Chapter 5 planning and decision making

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Chapter 5 planning and decision making

  1. 1. Chapter 5 Planning and Decision Making
  2. 2. Planning After reading these sections, you should be able to: <ul><li>discuss the benefits and pitfalls of planning. </li></ul><ul><li>describe how to make a plan that works. </li></ul><ul><li>discuss how companies can use plans at all management levels, from top to bottom. </li></ul>
  3. 3. Planning 1 Planning Choosing a goal and developing a method of strategy to achieve that goal
  4. 4. Benefits of Planning 1.1 Benefits of Planning Creation of Task Strategies Intensified Effort Direction Persistence
  5. 5. Pitfalls of Planning 1.2 Pitfalls of Planning Detachment of Planners Impedes Change and Adaptation False Sense of Certainty
  6. 6. How to Make a Plan That Works 2 Set Goals Develop Commitment Develop Effective Action Plans Track Progress Toward Goal Achievement Maintain Flexibility Revise existing plan or Begin new planning process
  7. 7. Setting Goals 2.1 S.M.A.R.T. S pecific <ul><ul><ul><li>M easurable </li></ul></ul></ul><ul><ul><ul><li>A ttainable </li></ul></ul></ul><ul><ul><ul><li>R ealistic </li></ul></ul></ul><ul><ul><ul><li>T imely </li></ul></ul></ul>
  8. 8. Developing Commitment to Goals <ul><li>The determination to achieve a goal is increased by: </li></ul><ul><ul><li>Setting goals participatively </li></ul></ul><ul><ul><li>Making goals reasonable </li></ul></ul><ul><ul><li>Making goals public </li></ul></ul><ul><ul><li>Obtaining top management support </li></ul></ul>2.2
  9. 9. Developing Effective Action Plans An Action Plan Lists… 2.3 Specific Steps People Resources Time Period
  10. 10. Tracking Progress Set… Proximal Goals Distal Goals Gather and provide… Performance Feedback 2.4
  11. 11. Maintaining Flexibility <ul><li>Option-based planning </li></ul><ul><ul><li>keep options open by making simultaneous investments </li></ul></ul><ul><ul><ul><li>invest more in promising options </li></ul></ul></ul><ul><ul><ul><li>maintains slack resources </li></ul></ul></ul><ul><li>Learning-based planning </li></ul><ul><ul><li>plans need to be continuously adjusted </li></ul></ul>2.5
  12. 12. Planning from Top to Bottom Adapted from Exhibit 5.5 First-Level Managers Middle Top Managers 3 Purpose Strategic Objectives Tactical Plans, MBO Operational, Standing, Single-Use Standing Plans Operational Plans Single-Use Plans Tactical Plans, MBO Strategic Objectives Purpose
  13. 13. Starting at the Top 3.1 Strategic Plans Clarify how the company will serve customers and position itself against competitors (2-5 years) Purpose Statement a statement of a company’s purpose or reason for existing Strategic Objective A more specific goal that unifies company-wide efforts, stretches and challenges the organization, and possesses a finish line and a time frame
  14. 14. Planning Time Lines 3.1 Years 0 1 2 3 4 5 6 Plans Strategic Tactical Operational 5 Years 2 years 30 days 6 months 6 months 2 Years
  15. 15. Avon’s Vision and Values Exhibit 5.7 3.1
  16. 16. Bending in the Middle Tactical Plans Specify how a company will use resources, budgets, and people to accomplish goals within its mission. (6 months to 2 years) Management by Objectives Develop and carry out tactical plans <ul><li>Discuss possible goals </li></ul><ul><li>Participatively select goals consistent with overall goals </li></ul><ul><li>Jointly develop tactical plans </li></ul><ul><li>Meet to review progress </li></ul>3.2
  17. 17. Finishing at the Bottom Operational Plans Day-to-day plans for producing or delivering products and services over a 30-day to six-month period 3.3
  18. 18. Kinds of Operational Plans 3.3 Single-Use Plans Plans that cover unique, one-time-only events Standing Plans Plans used repeatedly to handle frequently recurring events. Three kinds are: policies, procedures, and rules and regulations. Budgets Quantitative planning to decide how to allocate money to accomplish company goals
