Chapter 5

Chapter 5 Planning and Decision Making

© 2014 Cengage Learning

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5-1 discuss the benefits and pitfalls of planning 5-2 describe how to make a plan that works 5-3 discuss how companies can use plans at all management levels, from top to bottom 5-4 explain the steps and limits to rational decision making 5-5 explain how group decisions and group decision-making techniques can improve decision making

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Benefits of Planning • Intensified effort • Persistence • Direction • Creation of task strategies © 2014 Cengage Learning

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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 • • • • •

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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 © 2014 Cengage Learning

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Developing Effective Action Plans An action plan lists… • • • •

Specific steps (how) People (who) Resources (what) Time period (when) …for accomplishing a goal © 2014 Cengage Learning

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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. © 2014 Cengage Learning

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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. © 2014 Cengage Learning

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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 © 2014 Cengage Learning

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Finishing at the Bottom Operational plans • Single-use plans • Standing plans – policies – procedures – rules and regulations

• Budgets 5-3

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Steps to Rational Decision Making 1. 2. 3. 4. 5. 6.

Define the problem Identify decision criteria Weight the criteria Generate alternative courses of action Evaluate each alternative Compute the optimal decision

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Define the Problem Existing state

Desired state

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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 decisionmaking 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 (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. © 2014 Cengage Learning

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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 © 2014 Cengage Learning

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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. © 2014 Cengage Learning