This chapter discusses the foundations of planning and decision making. It defines planning as involving setting goals for an organization and establishing strategies to achieve those goals. Managers plan to provide direction, reduce uncertainty, and improve performance. There are different types of goals including mission, strategic, and operational goals. Plans can be strategic, tactical, or operational based on their breadth and long-range, intermediate, or short-range based on their time frame. Management by objectives is an approach where goals are jointly set by managers and employees. Rational decision making follows steps of defining problems, identifying alternatives, evaluating them, selecting an option, implementation, and review. However, bounded rationality and intuition also influence decisions.

1. CHAPTER # 02
Foundations
of
Planning and Decision
Making
7–1

2. 7–2
L E A R N I N G O U T L I N E
What Is Planning?
• Define planning.
Why Do Managers Plan?
• Describe the purposes of planning.
• Explain the relationship between planning and
performance.
How Do Managers Plan?
• Define goals and plans.
• Describe the types of goals organizations might have.

3. 7–3
L E A R N I N G O U T L I N E
How Do Managers Plan? (cont’d)
• Describe each of the different types of plans.
Establishing Goals and Developing Plans
• Discuss how traditional goal setting works.
• Describe the management by objectives (MBO) approach.
• List the steps in a typical MBO program.
• Discuss the advantages and drawbacks of MBO
programs.

4. 7–4
What Is Planning?
• Planning
⮚Planning involves:
❖ Defining an organization’s goals.
❖ Establishing an overall strategy (i.e., courses of actions)
for achieving those goals.

5. 7–5
Why Do Managers Plan?
• Purposes of Planning:
⮚Provides direction to managers as well as non-
managers
⮚Reduces uncertainty by forcing managers to look
ahead, anticipate change, consider the impact of
change, and develop appropriate responses
⮚Minimizes waste and redundancy
⮚Sets the standards for controlling

6. 7–6
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.

7. 7–7
Elements of Planning
⮚Goals (also Objectives)
❖ Desired outcomes for individuals, groups, or entire
organizations
❖ Provide direction and evaluation/performance criteria
⮚Plans
❖ Documents that outline how goals are to be
accomplished
❖ Describe how resources are to be allocated and
establish activity schedules

8. Planning Process
7–8

9. 7–9
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.
⮚ Example: Google’s Mission Statement is ‘to organize the world’s
information and make it universally accessible and useful.’

10. 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.
7–10

11. Market share is the percentage of the total revenue or
sales in a market that a company's business makes up.
7–11

12. 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.
7–12

13. 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.
7–13

14. 7–14
Types of Plans
• Organizational plans can be classified in terms
of the following issues:
1. Breadth/Levels
2. Time Frame
3. Frequency of Use

15. Levels of Goals and Plans
7–15

16. Levels of Goals and Plans
7–16

17. 7–17
Types of Plans
• On the basis of Breadth, plans are of three
types:
• Strategic Plans
⮚Outline decisions of resource allocation, priorities,
and action steps necessary to reach strategic goals.
⮚Are developed by top management.
⮚Cover extended periods of time.

18. 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.
7–18

19. 7–19
Time Frames for Planning
• On the basis of Time, plans are of three 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.

20. Time Frames for Planning
• Short-Range Plans
⮚A plan that generally covers a span of one year or
less.
7–20

21. 7–21
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.

22. Types of Standing Plans
• A Policy
⮚A general guideline for making a decision about a
structured problem.
⮚A university admission office might establish a policy
that applicants with a minimum CGPA 4.8 in SSC and
HSC (or equivalent) each are eligible to apply for
Undergraduate Programs.
7–22

23. 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.
7–23

24. 7–24
Approaches to Establishing Goals
• Traditional Goal Setting
⮚Broad goals are set at the top of the organization.
⮚Goals are then broken into subgoals for each
organizational level.
⮚Assumes that top management knows best because
they can see the “big picture.”
⮚Goals are intended to direct, guide, and constrain
from above.
⮚Goals lose clarity and focus as lower-level managers
attempt to interpret and define the goals for their
areas of responsibility.

