Chapter 5Planning and Decision Making

MGMT6© 2014 Cengage Learning

© 2014 Cengage Learning

5-1 discuss the benefits and pitfalls of planning5-2 describe how to make a plan that works5-3 discuss how companies can use plans at all management

levels, from top to bottom5-4 explain the steps and limits to rational decision making5-5 explain how group decisions and group decision-making

techniques can improve decision making

Benefits of Planning

• Intensified effort

• Persistence

• Direction

• Creation of task strategies

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Pitfalls of Planning

• Impedes change and prevents or slows adaptation

• Creates a false sense of certainty

• Detachment of planners

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Setting Goals

S.M.A.R.T. Goals• Specific• Measurable• Attainable• Realistic • Timely

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Developing Commitment to Goals

• Goal commitment– the determination to achieve a goal

• Set goals collectively

• Make the goal public

• Obtain top management’s support

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Developing Effective Action Plans

An action plan lists…

• Specific steps (how)• People (who)• Resources (what)• Time period (when)

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Tracking Progress

• Proximal goals and distal goals

• Performance feedback

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Maintaining Flexibility

• Options-based planning– keep options open by making, small

simultaneous investments in many alternative plans.

• Slack resources– a cushion of resources, like extra time or

money, that can be used to address and adapt to unanticipated changes.

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Starting at the Top

• Strategic plans– make clear how the company will serve

customers and position itself against competitors in the next 2 to 5 years

• Purpose statement– a statement of a company’s purpose or

reason for existing• Strategic objective

– a more specific goal that unifies company-wide efforts, stretches and challenges the organization, and possess a finish line and a time frame.

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Bending in the Middle

• Tactical plans– specify how a company will use resources,

budgets, and people to accomplish specific goals related to its strategic objective

– time frame: 6 months to 2 years

• Management by Objectives (MBO)– discuss possible goals– collectively set goals– jointly develop tactical plans– meet regularly to review progress

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Finishing at the Bottom

Operational plans• Single-use plans• Standing plans

– policies– procedures– rules and regulations

• Budgets

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Steps to Rational Decision Making

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1. Define the problem2. Identify decision criteria3. Weight the criteria4. Generate alternative courses of action5. Evaluate each alternative6. Compute the optimal decision

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Define the Problem

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Existing state

Desired state

PROBLEM

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Identify Decision Criteria

The standards used to guide judgments and decisions.

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Weight the Criteria

• Absolute comparisons

• Relative comparisons

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Generate Alternative Courses of Action

After identifying and weighting the criteria that will guide the

decision-making process, the next step is to identify possible courses

of action that could solve the problem.

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Evaluate Each Alternative

• The next step is to systematically evaluate each alternative against each criterion.

• The key is to use information to systematically evaluate each alternative against each criterion.

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Criteria Ratings Used to Determine the Best Location for a New Office

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Compute the Optimal Decision

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(rating for criterion A) x (weight for criterion A)

+(rating for criterion B) x (weight for criterion B)

+(rating for criterion C) x (weight for criterion C)

etc.

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Limits to Rational Decision Making

• In theory, fully rational decision makers maximize decision by choosing the optimal solution.

• In practice, limited resources make it nearly impossible to maximize decisions.

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Advantages of Group Decision Making

Groups do a better job than individuals at

• Defining the problem• Generating alternative solutions

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Pitfalls of Group Decision Making

• Groupthink

• Takes considerable time

• Strong willed members

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Structured Conflict

• C-type (cognitive) conflict– focuses on problem- and issue-related

differences of opinion– willingness to examine, compare, reconcile

differences to produce the best possible solution

• A-type (affective) conflict– emotional reaction that can occur when

disagreements become personal– hostility, anger, resentment, distrust,

cynicism, apathy

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Creating C-Type Conflict

• Devil’s advocacy

• Nominal Group Technique

• Delphi Technique

• Brainstorming/Electronic brainstorming

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Plant Fantasies

1. Did Plant Fantasies owner Teresa Carleo follow the rational decision-making process to launch Plant Fantasies? Explain.

2. List an example of a programmed decision at Plant Fantasies. Identify a nonprogrammed decision at Plant Fantasies.

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