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Chapter                          5                           Planning and
                                                ...
What Would You Do?
         D. G. Yuengling & Son, Pottsville, PA

        Sales of Yuengling beer are up 225%
         i...
Planning


 After reading these sections,
 you should be able to:

       1.         discuss the benefits and pitfalls of ...
Planning

              Planning

              Choosing a goal and developing a
              method of strategy to achie...
Benefits of Planning

                                                            Benefits
                               ...
Pitfalls of Planning

                                                                Pitfalls
                           ...
How to Make a Plan That Works


                                                                                          ...
Setting Goals


                                                                       Specific


                        ...
Examples of S.M.A.R.T. Goals?
         Starbucks: “In fiscal 2006, we                                   Wrigley: “In 200...
Developing Commitment to Goals

        The determination to achieve a goal is increased by:

                    Setting...
Developing Effective Action Plans

                                             An Action Plan Lists…


                  ...
Tracking Progress

                             Set…                                                   Gather and provide…...
Maintaining Flexibility

      Option-based planning
              keep options open by making
               simultaneou...
Staying Flexible




Chapter 5
Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved   14
Planning from Top to Bottom




3
                                                                                        ...
Starting at the Top

                                                   Clarify how the company will
          Strategic P...
Planning Time Lines


                Strategic                      2 Years                                    5 Years


...
Merck Corporation’s
          Vision and Values




3.1   Exhibit 5.7
      Source: “The Merck Corporate Philosophy,”
    ...
Bending in the Middle
                                                    Specify how a company will use
                 ...
What Really Works
       Management by Objectives

                             MBO
       10% 20% 30% 40% 50% 60% 70% 80%...
Finishing at the Bottom

                                                    Day-to-day plans for producing or
           ...
Kinds of Operational Plans

                                                    Plans that cover unique,
         Single-U...
What Is Rational Decision Making?


 After reading these sections,
 you should be able to:

       1.         explain the ...
What Is Rational Decision Making?

                Decision Making

                The process of choosing a solution fro...
Steps to Rational Decision Making

       1            Define the problem

       2            Identify decision criteria
...
Steps to Rational Decision Making

               1            Define the problem


             Problem exists when ther...
Defining the Problem




Chapter 5
Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved  ...
Steps to Rational Decision Making

               2            Identify decision criteria


                  Standards u...
Steps to Rational Decision Making

               3            Weight the criteria



                  Absolute comparis...
Steps to Rational Decision Making
                    Absolute Weighting of Decision Criteria




4.3
      Chapter 5
    ...
Steps to Rational Decision Making
                    Relative Weighting of Decision Criteria




4.3
      Chapter 5
    ...
Steps to Rational Decision Making

               4            Generate alternative courses of action



                ...
Steps to Rational Decision Making

               5            Evaluate each alternative


                  This step ca...
Steps to Rational Decision Making

               6            Compute the optimal decision


                    Multipl...
PLUS—
       A Process for Ethical Decision Making


                                           P            Policies

   ...
Limits to Rational Decision Making

                  Bounded Rationality

                  A decision-making process res...
Limits to Rational Decision Making


                     Maximize                                                        ...
Using Groups to Improve
     Decision Making


                                                                           ...
Group Decision Making
                                                         Advantages


       1. View problems from m...
Group Decision Making
                                                     Disadvantages

       1. Susceptible to groupth...
Groupthink
                       Groupthink is likely to occur when…

        The group is insulated from others with di...
Effect of Groupthink




Chapter 5
Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved  ...
Structured Conflict

                                                            Cognitive conflict.
                     ...
Devil’s Advocacy
        Steps to Establish a Devil’s Advocacy Program


       2. Generate a potential solution
       3....
Dialectical Inquiry
          Steps to Establish a Dialectical Inquiry Process

         2. Generate a potential solution
...
What Really Works

                 Devil’s Advocacy
  10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
 probability of success   ...
Nominal Group Technique
            Steps to Establish Nominal Group Technique

       3. During a “quiet time,” group mem...
Delphi Technique
                        Steps to Establish Delphi Technique


       3. Assemble a panel of experts.
    ...
Stepladder Technique
                     Member 4 Joins Group                        Members 1, 2, & 3              Discu...
Electronic Brainstorming