25. 7–25
Approaches to Establishing Goals
• Management By Objectives (MBO)
⮚Specific performance goals are jointly determined by
employees and managers.
⮚Progress toward accomplishing goals is periodically
reviewed.
⮚Rewards are allocated on the basis of progress
towards the goals.
⮚Key elements of MBO:
❖ Goal specificity, participative decision making, an
explicit performance/evaluation period, feedback

26. 7–26
Approaches to Establishing Goals
Steps in MBO:
1. The organization’s overall objectives and strategies
are formulated.
2. Major objectives are allocated among divisional and
departmental units.
3. Unit (divisions, departments, units) managers
collaboratively set specific objectives for their units.
4. Specific objectives are collaboratively set for all
departmental members.

27. 7–27
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.
5. The action plans are implemented.
5. Progress toward objectives is periodically reviewed
and feedback is provided.
5. Successful achievement of objectives are reinforced by
performance-based rewards.

28. 7–28
Does MBO Work?
• Reason for MBO Success
⮚Top management commitment and involvement
• Potential Problems with MBO Programs
⮚Not as effective in dynamic environments that require
constant resetting of goals.
⮚Overemphasis on individual accomplishment may
create problems with teamwork.
⮚Allowing the MBO program to become an annual
paperwork.

29. CHAPTER # 06
MANAGERS
AS
DECISION MAKERS
6–29

30. 6–30
CHAPTER OUTLINE
• Define decision and decision-making.
• Describe the steps in the rational decision-making
process.
• Discuss the assumptions of rational decision making.
• Describe the concept of bounded rationality.
• Explain the concept of intuitive decision making.
• Explain the types of problems.
• Explain the types of decisions.

31. 6–31
Definition of Decision
✔Decision is a choice from two or more
alternatives.
✔Decision-making is the process of making a
choice from two or more alternatives.

32. 6–32
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

33. 6–33
Step 1: Recognizing and defining the
decision situation
Some stimuli indicate that a decision must be
made. The stimuli may be positive or negative.
Example: A plant manager identifies that
employee turnover has increased by 10%.

34. 6–34
Step 2: Identifying Alternatives
• Both obvious and creative alternatives are
desired. In general, the more important the
decision, the more time should be devoted to
identify the alternatives.
• For example, the plant manager can increase
wages, increase other benefits, or change
hiring standards.

35. 6–35
Step 3: Evaluating Alternatives
• Each alternative are evaluated to determine its
feasibility, its satisfactoriness, and its
consequences. That’s feasibility and cost-
benefit analysis have to be conducted.
• For example, increasing benefits may not be
feasible. Increasing wages and changing hiring
standards may satisfy all conditions.

36. 6–36
Step 4: Selecting the Best Alternative
• Consider all the situational factors and choose
the alternative that best fits the manager’s
situation.
• For example, Changing hiring standards will
take an extended period of time to reduce
turnover, so increase wages.

37. 6–37
Step 5: Implementing the Chosen
Alternative
• The Chosen alternative is implemented into the
organizational system.
• For example, The plant manager may need
permission from headquarters. The HR
Department establishes a new wage structure.

38. 6–38
Step 6: Following up and Evaluating
the Results
• The manager should continuously observe whether
the implementation is going on appropriately.
• At the end, the manager should ascertain the extent
to which alternative chosen and implemented has
worked.
• For example, The plant manager notes that, six
months later, turnover drops to previous level.

39. 6–39
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.

40. 6–40
Assumptions of Rational Making Decisions
Are these Assumptions of Rational
Decision Making Realistic?
These assumption of rationality are not
very realistic.
Next concepts will explain how managers
actually make decisions.

41. 6–41
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.

42. 6–42
Decision Making: The Role of Intuition
Intuitive decision making:
Making decisions on the basis of experience,
subconscious mental processing, feelings, and
accumulated judgment.

43. 6–43
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.
• (A) Programmed Decision
A repetitive decision that can be handled by a routine
approach.

44. 6–44
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.

45. 6–45
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.

46. 6–46
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.
• (A) Non-programmed Decisions
⮚Decisions that are unique and nonrecurring.
⮚Decisions that generate unique responses.

47. 6–47
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.

48. 6–48
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”.

49. THE END OF THE
CHAPTER
7–49