Unit 1.6 Organizational Planning Tools “The rich man plans for tomorrow, the poor man for today.” Chinese Proverb

Decision Making Operational Decisions- Standard day-to-day decisions handled by junior management such as figuring out how to deal with customer complaints. Tactical Decisions- Regular, short-term decisions handled by middle management such as developing pricing strategies. Strategic Decisions- High-level, long-term decisions, handled by senior management, that set the overall direction for a business such as what products to develop, which new markets to enter, the location, etc.

Business Plans What is a business plan? A business plan is a report detailing how a new business sets out to achieve its aims and objectives. It is a useful planning tool as it requires the owner to plan marketing, financial and human resources of the business. It helps gain financial backing from banks and venture capitalists, and can be used by shareholders to assess the potential gains from their investment in the business.

Typical Business Plan Format Business Plans will include: The business: The product: The market: The finance: The personnel The marketing

Business Plan Name/address of business The Business includes: Name/address of business Type of business organization (partnership or proprietorship) A statement of quantifiable aims and objectives of business Costs of premises and other start-up costs Details of owner(s) and their past business experiences

Business Plan (Continued) The Product includes: Details of goods/services being sold Level of demand (both present and futer) with any evidence why customer will buy that prduct. How/where production will take place such as the equipment needed Details of suppliers of resources such as raw material or stocks Costs of production, i.e. the running cost of operationg business Pricing strategies to be used

Business Plan (Continued) The Market includes Size of market (number of customers for product)ex: IB business is a small market compared to IB biology Nature of market (customer profile and market segmentation) Recent and expected growth rate of market in the future Outline of direct and indirect competitors, including market share, strengths and weaknesses.

Business Plan (Continued) The Finance includes Finance sources to show how the business will be funded Break-even analysis to project firm’s break-even level of sales Steps to deal with cash flow problems Security offered to lenders in case the borrower defaults on the loan, i.e. fails to repay the loan Cash flow forecast showing the projected earnings from sales and expected cash payments. Projected profit and loss account showing estimated profit at the end of the first year Projected balance sheet at the end of the first year showing the firms assets and liabilities Forecast rate of return for investors of the business venture

Business Plan (Continued) The personnel includes: Number and positions of the workers likely to be employed Organizational chart showing internal structure of human resources Details of payment systems such as wage rates, salaries and remuneration packages

Business Plan (Continued) The marketing includes: Details of the promotional mix that will be used to reach customers and make sales Distribution plan (where products will be sold) Evidence of whether any market research has been carried out Unique selling point that the business can use to differentiate itself from competitors

SWOT Analysis This acronym which stands for Strengths, Weaknesses, Opportunities, and Threats, is a useful decision making tool. Strengths-. Unique selling point, Brand recognition and loyalty, market share, Croporate image and reputation, geographical location, value for money Weaknesses-. Limited sources of revenue, escalating costs production, higher costs, limited sources of finance, lack of spare capacity, restricted product range Opportunities- Economic development and trade liberalization, weakening exchange rate, technological improvements, new markets and locations. Threats- New entrants in the marketplace, outbreak of diseases, protests, media coverage and publicity, unfavorable season change, changes in fashion and tastes, price competition from rivals.

Decision-Making Frameworks Decision-Making Framework- systematic process of dealing with business problems, concerns or issues in order to make the best decision. What production should take place? Which goods or services to apply? Cost-benefit analysis (CBA)- examines the financial costs and benefits of a decision. It decides financial costs are smaller that the financial benefits the decition can go ahead. Ex: Break-even analysis and investment appraisal.

Six Thinking Hat Six Thinking Hats- This model was devised by psychologist Edward De Bono and allows managers to make better decisions by forcing them to move away from their normal way of thinking. White Hat (factual information) Red Hat (thinking based on emotions and feelings) Black Hat (consideration of only the bad points of a decision) Yellow Hat (all the benefits of a decision) Green Hat (creative solutions to a problem) Blue Hat (neutral thinking –makes sure each hat is represented)

Other Types of Analysis/Principles Force Field analysis- This model serves as a technique for examining the forces for and against a decision. Driving forces refer to the advantages of implementing a decision whereas restraining forces are the limitations. Pareto Analysis-Technique that identifies the decisions that will provide the greatest benefits of most important problems that needs to be solved. Vilfredo Pareto discovered that Approx. 80% of a country’s wealth was owned by 20% of the population. Pareto principle: states that 20% of the work can generate 80% of the output

The 5 Why’s This decision-making and problem-solving technique was devised in order for people to ask 5 times why an issue or concern has happened in order to get to the root cause(s) of the problem

Scientific vs. Intuitive Decision Making Processes Scientific Decision-making- Decisions are made objectively on the basis of following a formal and prescribed procedure. They are based on facts and evidence. Intuitive Decision-making- based on a person’s beliefs, perceptions, instincts and gut feelings. Entrepreneurs are risk takers and most of the time take decitions on their intuition

Rules Used to Construct and Interpret Decision Trees Decision Tree is a quantitative decision-making tool. Decision Nodes- (shown as squares) are used when there is a decision to be made, i.e. whether to launch a new product Chance Nodes- (shown as circles) are used to show the different possible outcomes of a decision. Typical outcomes include criteria such as failure and success. For each chance node, there will be two or more routes (outcomes). These show the probability of the different outcomes for each chance node. The probabilities must add to 1. The actual values of each outcome are stated at the end of each branch. The costs of each opinion must be deducted prior to writing down this figure.

Advantages/Disadvantages of Decision Trees Allows manager to set out problems in clear logical manner Consider risks involved in decision-making, i.e. negative outcomes They are visual and thus, a tangible insight to a problem Opinions can be seen at the same time Aid better decision taking Disadvantages: Probabilities are only estimates Only based on quantitative data, so qualitative issues are totally ignored Probabilities can be subjective and biased Delays can occur The technique does not necessarily reduce the amount of risk involved

Ishikawa’s Fishbone Model Fishbone Model- also knows as the cause-and-effect diagram. This is a graphical representation of the most likely causes and effects of an important decision. You can find Management, Manpower, Machinery, and Materials. To be able to construct one you must observe:The problem or issue, and the contributors

Internal and External Constraints Internal Constraints- the factors that hinder decision-making but are within the control of the business, i.e. a workforce may lack the necessary skills, ambitions and motivation for a business to implement a decision. The use of SWOT can help a business to identify potential internal constrains. External Constraints- the barriers that hinder decision-making but are uncontrollable by the business, i.e. political, economic, social and technological issues In reality, factors affecting decision-making will include consideration of internal and external constraints and opportunities. The use of SWOT and cause and effect diagrams can help reduce the risks involved in decision making.