Planning and Decision Making Chapter 3 Mr. Sherpinsky Business Management Class Council Rock School District

Goals & Objectives 1.Define planning, and distinguish between formal and functional plans 2.Contrast strategic planning with operational planning 3.Understand different types of objectives 4.Explain how decision making differs from problem solving, and compare and contrast rational and intuitive approaches to decision making 5.Explain the decision maker’s environment and the conditions for making a decision

The Planning Process Planning: the process of deciding which objectives to pursue during a future time period and how to achieve those objectives. –Primary management function

Why Plan? Key executives in every company spend a considerable amount of time planning –Important to the success of the company!

Why Plan? Planning enables an organization to actively affect rather than passively accept the future. Planning provides a means for actively involving personnel from all areas of the organization in the management of the organization Planning can also have positive effects on performance. Planning is a mental exercise that give people experience and knowledge

Formal Planning Defined: The systematic studying of an issue and the preparation of a written document to deal with the problem. –Formal Plan: Defined: a written, documented plan developed through an identifiable process Levels of sophistication Depends on the needs and organization

Types of Planning Formal planning Functional plans Long range Short range Operational planning Strategic planning Contingency planning

Formal Planning Functional Plans –Most frequently encountered types Sales and marketing Productions Financial Personnel

Formal Planning Planning Horizons: –Short-range plans cover up- to a one-year period of time –Long-range plans cover at least a three-to-five year period of time and beyond –Intermediate plans cover the time span between short- range and long-range Usually one to three or one to five years

Operational vs. Strategic Plans Operational –Short-range planning –Focuses on forming ideas for dealing with specific functions in the company Ex: production schedules and day-to- day operations Strategic –Long-range planning –Done by highest management levels President, vice- president, chief operating officer –Affects many parts of the organization

Contingency Plans Regardless of thorough you plan, something always goes wrong…. –Remember planning is a one-sided process Contingency Plans: back up plans that address the what ifs of the management job.

Objectives Objectives: Defined: are statements outlining what a manager is trying to achieve. Objectives give an organization and its members directions and purpose. Should be clear, concise, and measurable

Objectives Long-range –Generally go beyond the organization’s current fiscal year –Must support and not conflict with the organization mission Short-range –Derived from in- depth evaluation of long-range objectives –List of priorities to achieve longer- range objectives

Types of Objectives Profit Service Employee needs Social responsibility

Objectives Scheme to Classify Objectives –Generally four (4) categories 1)Primary a)Relate to profit 2)Secondary a)Apply to specific units/departments 3)Individual a)Employees 4)Societal a)Relate to local, state, and global communities

The Planning Process MBOs (Management by Objectives) –Convert company objectives to management ones –How the manager is rated Policies –Broad general guides to action Procedures –Series of steps to meet objectives –Usually done chronologically Rules –Specific actions to take (or not to take )

Making Decisions Decision process stages –Intelligence Involves searching the environment for conditions requiring a decision –Design Involves inventing, developing, and analyzing possible courses of action –Choice Refers to the actual selection of a course of action

Making Decisions Decision Making Vs. Problem Solving –Decision making: Choosing from various alternatives –Problem solving: The process of determining the appropriate recompense or actions

Approaches to Problem Solving Optimizing approach –Recognize a need for a decision –Establish rank and weigh –Gather information and data –Identify and evaluate alternatives –Selection Limitations –May not always have clear criteria or alternatives –Assumes people can evaluate all alternatives

Approaches to Problem Solving Satisficing –Principle of bounded rationality Assumes that people have the time and cognitive ability to process only a limited amount of information Assumes knowledge of alternatives and criteria is limited Assumes people act on the basis of a simplified concept of the world Will not optimize but take the first alternative that satisfied their current level of aspiration Aspiration fluctuates upward and downward depending on the values of the most recently identified alternatives This approach looks at meeting the best possible alternative that meets the minimum standard of satisfaction

Making Decisions Decision maker’s environment Environmental factors –Manager’s position –Structure of organization –Tradition of organization –Informal and formal group structures (i.e., unions) –Superiors and subordinates

Making Decisions Intuitive approach –Using emotions to make decisions –Fastening on unsubstantiated facts and sticking with them –Being attracted to scandalous issues and heightening their significance –Pressing every fact into a moral pattern –Overlooking everything except what is immediately useful

Making Decisions Certainty –Knowing what will happen will make a decision easier Risk –Outcomes are not always known in advance –Decision making requires certain amount of risk

Making Decisions Uncertainty –No knowledge concerning the probabilities associated with outcomes Maximax and Maximin approach –Look at best alternative whose best possible outcome is best for all alternatives –Comparing to worst possible outcomes

Making Decisions Risk averting approach –Choosing an alternative with least variation among outcomes Timing –Need for a decision must be recognized –Must act at some point Participation –Two heads are better than one –Group performance is usually better than individual performance

Barriers to Decision Making Complacency –Ignoring data or not making a decision at all Defensive avoidance –Denies the importance of the danger or opportunity Panic –Frantic attempts to solve a problem Deciding to decide –Accepting responsibility for the decision

Management Information Systems Integrated approach for providing interpreted and relevant data to help make decisions –Data processing Capture, processing and storage of data MIS uses that data to produce information to make good decisions –Transaction processing system Payroll, billing inventory records Routine Highly structured decisions

Questions? Exam Next Class 100 Points –Multiple Choice –T/F –Drop box –Essay