chapter 5 Planning and Decision Making McGraw-Hill/Irwin Principles of Management © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

5 - 3 Learning Objectives 1.Describe the different levels of planning in an organization. 2.Explain the difference between strategic, tactical, operating, and unit plans. 3.Outline the value of simple-use plans, standing plans, and contingency plans. 4.Describe the main components of a typical strategic planning system. 5.Identify the main pitfalls that managers encounter when engaged in formal planning processes, and describe what can be done to limit those pitfalls. 6.Discuss the major reasons for poor decisions, and describe what managers can do to make better decisions.

5 - 4 Learning Objectives There is an idiom…. “Those who fail to plan, plan to fail.” Do you agree / disagree? Depending upon your answer, why do so many companies follow the “wrong” answer?

5 - 5 Steps in Planning Choose goals Identify actions Allocate responsibility Review Performance Make adjustments

5 - 6 Unit plans (heads of departments, teams, individuals Levels of Planning Operating plans (heads of functions) Business-level strategic plan (heads of businesses) Shaped by input from Sets the context for Corporate-level Strategic plan (CEO)

5 - 7 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.

5 - 8 Types of Plans 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. Scenario planning: Plans that are based on “what if” scenarios about the future. Examples?

5 - 9 Scenario Planning Identify different Possible futures (scenarios) Formulate plans to deal with those futures Invest in one plan but … Hedge your bets by preparing for other scenarios and … Switch strategy if tracking of signposts shows alternative scenarios becoming more likely

Question Can scenario planning apply and be useful to you as a student? Explain. Develop three scenarios for your post-graduation future and possible plans to deal with them.

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 (What is a facilitator?) Source:

The Strategic Planning Process Feedback Mission, vision, values, and goals SWOT analysis formulate strategies Draft action plans Implement Review progress against plan External analysis (opportunities and threats) Internal analysis (strengths and weaknesses) Assign subgoals, roles, responsibilities, timelines, and budgets

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.

Question In describing the purpose of the organization, _____ should be _______-oriented. a.mission; customer b.vision; product c.values; product d.goals; customer

Mission Checklist Ends, not means Effort Verbs Nouns embodying activities The Unidentifiable Brevity Broad vs. narrow Value added Unique Source: raise-funds.com

Mission Statement Examples Wal-Mart - “To always provide low prices, always.” Disney - “To make people happy.” Nike - To bring inspiration and innovation to every athlete in the world.” Microsoft - To enable people and businesses throughout the world to realize their potential.” Amazon - “Amazon.com seeks to be the world’s most customer-centric company, where customers can find and discover anything they want to buy online at a great price.” Source: raise-funds.com

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.

Ingredients for Successful Goals Specific Simple Significant Strategic Rational Measurable Tangible Written Shared Consistent with your values Source:

Do you have goals? Write down 3 goals you have. -1 for today -1 for this month -1 for this year Make them fit the criteria for goal setting. Source:

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 Pitfall Too centralized; top-down Failure to question assumption Failure to implement Failure to anticipate rivals’ actions Decentralized planning Scenario planning; devil’s advocate Link to goals; tie to budgets Role-playing Solution

The Rational Decision-Making Model Identify the problem Identify decision criteria Weight criteria Generate alternative courses of action Choose one alternative Implement alternative Continue with course of action Evaluate outcome Does not meet expectations Meets expectations

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 Decision heuristics (Rules of thumb) rule Cognitive bias (General “thinking” issues) Prior hypothesis bias (based on prior belief) Framing bias (Based on the way something is asked)

Other Decisional Issues Escalating Commitment Illusion of Control Group Think

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.

International Planning