Planning and Decision Making 5 chapter Planning and Decision Making McGraw-Hill/Irwin Principles of Management © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

Learning Objectives Describe the different levels of planning in an organization. Explain the difference between strategic, tactical, operating, and unit plans. Outline the value of simple-use plans, standing plans, and contingency plans. Describe the main components of a typical strategic planning system. Identify the main pitfalls that managers encounter when engaged in formal planning processes, and describe what can be done to limit those pitfalls. Discuss the major reasons for poor decisions, and describe what managers can do to make better decisions.

Steps in Planning Choose goals Identify actions Allocate responsibility Review Performance Make adjustments Learning Objective 1: Describe the different levels of planning in an organization. See Text Page: 106

Levels of Planning Corporate-level Strategic plan (CEO) Sets the context for Shaped by input from Business-level strategic plan (heads of businesses) Operating plans (heads of functions) Learning Objective 1: Describe the different levels of planning in an organization. See Text Pages: 107-108 Unit plans (heads of departments, teams, individuals

Types of Plans Strategic plans: A plan that outlines the major goals of an organization and the organizationwide strategies of attaining those goals. Operating plans: Plans that specify goals, actions, and responsibility for individual functions. Tactical plans: The action managers adopt over the short to medium term to deal with a specific opportunity or threat that has emerged. Unit plans: Plans for departments within functions, work teams, or individuals. Learning Objective 2: Explain the difference between strategic, tactical, operating, and unit plans. See Text Pages: 107-108

Types of Plans Single-use plans: Plans that address unique events that do not reoccur. Standing plans: Plans used to handle events that reoccur frequently. Contingency plans: Plans formulated to address specific possible future events that might have a significant impact on the organization. Crisis management planning: Plan formulated specifically to deal with possible future crises. Scenario planning: Plans that are based on “what if” scenarios about the future. Learning Objective 3: Outline the value of single-use plans, standing plans, and contingency plans. See Text Pages: 109-112

Scenario Planning Formulate plans to deal Invest in one with those Identify different Possible futures (scenarios) Formulate plans to deal with those futures Invest in one plan but … Learning Objective 3: Outline the value of single-use plans, standing plans, and contingency plans. See Text Page: 112 Switch strategy if tracking of signposts shows alternative scenarios becoming more likely Hedge your bets by preparing for other scenarios and …

Question Can scenario planning apply and be useful to you as a student? Explain. Develop three scenarios for your post-graduation future and possible plans to deal with them. Learning Objective 3: Outline the value of single-use plans, standing plans, and contingency plans. Question This should be an interesting application exercise for students to understand that these type of planning apply to them as well as organizations.

Scenario Planning Traps Treating scenarios as forecasts Failing to make scenarios global enough in scope Failing to focus scenarios in areas of potential impact Treating scenarios as informational only Not using an experience facilitator Learning Objective 3: Outline the value of single-use plans, standing plans, and contingency plans. Scenario Planning Traps This slide presents some common traps with scenario planning. Ask the students – what other items should managers be concerned about or watch out for? (Some of the other issues may be not spending enough time on scenario development or using enough imaginative power in developing scenarios, not having adequate process, etc.) Ask the students – where can they see the utility of scenario planning in their life? (some immediate examples may be job search, housing situations, etc.) Source:www.valuebasedmanagement.net Source:www.valuebasedmanagement.net

The Strategic Planning Process Feedback Mission, vision, values, and goals Internal analysis (strengths and weaknesses) External analysis (opportunities and threats) SWOT analysis formulate strategies Learning Objective 4: Describe the main components of a typical strategic planning system. See Text Page: 113 Draft action plans Assign subgoals, roles, responsibilities, timelines, and budgets Review progress against plan Implement

Setting the Context: Mission, Vision, Values, and Goals Mission: The purpose of an organization. Vision: A desired future state. Values: The philosophical properties to which managers are committed. Goals: A desired future state that an organization attempts to utilize. Learning Objective 4: Describe the main components of a typical strategic planning system. See Text Pages: 113-115

Question In describing the purpose of the organization, _____ should be _______-oriented. mission; customer vision; product values; product goals; customer Learning Objective 4: Describe the main components of a typical strategic planning system. Answer: A