  19. 19. What Is Rational Decision Making? After reading these sections, you should be able to: <ul><li>explain the steps and limits to rational decision making. </li></ul><ul><li>explain the advantageous and disadvantageous of group decision-making. </li></ul>
  20. 20. What Is Rational Decision Making? 4 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.
  21. 21. Steps to Rational Decision Making 4 Define the problem Identify decision criteria Weight the criteria Generate alternative courses of action Evaluate each alternative Compute the optimal decision 1 2 3 4 5 6
  22. 22. Steps to Rational Decision Making <ul><li>Problem exists when there is a gap between a desired state and an existing state </li></ul><ul><li>To make decisions about problems, managers must: </li></ul><ul><ul><li>be aware of the gap </li></ul></ul><ul><ul><li>be motivated to reduce the gap </li></ul></ul><ul><ul><li>have the knowledge, skills, abilities, and resources to fix the problem </li></ul></ul>Define the problem 1 4.1
  23. 23. Steps to Rational Decision Making <ul><li>Standards used to guide judgments and decisions </li></ul><ul><li>The more criteria a potential solution meets, the better that solution should be </li></ul>Identify decision criteria 2 4.2
  24. 24. Steps to Rational Decision Making <ul><li>Absolute comparisons </li></ul><ul><ul><li>each criterion is compared to a standard or ranked on its own merits </li></ul></ul><ul><li>Relative comparisons </li></ul><ul><ul><li>each criterion is compared directly to every other criterion </li></ul></ul>Weight the criteria 3 4.3
  25. 25. Steps to Rational Decision Making Absolute Weighting of Decision Criteria 4.3
  26. 26. Steps to Rational Decision Making Relative Weighting of Decision Criteria 4.3
  27. 27. Steps to Rational Decision Making Generate alternative courses of action 4 <ul><li>The idea is to generate as many alternatives as possible </li></ul>4.4
  28. 28. Steps to Rational Decision Making Evaluate each alternative 5 <ul><li>This step can take much longer and be more expensive than other steps in the process </li></ul>4.5
  29. 29. Steps to Rational Decision Making <ul><li>Multiply the rating for each criterion by the weight for that criterion </li></ul><ul><li>Sum the scores for each alternative course of action </li></ul>Compute the optimal decision 6 4.6
  30. 30. PLUS—A Process for Ethical Decision Making DOING THE RIGHT THING 4 Policies Legal Universal Self P L U S
  31. 31. Limits to Rational Decision Making 4.7 Bounded Rationality A decision-making process restricted in the real world by: <ul><li>limited resources </li></ul><ul><li>incomplete and imperfect information </li></ul><ul><li>managers’ limited decision-making capabilities </li></ul>
  32. 32. Limits to Rational Decision Making 4.7 Maximize Satisfice
  33. 33. Group Decision Making <ul><li>View problems from multiple perspectives </li></ul><ul><li>Find and access more information </li></ul><ul><li>Generate more alternative solutions </li></ul><ul><li>More committed to making chosen solutions work </li></ul>Advantages 5.1
  34. 34. Group Decision Making 5.1 <ul><li>Susceptible to groupthink and to considering a limited number of solutions </li></ul><ul><li>Takes considerable time </li></ul><ul><li>One or two people can dominate group discussion </li></ul><ul><li>Members don’t feel personally accountable for decisions and actions </li></ul>Disadvantages
  35. 35. Groupthink 5.1 <ul><li>The group is insulated from others with different perspectives </li></ul><ul><li>The group leader expresses a strong preference for a particular decision </li></ul><ul><li>There is no established procedure for defining problems and exploring alternatives </li></ul><ul><li>Group members have similar backgrounds </li></ul>Groupthink is likely to occur when…

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