                                  Four Rules of Brainstorming


       2. The more ideas, the be...
Electronic Brainstorming

                  Advantages of Electronic Brainstorming


          Overcomes production block...
Electronic Brainstorming

              Disadvantages of Electronic Brainstorming


              Greater expense
       ...
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Chapter 5 Planing And Dicision Making

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Transcript of "Chapter 5 Planing And Dicision Making"

  1. 1. Chapter 5 Planning and Decision Making Management 4th Edition Prepared by Chuck Williams Deborah Baker Texas Christian University Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 1
  2. 2. What Would You Do? D. G. Yuengling & Son, Pottsville, PA  Sales of Yuengling beer are up 225% in the last six years, but an aging plant can’t keep up with demand  You’ve identified five options: 1. Add new storage and finishing tanks 2. Outsource production 3. Buy another brewery 4. Build a new factory 5. “Do nothing!” What’s the best way to evaluate these options and make a decision? What would you do? Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 2
  3. 3. Planning After reading these sections, you should be able to: 1. discuss the benefits and pitfalls of planning. 2. describe how to make a plan that works. 3. discuss how companies can use plans at all management levels, from top to bottom. Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 3
  4. 4. Planning Planning Choosing a goal and developing a method of strategy to achieve that goal 1 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 4
  5. 5. Benefits of Planning Benefits of Planning Persistence Direction Creation Intensified of Task Effort Strategies 1.1 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 5
  6. 6. Pitfalls of Planning Pitfalls of Planning False Sense of Certainty Impedes Change Detachment and Adaptation of Planners 1.2 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 6
  7. 7. How to Make a Plan That Works Track Develop Progress Set Develop Effective Maintain Toward Goals Commitment Action Flexibility Goal Plans Achievement Revise existing plan or Begin new planning process 2 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 7
  8. 8. Setting Goals Specific S.M.A.R.T. Measurable Attainable Realistic Timely 2.1 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 8
  9. 9. Examples of S.M.A.R.T. Goals?  Starbucks: “In fiscal 2006, we  Wrigley: “In 2005, the plan to open approximately company will decrease the 1,800 net new stores globally.” long-term rate of return assumption for the assets of its U.S. (pension) plans from 8.75  Walgreen: “Second is to hire a % to 8.5%.” significant number of people with disabilities in our South Carolina distribution center,  Halliburton: “We estimate that scheduled to open in 2007, 74% of the backlog existing on and achieve 20% productivity 12/31 will be eliminated the gains there.” following fiscal year.”  UPS: “65% of drivers will have  Martha Stewart Living access to the new technology Omnimedia: “In 2004 we will (implemented in 2004) by the discontinue the Catalog for end of 2005.” and “In 2005, we Living and its online product will increase operating profit in options, and sell remaining each of our 3 key businesses: inventory in early fiscal 2005.” domestic, int’l, supply chain.” Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 9
  10. 10. Developing Commitment to Goals The determination to achieve a goal is increased by:  Setting goals participatively  Making goals reasonable  Making goals public  Obtaining top management support 2.2 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 10
  11. 11. Developing Effective Action Plans An Action Plan Lists… Specific Steps People Resources Time Period 2.3 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 11
  12. 12. Tracking Progress Set… Gather and provide… Proximal Goals Performance Feedback Distal Goals 2.4 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 12
  13. 13. Maintaining Flexibility Option-based planning  keep options open by making simultaneous investments • invest more in promising options • maintains slack resources Learning-based planning  plans need to be continuously adjusted 2.5 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 13
  14. 14. Staying Flexible Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 14
  15. 15. Planning from Top to Bottom 3 Adapted from Exhibit 5.5 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 15
  16. 16. Starting at the Top Clarify how the company will Strategic Plans serve customers and position itself against competitors (2-5 years) An inspirational statement of an Vision organization’s purpose (2 sentences) Overall goal that unifies efforts toward its vision, stretches and challenges, Mission and possesses a finish line and 3.1 time frame. Flows from vision. Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 16
  17. 17. Planning Time Lines Strategic 2 Years 5 Years 6 months Plans Tactical 2 years 30 days Operational 6 months 0 1 2 3 4 5 6 3.1 Years Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 17
