Chapter 5

Planning and
decision making
 Planning
After reading these sections,
you should be able to:

1. Discuss the benefits and pitfalls of planning.

2. Describe how to make a plan that works.
3. Discuss how companies can use plans at all
management levels, from top to bottom.
 Planning

Planning

Choosing a goal and developing a

method of ________ to achieve that
goal.
 Benefits of planning
Benefits
of planning

P____________ D__________

Creation
Intensified
of task
effort
strategies
 Pitfalls of planning
Pitfalls
of planning

False sense
of certainty

Impedes c_______ Detachment

and adaptation of planners
 How to make a plan that works

Track
Develop
progress
Set Develop effective Maintain
toward
goals c__________ A______ f_________
goal
plans
achievement

Revise existing plan

or
Begin new planning process
 Setting goals
S___________

S.M.A.R.T. Measurable

A_________

Realistic

T________
 Examples of S.M.A.R.T. goals
• Starbucks: ‘In fiscal 2006, we plan to open • Wrigley: ‘In 2005, the company will
approximately 1 800 net new stores decrease the long-term rate of return
globally’. assumption for the assets of its US
(pension) plans from 8.75 per cent to 8.5
• Walgreen: ‘Second is to hire a significant per cent’.
number of people with disabilities in our
South Carolina distribution center,
• Halliburton: ‘We estimate that 74 per
scheduled to open in 2007, and achieve 20
cent of the backlog existing on 12/31 will
per cent productivity gains there’.
be eliminated the following fiscal year’.

• UPS: ‘Sixty five per cent of drivers will have

access to the new technology (implemented • Martha Stewart Living Omnimedia: ‘In
in 2004) by the end of 2005. In 2005, we will 2004 we will discontinue the Catalog for
increase operating profit in each of our Living and its online product options, and
three key businesses: domestic, sell remaining inventory in early fiscal
international, supply chain’. 2005’.
 Developing commitment to goals
The determination to achieve a goal is increased by:
– setting goals participatively
– making goals reasonable
– making goals public
– obtaining top management support.
Developing effective action plans
An action plan lists…

Specific steps

People

Resources

Time period
 Beyond the book

Domino’s plans expansion

• Domino’s, Australia’s
largest pizza maker, is Please insert photograph
committed to expanding of a pizza!
its business.
• It currently has 516
stores in Australia and
New Zealand.
• The expansion will focus
on metro and regional
areas.
Source: www.brisbanetimes.com.au/small-business/franchising/dominos-expansion-moves-afoot-21191
 Tracking progress
Set… Gather and provide…

Proximal goals Performance

feedback

Distal goals
 Tracking progress

Source: © 1978 by the American Psychological Association. Komaki, J., Barwick K. D. & Scott, L. R., ‘A Behavioral
Approach to Occupational Safety: Pinpointing and Reinforcing Safe Performance in a Food Manufacturing Plant’,
Journal of Applied Psychology, 1978, V63.
 Maintaining flexibility
Option-based planning
– keep options open by making
simultaneous investments.
• Invest more in promising options.
• Maintains slack resources.

Learning-based planning
– plans need to be continuously adjusted.
 Staying flexible
• The Sydney Entertainment
Centre is one of the most
Please insert photograph of the
flexible venues in Sydney Entertainment Centre, or of
Australia. Sydney generally if that is not possible
• It has been designed to be
configured into numerous
modes depending on
different needs.
• Seating ranges from 500
to up to 12 500.

Source:www.sydentcent.com.au/index.cfm?s=content&p= dynamicpage&menu_id+100116
Planning from top to bottom
 Starting at the top
Clarify how the company will
Strategic plans serve customers and position
itself against competitors (two to five years).

An inspirational statement of an
V_________
organisation’s purpose (two sentences).

Overall goal that unifies efforts toward

its vision, stretches and challenges,
M________
and possesses a finish line and
time frame. Flows from vision.
 Beyond the book

Planning timelines
Strategic 2 years 5 years

6 months
Plans

Tactical 2 years

30 days

Operational
6 months

0 1 2 3 4 5 6
Years
 Beyond the book
Merck Corporation’s vision and values

Source: “The Merck Corporate Philosophy,” 17 February 2005. ©Merck & Co, Inc., All rights reserved.
Vision statements
‘To be the best company
in the world’ – Alcoa.

‘To become a super

regional bank’ – ANZ.

‘We build gr-r-reat brands and

make the world a little happier by
bringing our best to you’ – Kelloggs.
 Bending in the middle
Specify how a company will use
resources, budgets and people to
Tactical plans
accomplish goals within its mission.
(six months to two years).

M_______________
Develop and carry out tactical plans.
___ ____________

1. Discuss possible goals.

2. Participatively select goals consistent with overall goals.
3. Jointly develop tactical plans.
4. Meet to review progress.
Management by objectives
Steps to management by objectives:
1. Discuss possible goals.
2. Select goals that are challenging, attainable
and consistent with the company’s overall
goals.
3. Jointly develop tactical plans that lead to the
accomplishment of tactical goals and
objectives.
4. Meet regularly to review progress.
 Finishing at the bottom

Day-to-day plans for producing or

Operational
delivering products and services over
plans
a 30 day to six month period.
 Kinds of operational plans
Plans that cover unique,
Single-use plans
one-time-only events.

Plans used repeatedly to handle

frequently recurring events.
Standing plans
Three kinds are: policies, procedures
and rules and regulations.

Quantitative planning to decide how

Budgets to allocate money to accomplish
company goals.
What is rational decision making?
After reading these sections,
you should be able to:

4. Explain the steps and limits to rational

decision making.
5. Explain how group decisions and group
decision making techniques can improve
decision making.
What is rational decision making?
Decision making

The process of choosing a ____________ from

available alternatives.