Mission Checklist Ends, not means Effort Verbs Nouns embodying activities The Unidentifiable Brevity Broad vs. narrow Value added Unique Learning Objective 4: Describe the main components of a typical strategic planning system. Mission Checklist This slide presents a checklist for developing effective mission statements as adapted from the Center for Nonprofit Organization. Many of these aspects can apply to students for developing a mission statement for their own use in their personal life as well. The mission should focus on the results. Make sure the mission is broad enough to allow for creative growth but narrow enough to have the focus. The mission should ignite effort and it should be brief, not too long. It should be unique and add value and provide direction. Source: raise-funds.com Source: raise-funds.com

Characteristics of Goals They are precise and measurable. They address important issues. They are challenging but realistic. They specify a time period in which they should be achieved. Learning Objective 4: Describe the main components of a typical strategic planning system. See Text Page: 115

10 Ingredients for Successful Goals Specific Simple Significant Strategic Rational Measurable Tangible Written Shared Consistent with your values Learning Objective 4: Describe the main components of a typical strategic planning system. 10 Ingredients for Successful Goals This slide presents 10 ingredients for successfully setting and achieving goals according to the author Phillip Humbert. Ask the students before showing this slide as to what they would consider as the necessary ingredients for setting ands achieving goals successfully? Goals should be specific in concrete terms. It should be simple not complex, i.e., several goals should not be jumbled up together. They should be significant. Something one really wants. They should be strategic, i.e., it should impact as many areas of your life as possible. They should make sense. You must be able to measure them. Tangible: Define the goals in terms that excite your senses.They should be written and shared and consistent with your values. Source:www.topachievement.com Source:www.topachievement.com

The Benefits of Planning Planning gives direction and purpose to an organization; it is a mechanism for deciding the goals of the organization. Planning is the process by which management allocates scarce resources, including capital and people, to different activities. Planning drives operating budgets-strategic, operations, and unit plans determine financial budgets for the coming year. Planning assigns roles and responsibilities to individuals and units within the organization. Planning enables managers to better control the organization. Learning Objective 5: Identify the main pitfalls that managers encounter when engaged in formal planning processes, and describe what can be done to limit those pitfalls. See Text Page: 118

Countering the Pitfalls of Planning Solution Too centralized; top-down Decentralized planning Failure to question assumption Scenario planning; devil’s advocate Learning Objective 5: Identify the main pitfalls that managers encounter when engaged in formal planning processes, and describe what can be done to limit those pitfalls. See Text Page: 119 Failure to implement Link to goals; tie to budgets Failure to anticipate rivals’ actions Role-playing

The Rational Decision-Making Model Identify the problem Identify decision criteria Weight criteria Generate alternative courses of action Does not meet expectations Evaluate Implement alternative Choose one alternative Learning Objective 6: Discuss the major reasons for poor decisions, and describe what managers can do to make better decisions. See Text Page: 122 Meets expectations outcome Continue with course of action

Bounded Rationality and Satisficing Bounded rationality: Limits in human ability to formulate complex problems, to gather and process the information necessary for solving those problems, and thus to solve those problems in a rational way. Satisfice: Aiming for a satisfactory level of a particular performance variable rather than its theoretical maximum. Learning Objective 6: Discuss the major reasons for poor decisions, and describe what managers can do to make better decisions. See Text Page: 122

Decision-Making Heuristics and Cognitive Biases Decision heuristics 80-20 rule Cognitive bias Prior hypothesis bias Framing bias Learning Objective 6: Discuss the major reasons for poor decisions, and describe what managers can do to make better decisions. See Text Pages: 123-125

80-20 Rule Performing in your 20 percent if you’re: Engaged in activities that advance your overall purpose in life Doing things you have always wanted to do not what others want you to do Hiring people to do the tasks you are not good at or don't like doing. Smiling. Learning Objective 6: Discuss the major reasons for poor decisions, and describe what managers can do to make better decisions. 80-20 Rule This slide presents some ways of identifying whether you are working on the 20 or 80 percent of the issue or work. 80-20 rule suggest that 20% of the work will generate 80% of the result and therefore it would be ideal to understand where and when you are working on the 20 or the 80 % issue. Ask the students – Can they identify and testify to this rule? Has this or does this work? Source: Family Practice Management, September 2000

Improving Decision Making Devil’s advocacy: The generation of both a plan and a critical analysis of the plan by a devil’s advocate. Dialectic injury: The generation of a plan (a thesis) and a counterplan (an antithesis) that reflect plausible but conflicting courses of action. Outside view: Identifying a reference class of analogies past strategic initiatives, determining whether those initiatives succeeded or failed, and evaluating a project at hand against those prior initiatives. Learning Objective 6: Discuss the major reasons for poor decisions, and describe what managers can do to make better decisions. See Text Page: 127