  18. 18. Merck Corporation’s Vision and Values 3.1 Exhibit 5.7 Source: “The Merck Corporate Philosophy,” 17 February 2005. ©Merck & Co, Inc., All rights reserved. Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 18
  19. 19. Bending in the Middle Specify how a company will use resources, budgets, and people to Tactical Plans accomplish goals within its mission. (6 months to 2 years) Management by Develop and carry out tactical plans Objectives 1. Discuss possible goals 2. Participatively select goals consistent with overall goals 3. Jointly develop tactical plans 3.2 4. Meet to review progress Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 19
  20. 20. What Really Works Management by Objectives MBO 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% probability of success 97%  MBO is based on goals, participation and feedback  Companies that use MBO are 97% more likely to outperform companies that don’t! 3.2 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 20
  21. 21. Finishing at the Bottom Day-to-day plans for producing or Operational delivering products and services over Plans a 30-day to six-month period 3.3 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 21
  22. 22. Kinds of Operational Plans Plans that cover unique, Single-Use Plans one-time-only events Plans used repeatedly to handle frequently recurring events. Standing Plans Three kinds are: policies, procedures, and rules and regulations. Quantitative planning to decide how Budgets to allocate money to accomplish company goals 3.3 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 22
  23. 23. What Is Rational Decision Making? After reading these sections, you should be able to: 1. explain the steps and limits to rational decision making. 2. explain how group decisions and group decision-making techniques can improve decision-making. Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 23
  24. 24. What Is Rational Decision Making? Decision Making The process of choosing a solution from available alternatives. Rational Decision Making A systematic process of defining problems, evaluating alternatives, and choosing optimal solutions. 4 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 24
  25. 25. Steps to Rational Decision Making 1 Define the problem 2 Identify decision criteria 3 Weight the criteria 4 Generate alternative courses of action 5 Evaluate each alternative 6 Compute the optimal decision 4 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 25
  26. 26. Steps to Rational Decision Making 1 Define the problem  Problem exists when there is a gap between a desired state and an existing state  To make decisions about problems, managers must:  be aware of the gap  be motivated to reduce the gap  have the knowledge, skills, abilities, and resources to fix the problem 4.1 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 26
  27. 27. Defining the Problem Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 27
  28. 28. Steps to Rational Decision Making 2 Identify decision criteria  Standards used to guide judgments and decisions  The more criteria a potential solution meets, the better that solution should be 4.2 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 28
  29. 29. Steps to Rational Decision Making 3 Weight the criteria  Absolute comparisons  each criterion is compared to a standard or ranked on its own merits  Relative comparisons  each criterion is compared directly to every other criterion 4.3 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 29
  30. 30. Steps to Rational Decision Making Absolute Weighting of Decision Criteria 4.3 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 30
  31. 31. Steps to Rational Decision Making Relative Weighting of Decision Criteria 4.3 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 31
  32. 32. Steps to Rational Decision Making 4 Generate alternative courses of action  The idea is to generate as many alternatives as possible 4.4 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 32
  33. 33. Steps to Rational Decision Making 5 Evaluate each alternative  This step can take much longer and be more expensive than other steps in the process 4.5 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 33
  34. 34. Steps to Rational Decision Making 6 Compute the optimal decision  Multiply the rating for each criterion by the weight for that criterion  Sum the scores for each alternative course of action 4.6 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 34
  35. 35. PLUS— A Process for Ethical Decision Making P Policies L Legal U Universal S Self 4 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 35
  36. 36. Limits to Rational Decision Making Bounded Rationality A decision-making process restricted in the real world by:  limited resources  incomplete and imperfect information  managers’ limited decision-making capabilities 4.7 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 36
  37. 37. Limits to Rational Decision Making Maximize Satisfice 4.7 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 37
  38. 38. Using Groups to Improve Decision Making Nominal Structured Group Conflict Technique Delphi Stepladder Electronic Technique Technique Brainstorming 5 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 38
