2. Planning premises
• Planning premises are determined as the anticipated environment in which
plans are expected to operate.
• It includes assumptions or forecasts of the future and known conditions
that will affect the operation of plans.
• The assumptions derived from forecasting and used in planning are called
as planning premises. According to Koontz O’Donnell
• Planning premises provide a framework for planning and action in the
midst of uncertainties in the business environment. They imply not only
the assumptions about the future but also predictions. Planning premises
constitute the framework with which planning is done
3. ENVIRONMENTAL FORECASTING
• Forecasting is a way of estimating the future events that have a major
impact on the enterprise. Environmental forecasting is a technique
whereby managers attempt to predict the future characteristics of
the organizational environment and hence make decisions today that
will help the firm deal with the environment of tomorrow.
• Forecasting involves the use of statistical and non-statistical or
qualitative techniques
4. Forecasting with the Delphi technique
A typical process of the Delphi technique is as follows:
• A panel of experts on a particular problem area is selected, usually from
both inside and outside the organization.
• The experts are asked to make (anonymously, so that they will not be
influenced by others) a forecast as to what they think will happen, and
when, in various areas of new discoveries or developments
• The answers are compiled, and the composite results are fed back to the
panel members.
• This process may be repeated several times.
• When a convergence of opinion begins to evolve, the results are then
used as an acceptable forecast.
5. DECISSION MAKING
• Decision-making is defined as the selection of a course of action from
among alternatives; it is at the core of planning.
• A plan cannot be said to exist unless a decision—a commitment of
resources, direction, or reputation—has been made
6. The Decision Making Process
Step 1: Identifying a problem.
Step 2: Identifying decision criteria.
Step 3: Allocating weights to the criteria.
Step 4: Developing alternatives.
Step 5: Analyzing alternatives.
Step 6: Selecting an alternative.
Step 7: Implementing the alternative.
Step 8: Evaluating decision effectiveness.
7. Rationality in Decision-Making
It is frequently said that effective decision-making must be rational.
• But what is rationality? When is a person thinking or deciding
rationally?
Rational decision making: describes choices that are consistent and value
maximizing within specific constraints.
Limited or “Bounded” Rationality: describes behavior that is rational within
the parameters of a simplified decision making process, which is limited by
an individual’s ability to process information.
• Limitations of information, time, and certainty limit rationality, even if a
manager tries earnestly to be completely rational
• Herbert Simon called this satisficing, which is, picking a course of action
that is satisfactory or good enough under the circumstances
8. The Process of Rational decision making
• Premising
• Identifying alternatives – consider the limiting factor. The principle of the
limiting factor states that, by recognizing and overcoming those factors
that stand critically in the way of a goal, the best alternative course of
action can be selected
• Evaluation of alternatives – quantitative and qualitative factors
Marginal Analysis:Evaluating alternatives may involve utilizing the technique
of marginal analysis to compare the additional revenue and the additional
cost arising from increasing output
Cost-effectiveness Analysis An improvement on, or variation of, traditional
marginal analysis is cost-effectiveness or cost–benefit analysis. Cost-
effectiveness analysis seeks the best ratio of benefit and cost; this means, for
example, finding the least costly way of reaching an objective or getting the
greatest value for a given expenditure
• Selecting and Alternative
– Experience
– Experimentation
– Research and analysis
9. Programmed and non-programmed decisions
• Programmed decisions: Suited for structured or routine
problems. These kinds of decisions are made especially
by lower-level managers and nonmanagers
• Non-programmed decisions: used for unstructured and
nonroutine problems and are made especially by upper-level
managers
10. DECISION-MAKING UNDER CERTAINTY,
UNCERTAINTY, AND RISK
• Virtually all decisions are made in an environment of at least some
uncertainty involving the interaction of a number of important variables,
and there are certain risks involved in making decisions. Managers dealing
with uncertainty should know the degree and nature of the risk they are
taking in choosing a course of action. Creativity, the ability and power to
develop new ideas, is important for effective managing. Innovation is the
use of these ideas. The creative process consists of four overlapping
phases: unconscious scanning, intuition, insight, and logical formulation. A
popular technique for enhancing creativity is brainstorming. Creative
individuals can make a great contribution to the enterprise. At the same
time, they can be disruptive by not following commonly accepted rules of
behavior