Rational decision making

A systematic process of defining problems,

evaluating alternatives and choosing optimal
solutions.
Steps to rational decision making
1 Define the problem.

2 Identify decision criteria.

3 Weight the criteria.

4 Generate alternative courses of action.

5 Evaluate each alternative.

6 Compute the optimal decision.

 Steps to rational decision making
1 Define the problem

• A problem exists when there is a gap between a desired

state and an existing state.
• To make decisions about problems, managers must:
– be aware of the gap
– be motivated to reduce the gap
– have the knowledge, skills, abilities and
resources to fix the problem.
Defining the problem

© Shutterstock/Paul Budett
Steps to rational decision making
2 Identify decision criteria

• Decision criteria are standards used to guide

judgments and decisions.

• The more criteria a potential solution meets,

the better that solution should be.
Steps to rational decision making
3 Weight the criteria

• Absolute comparisons
– each criterion is compared to a standard
or ranked on its own merits.
• Relative comparisons
– each criterion is compared directly to
every other criterion.
Steps to rational decision making
Absolute weighting of decision criteria
Steps to rational decision making
Relative weighting of decision criteria
Steps to rational decision making
4 Generate alternative courses of action

• The idea is to generate as many

alternatives as possible.
Steps to rational decision making
5 Evaluate each alternative

• This step can take much longer and be

more expensive than other steps in the
process.
Steps to rational decision making
6 Compute the optimal decision

• Multiply the rating for each criterion

by the weight for that criterion.
• Sum the scores for each alternative course
of action.
Limits to rational decision making
Bounded rationality

A decision making process restricted in the real

world by:
 limited resources
 incomplete and imperfect information
 managers’ limited decision making capabilities.
Limits to rational decision making

Maximise Satisfice

choosing the optimal choosing a ‘good

solution enough’ alternative
Using groups to improve decision making

Nominal
Structured
group
conflict
technique

Delphi Stepladder Electronic

technique technique brainstorming
 Group decision making
Advantages
1. View problems from multiple perspectives.
2. Find and access more information.
3. Generate more alternative solutions.
4. More committed to making chosen solutions
work.
 Group decision making
Disadvantages
1. Susceptible to groupthink and to considering a
limited number of solutions.
2. Takes considerable time.
3. One or two people can dominate group
discussion.
4. Members don’t feel personally accountable
for decisions and actions.
 Groupthink
Groupthink is likely to occur when…

 The group is insulated from others with different

perspectives.
 The group leader expresses a strong preference
for a particular decision.
 There is no established procedure for defining
problems and exploring alternatives.
 Group members have similar backgrounds.
Effect of groupthink
Please insert a photo of the
space shuttle Challenger
 Structured conflict
Cognitive conflict
Disagreement that focuses on
C-type conflict
problem- and issue-related
differences of opinion.

Affective conflict
A-type conflict Disagreement that focuses on
individuals or personal issues.
 Devil’s advocacy
Steps to establish a devil’s advocacy program

1. Generate a potential solution.

2. Assign a devil’s advocate to criticise and question.
3. Present the critique of the solution to
key decision makers.
4. Gather additional information.
5. Decide whether to use, change or not use
the originally proposed solution.
 Beyond the book
Dialectical inquiry
Steps to establish a dialectical inquiry process

1. Generate a potential solution.

2. Identify the assumptions underlying the
potential solution.
3. Generate a conflicting counterproposal based
on opposite assumptions.
4. Have advocates of each position present their
arguments and engage in a debate in front of
decision makers.
5. Decide whether to use, change or not use
the originally proposed solution.
 Nominal group technique
Steps to establish nominal group technique

1. During a ‘quiet time’, group members write down

as many problems and solutions as possible.
2. Each member shares one idea at a time.
3. Ideas are posted on flipcharts until all ideas are shared.
4. Group discusses advantages/disadvantages.
5. Ideas are ranked during a second ‘quiet time’.
6. Members read rankings aloud, and the idea with the
highest average rank is selected.
 Delphi technique
Steps to establish Delphi technique
1. Assemble a panel of experts.
2. Create a questionnaire of open-ended questions.
3. Summarise the responses and feedback to the panel
until the members reach agreement.
4. Create a brief report and send to the panel members for
agreement/disagreement.
5. Continue the feedback process until panel reaches
agreement.
 Beyond the book
Stepladder technique
Member 4 joins group Members 1, 2, & 3 share Discussion is held and
and shares thoughts, previous thoughts, ideas, tentative group decision
Step 3
ideas, recommendations. recommendations. is made.

Member 3 joins group Members 1 & 2 share Discussion is held and

and shares thoughts, previous thoughts, ideas, tentative group decision
Step 2 ideas, recommendations. recommendations. is made.

Member 1 shares Member 2 shares Discussion is held and

thoughts, ideas, thoughts, ideas, tentative group decision
Step 1 recommendations. recommendations. is made.
 Electronic brainstorming
Four rules of brainstorming

1. The more ideas, the better.

2. All ideas are acceptable, no matter how wild or crazy.
3. Other group members’ ideas should be used to come
up with even more ideas.
4. Criticism or evaluation of ideas is not allowed.
 Electronic brainstorming
Advantages of electronic brainstorming

• Overcomes production blocking

– technology allows everyone to record their ideas as
they are created
– no ideas lost ‘waiting your turn’ to speak.
• Overcomes evaluation apprehension
– anonymity creates free expression.
 Electronic brainstorming
Disadvantages of electronic brainstorming

• Greater expense.
• No automatic acceptance of ideas because
of one’s position.
• Some find it difficult to express themselves in
writing.
• Lack of typing skills can frustrate participants.