Approaches to Establishing Goals
Steps in MBO:
5. Action plans, defining how objectives are to be
achieved, are specified and agreed upon by managers
and employees.
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CHAPTER # 06
MANAGERS
AS
DECISION MAKERS
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CHAPTER OUTLINE
6–30
Definition of Decision
6–31
Rational-Decision Making Process
• Following steps are involved in the Rational-
Decision Making Process:
•
1. Recognizing and defining the decision situation
2. Identifying alternatives
3. Evaluating alternatives
4. Selecting the best alternative
5. Implementing the chosen alternative
6. Following up and evaluating the results
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Step 1: Recognizing and defining the
decision situation
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Step 2: Identifying Alternatives
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Step 3: Evaluating Alternatives
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Step 4: Selecting the Best Alternative
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Step 5: Implementing the Chosen
Alternative
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Step 6: Following up and Evaluating
the Results
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Assumptions of Rational Making Decisions
• Rationality
We often think that the best decision maker is rational.
That is, he or she makes consistently value maximizing
choices.
Assumptions of Rational Decision Making:
❖Managers are perfectly rational, fully objective, and
logical.
❖They can clearly define the problem and identify all
viable alternatives and consequences.
❖They will select the alternative that maximizes
outcomes in the organization’s interests rather than in
their personal interests.
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Assumptions of Rational Making Decisions
Are these Assumptions of Rational
Decision Making Realistic?
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Decision Making: Bounded Rationality
• Bounded Rationality
⮚ Managers make decisions rationally, but are limited
(bounded) by their ability to collect and process
information.
⮚ Assumptions are that decision makers:
❖Will not seek out or have knowledge of all alternatives
❖Will satisfice—choose the first alternative encountered
that satisfactorily solves the problem—rather than
maximize the outcome of their decision by considering
all alternatives and choosing the best.
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Decision Making: The Role of Intuition
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Types of Problems and Decisions
• (1) Structured Problems
A straightforward, familiar (have occurred before) and
easily and completely defined problem.
Information about the problem is available and
complete.
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Types of Programmed Decisions
• A Policy
⮚ A general guideline for making a decision about a
structured problem.
• A Procedure
⮚ A series of interrelated steps that a manager can use
to respond (applying a policy) to a structured problem.
• A Rule
⮚ An explicit statement that limits what a manager or
employee can or cannot do in carrying out the steps
involved in a procedure.
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Examples: Policy, Procedure, and Rule
• Policy
⮚ Accept all customer-returned merchandise.
• Procedure
⮚ Follow all steps for completing merchandise return
documentation.
• Rules
⮚ Managers must approve all refunds over $50.00.
⮚ No credit purchases are refunded for cash.
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Types of Problems and Decisions
(cont’d)
• (2) Unstructured Problems
⮚ Problems that are new or unusual and for which
information is ambiguous or incomplete.
⮚ Problems that will require custom-made solutions.
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Decision-Making Conditions
• Certainty
⮚ An ideal situation in which a manager can make an
accurate decision because the outcome of every
alternative choice is known.
• Risk
⮚ A situation in which the manager is able to estimate
the likelihood (probability) of outcomes that result
from the choice of particular alternatives.
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Decision-Making Conditions
• Uncertainty
⮚ Limited or no information prevents estimation of
outcome probabilities for alternatives associated with
the problem and may force managers to rely on
intuition, and “gut feelings”.
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THE END OF THE
CHAPTER
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