Planning and decision making

This PPT gives an overview of planning and decision making. To maximise the benefit, please use this PPT along with a ny good text book on management and use the Net extensively

The process of determining the organization’s goals and objectives and selecting a course of action to accomplish them within the environment inside and outside the organization
So it is deciding in advance :
What to do,
When to do it,
How to do it,
Who is to do what

A plan is a predetermined course of action to achieve stated goals
Plans are based on forecasts and assumptions of the future
Plans need to be flexible so that they can adapt to inevitable changes in the environment
The simpler the plan, better it is!

Need Assessment Establish Objectives Develop Premises Generate Alternatives Select Alternative Formulate Derivative Plans Implementation & Control

Identify a latent or felt “ organizational need ”
The “organizational need” could be a result of an opportunity or a problem
While making the need assessment, ensure:
CREDIBILITY: They are demonstrably objective and science/knowledge-based,
SALIENCY: Relevant to decision-making needs and stakeholders interests,
LEGITIMATCY: Conducted within a framework that complies with recognized rules, standards, practices, and common interests; acting within appropriate entities.

Now that we are clear of the “organizational need” in the form of an opportunity or a problem, What do we hope to achieve?

Planning premises are the assumptions about the Environment in which the plans will be made & implemented

There will exist multiple methods to achieving an objective…… Enlist all Possible Alternatives

Brainstorming
Nominal group technique
Delphi technique

The first filter for narrowing down on the list of alternatives is to look for congruence with organizational mission and strategy
Conduct feasibility analysis
The shortlisted alternatives will then be evaluated for pros and cons
The alternatives selected then will be subjected to cost benefit analysis
Projections will be developed for possible consequences
The “optimum” alternative will be selected for implementation

Derivative plans are secondary plans detailing the finer aspects of implementation at departmental and unit levels
It is critical that derivative plans indicate timelines and schedules clearly
Care needs to be taken that the derivative plans for various departments are “oriented” in “one desired” direction

A plan is only as good as its implementation!
Secure cooperation and participation by clarifying the purpose of the plan and role of departments and individuals in the bigger picture
Create an “enabling environment” for the successful implementation of the plan
Simultaneous monitoring and control is necessary to stay on track!

Top – Down
Bottom – Up
Composite
Team Approach

The top management assesses the need, establishes the objective, formulates the plan and then communicates the plan down the hierarchy
Commonly seen in highly centralised organisations
Typical of micro, small and medium enterprises
Typical of large family owned businesses too
Success of plans depends heavily on the experience, style and capabilities of the top management

The planning process is decentralised and lower level managers formulate the department or unit level plans which are then collated by the top management
This is a participatory form of planning
The success of plans now depends on the capabilities and competence of lower level managers
Quite typical of large sales organizations

A more balanced method
The top management defines the objectives and premises and communicates it down the hierarchy
The middle and lower level managers the formulate their plans and communicate them to the top management
Such plans once approved (with modifications if needed) by the top management have been seen to generate maximum ownership and effort by the lower level managers and executives

A team of managers is constituted based on their experience and competence
The team is then tasked to formulate the plan for objectives as communicated to them by the top management
The team of managers the formulates the plan based and communicates it to the top management who evaluates it and approves it
The approved plan is the communicated down the hierarchy to the lower level managers for implementation

Plans can be classified on the basis of their nature, intended use, time horizon, scope etc..

Formal plans are written down documents defining specific goals and action plans to achieve those goals
Informal plans are often ad hoc unwritten plans which are general in nature and lack continuity

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 in an organization

A vision statement is essentially an aspirational statement that describes an ideal image an organization would like be identified with in the future…. A value statement describes the principles, notions and beliefs that an organization holds supreme and are used to guide individual and collective decisions and actions

The mission statement of an organization communicates the role it intends to play in the socio economic ecosystem and the value it intends to deliver
Mission is the “purpose”, “the fundamental reason for existence” of an organization
Objectives set down quantifiable aims with clear timelines for the organization to achieve
“ Objectives & Goals” indicate the desired future state or target a management program intends to achieve

Policies : A statement that guides decision making in recurring events.
Procedures : A chronological sequence of action steps needed to be taken.
Programs : An aggregate of related action plans designed to accomplish a task or an objective.
Schedules : A time table of work clarifying the chronological order of tasks and time the tasks need to be executed.

