Chapter 002 Planning & Decision Making.pdf
- 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
- 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