  39. 39. Group Decision Making Advantages 1. View problems from multiple perspectives 2. Find and access more information 3. Generate more alternative solutions 4. More committed to making chosen solutions work 5.1 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 39
  40. 40. Group Decision Making Disadvantages 1. Susceptible to groupthink and to considering a limited number of solutions 2. Takes considerable time 3. One or two people can dominate group discussion 4. Members don’t feel personally accountable for decisions and actions 5.1 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 40
  41. 41. Groupthink Groupthink is likely to occur when…  The group is insulated from others with different perspectives  The group leader expresses a strong preference for a particular decision  There is no established procedure for defining problems and exploring alternatives  Group members have similar backgrounds 5.1 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 41
  42. 42. Effect of Groupthink Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 42
  43. 43. Structured Conflict Cognitive conflict. Disagreement that focuses on C-Type Conflict problem- and issue-related differences of opinion Affective conflict. A-Type Conflict Disagreement that focuses on individuals or personal issues 5.2 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 43
  44. 44. Devil’s Advocacy Steps to Establish a Devil’s Advocacy Program 2. Generate a potential solution 3. Assign a devil’s advocate to criticize and question 4. Present the critique of the solution to key decision makers 5. Gather additional information 6. Decide whether to use, change, or not use the originally proposed solution 5.2 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 44
  45. 45. Dialectical Inquiry Steps to Establish a Dialectical Inquiry Process 2. Generate a potential solution 3. Identify the assumptions underlying the potential solution 4. Generate a conflicting counterproposal based on opposite assumptions 5. Have advocates of each position present their arguments and engage in a debate in front of decision makers 6. Decide whether to use, change, or not use the originally proposed solution 5.2 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 45
  46. 46. What Really Works Devil’s Advocacy 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% probability of success 58% Dialectical Inquiry 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% probability of success 55% Considering Negative Consequences 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% probability of success 86% Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 46
  47. 47. Nominal Group Technique Steps to Establish Nominal Group Technique 3. During a “quiet time,” group members write down as many problems and solutions as possible 4. Each member shares one idea at a time 5. Ideas are posted on flipcharts until all ideas are shared 6. Group discusses advantages/disadvantages 7. Ideas are ranked during a second “quiet time” 8. Members read rankings aloud, and the idea with the highest average rank is selected 5.3 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 47
  48. 48. Delphi Technique Steps to Establish Delphi Technique 3. Assemble a panel of experts. 4. Create a questionnaire of open-ended questions. 5. Summarize the responses and feed back to the panel until the members reach agreement. 6. Create a brief report and send to the panel members for agreement/disagreement. 7. Continue the feedback process until panel reaches agreement. 5.4 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 48
  49. 49. Stepladder Technique Member 4 Joins Group Members 1, 2, & 3 Discussion is Held and Shares thoughts, ideas, Share previous Tentative Group Step 3 recommendations thoughts, ideas, Decision is Made recommendations Member 3 Joins Group Members 1 & 2 Discussion is Held and Shares thoughts, ideas, Share previous Tentative Group Step 2 recommendations thoughts, ideas, Decision is Made recommendations Member 1 Member 2 Discussion is Held and Shares thoughts, ideas, Shares thoughts, ideas, Tentative Group Step 1 recommendations recommendations Decision is Made 5.5 Adapted From Exhibit 5.13 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 49
  50. 50. Electronic Brainstorming Four Rules of Brainstorming 2. The more ideas, the better. 3. All ideas are acceptable, no matter how wild or crazy. 4. Other group members’ ideas should be used to come up with even more ideas. 5. Criticism or evaluation of ideas is not allowed. 5.6 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 50
  51. 51. Electronic Brainstorming Advantages of Electronic Brainstorming  Overcomes production blocking  technology allows everyone to record their ideas as they are created  no ideas lost “waiting your turn” to speak  Overcomes evaluation apprehension  anonymity creates free expression 5.6 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 51
  52. 52. Electronic Brainstorming Disadvantages of Electronic Brainstorming  Greater expense  No automatic acceptance of ideas because of one’s position  Some find it difficult to express themselves in writing  Lack of typing skills can frustrate participants 5.6 Chapter 5 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 52
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