Rules describe in detail the manner in which a task is to be carried out
Rules leave no scope for individual discretion or judgment
Guidelines are broad guides for decision making
Guidelines are not rigid and leave considerable scope for individual discretion and judgment

Strategy is the direction and scope of an organisation over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectation
Tactics are actionable steps, decisions and maneuvers made to successfully execute strategy

The internal environment of an organization
The manpower, capital, structure, mission, policies etc
The external environment
Political environment
Economic environment
Social environment
Technological environment
Natural environment
Legal environment

Decision is a choice from available alternatives It is a “Process”, not an event It is the core of planning (choosing from alternatives)

Decision Making Process
Decision Making Approach
Rational
Bounded Rationality
Intuitive
Decision Maker’s Style
Directive
Analytical
Conceptual
Behavioural
Decision Making Conditions
Certainty
Risk
Uncertainty
Type of Decision
Programmed
Non-Programmed

Programmed
In structured and routine problems
Relies on established criteria
Decision making by precedent
Non-Programmed
In unstructured, novel, ill defined non recurring situations
Relies on subjective judgments
Involves greater risk

Non programmed Decisions Programmed Decisions Level in Organization Top Lower Well-Structured Ill-Structured Type of Problem

Certainty : Only one state of nature can exist
Risk : Several known states of nature may exist and each has a known probability of occurring
Uncertainty : What state of nature can occur is unknown and consequently probabilities cannot be assigned
Uncertainty Risk Certainty

Rationality
Bounded rationality and satisficing
Intuitive decision making

Rational Decision Making Problem is clear and unambiguous Single, well-defined goal is to be achieved All alternatives and consequences are known Preferences are clear Preferences are constant and stable No time or cost constraints exist Final choice will maximize payoff

Conditions for rational decision making are rarely met!
In the absence of “ideal” decision making conditions, the “best possible” decision will have to do
So, rational action limited due to lack of information, time, or ability to analyze alternatives in light of a goal sought; unclear goals; or a lack of ability to take a risk
The absence of ideal rational decision making conditions is called “bounded rationality”!

Tendency of managers to make decisions while facing a “situation of bounded rationality”, which is almost always
The course of action “good enough” is chosen
The making of a “good enough decision” considering the existence of bounded rationality is called satisficing!

The decision making depends on the psychology of the manager which can range from Intuitive to rational
The critical factor is “tolerance for ambiguity” which differs from a need for consistency and order to the ability to process many thoughts simultaneously
Directive : Fast, efficient, and logical
Analytical : Careful and able to adapt or cope with new situations
Conceptual : Able to find creative solutions
Behavioural : Seeks acceptance of decisions

Individualism versus collectivism
Power distance
Tolerance of uncertainty and risk
Perceptions of acceptability and/or desirability of outcomes

Identify Problem Establish Decision Making Criteria Allocation of Weights to Criteria Generate Alternatives Evaluate Alternative Select Alternatives Implementation & Control

Problems are clear
Objectives are clear
People agree on criteria and weights
All alternatives are known
All consequences can be anticipated
Decision makers are rational

Candidate Criteria Rating X Weight = Score Rahul Motivation 8 x .30 = 2.40 Interpersonal 6 x .25 = 1.50 Sales Knowledge 7 x .25 = 1.75 Product Knowledge 6 x .20 = 1.20 Total Score = 6.85 Candidate Criteria Rating X Weight = Score Ashish Motivation 9 x .30 = 2.70 Interpersonal 8 x .25 = 2.00 Sales Knowledge 6 x .25 = 1.50 Product Knowledge 5 x .20 = 1.00 Total Score = 7.20

Possible solutions examined one at a time
If alternative is unworkable it is discarded
When acceptable (not necessarily best) solution is found, it is likely to be accepted
Thus search and analysis effort is likely to stop at first acceptable solution

Explicit criteria and weights not used to evaluate alternatives
Decision makers use heuristics
A rule that guides the search for alternatives into areas that have a high probability for yielding success
Google “Heuristics”!!

Satisficing
Selection of a minimally acceptable solution
Rather than being an optimizer, this model sees him or her as being a satisficer

Implicit favorite is identified early in decision process
Perceptual distortion of information occurs
Decision rules are adopted that favor the implicit favorite
Positive features of the implicit favorite highlighted over the alternative

By experience
Experimentation
Systematic analysis of relevant data

Provide a numerical basis for decision making – reduces decisions to looking at a monetary value placed on different choices
Qualitative factors look to take account of these other issues that may influence the outcome of a decision
Can be wide ranging and especially need to consider the impact on human resources and their response to decisions

Quantitative
Investment appraisal
Break even analysis
NPV / IRR / EVA
Cost benefit analysis
Forecasting
Market research
Critical path analysis
Decision trees
Qualitative
CSR
SWOT
HRM
PESTEL analysis
Alignment with mission
Effect on image
Effect on brand
Long term implications

A decision support tool that uses a tree-like graph or model of decisions and their possible consequences, including chance event outcomes, resource costs, and utility
Drawn from left to right, decision trees have three types of nodes:
Decision Nodes (represented by squares)
Chance Nodes (represented by circles)
End Nodes (represented by triangles)

Determining the effect of decreasing one or more key factors and simultaneously increasing one or more other key factors in a decision
A systemic approach to balancing the trade-offs between time, cost and performance
“ How much must I give up to get a little more of what I want most?”
What is “Pareto Optimality”?

? Decision Maker Characteristics Knowledge Ability Motivation Problem Characteristics Unfamiliarity Ambiguity Complexity Instability Decision Environment Characteristics Irreversibility Significance Accountability Time and monetary constraints

But in most business organizations, decisions are made by GROUPS, not individuals!

Groups can accumulate more knowledge.
Groups have a broader perspective and consider more alternatives.
Individuals who participate in group decisions are more satisfied with the decision and are more likely to support it.
Group decision processes serve an important communication function, as well as a useful political function.

Groups often work more slowly than individuals.
Group decisions involve considerable compromise that may lead to less than optimal decisions.
Groups are often dominated by one individual or a small clique, thereby negating many of the virtues of group processes.
Over-reliance on group decision making can inhibit management’s ability to act quickly and decisively when necessary.

When groups are... • Highly cohesive • Insulated from outside input • Dominated by leader Leading to decisions characterized by... • Limited search for information • Limited analysis of alternatives • Rejection of expert opinions • Few, if any, contingency plans ...They often experience... • Illusion of invulnerability • Illusion of morality • Illusion of unanimity • Self-censorship • Peer pressure for conformity • Stereotyping of opponents • Rationalization That results in... • Decisions of poor quality • Poor group performance • Wasted resources • Lost opportunities

The modern business environment is highly competitive and speed is the key!
Real-time information : Fast decision makers must have access to and be able to process real-time information.
Multiple simultaneous alternatives : Fast decision makers examine several possible alternative courses of action simultaneously, not sequentially.
Two-tiered advice process : A two-tiered advisory system, whereby all team members are allowed input but greater weight is given to the more experienced coworkers.
Consensus with qualification : Fast decision makers attempt to gain widespread consensus on the decision as it is being made, not after.
Decision integration : Fast decision makers integrate tactical planning and issues of implementation within the decision process itself.

Training for decision making
Advanced levels of data mining
Use of artificial intelligence in DSS
Heuristics
Fuzzy logic
Statistical and econometric modeling…The list goes on!!
Google these terms!!

Planning and decision making

by Ashish Pillai

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