Chapter 5: Planning and Decision Making
Benefits of planning
-Intensified effort -Persistance: work hard for long periods. Planning encourages persistence even when there may be little chance of short-term success -Direction: encourage managers and employees to direct their efforts toward activities that help accomplish goals -Creation of task strategies: encourages them to think of better ways to do their jobs -proven to work for both companies and individuals
Organizational Constraints on decision makers
-Performance evaluation -Reward systems: risk tolerance -Policies/Regulations: programs decisions at cost of limiting decision-makers choices -System-imposed time constraints (budgets) -Historical precedents: ghosts that haunt current choices -anti-precedent: never been done before
Slack resources
-buffers -a cushion of extra resources that can be used with options-based planning to adapt to unanticipated changes, problems, or opportunities
Options-based planning
-contingencies -maintaining planning flexibility by making small, simultaneous investments in many alternative plans
Representation bias
-decision makers assess the likelihood of an event based on how closely it resembles other events or sets of events -draw analogies and see identical situations where they don't exist
Anchoring effect bias
-decision makers fixate on initial info as a starting point -once set, fail to adequately adjust for subsequent info -first impressions, ideas, prices, and estimates carry unwarranted weight relative to info received later
Availability bias
-decision makers tend to remember events that are most recent and vivid in their memory -distort ability to recall events objectively --> distorted judgements and probability estimates
Randomness bias
-describes the actions of decision makers who try to create meaning out of random events -do this because they have difficulty dealing with chance
Planning: What is first-level management responsible for?
-developing and carrying out operational plans -single-use, standing plans, or operational plans -budgeting: decide how to allocate available money to best accomplish company goals
Planning: What is middle management responsible for?
-developing and carrying out tactical plans to accomplish strategic objective -Management by objective: managers and employees discuss and select goals -develop tactical plans, meet to review progress -take goals from higher up to a group goal, then break up those objectives into subgroups, then proliferate it and make objectives for each employee
Rule
-explicit statement that limits what you can or can't do -set of limitations
What do you do if you run into an unstructured problem?
-find a temporary solution -go back, evaluate the root cause, and reinstate a new policy, procedure, or rule to prevent it form happening in the future
bounded rationality
-focuses on few essential features of problem -satisfice: accepting solutions that are "good enough". There's no such thing as "unbounded irrationality"
6 characteristics of an effective decision-making process
-focuses on what is important -logical and consistent -acknowledges both subjective and objective thinking and blends analytical with intuitive thinking -straightforward, reliable, easy to use, and flexible -requires only as much information and analysis as is necessary to resolve a particular dilemma -encourages and guides gathering of relevant information and informed opinion
Policy
-general guideline for making a decision about a structured problem -goal statement
Pitfalls of planning
-impedes change and prevents or slows adaptation -creates a false sense of certainty -detachment of planners: always looking at the future and not paying attention to the present
Structured problems
-involve clear goals -familiar (have occurred before) -easily and completely defined information about the problem is available and complete
Planning: What is top management responsible for?
-long term strategic plans -purpose statement -strategic objective: specific goal -unifies company-wide efforts -stretches and challenges the org -possesses a finish line and a time frame
Unstructured problems
-new or unusual -information ambiguous or incomplete -requires custom solutions
Assumptions of rational model
-no real-world time/cost constraints -actors have sufficient creativity to identify all possible issues/options -rational decision makers maximize decisions- choosing optimal solution -these assumptions not met in most cases
sunk costs bias
-occurs when decision makers forget that current choices can't correct the past -incorrectly fixate on past expenditures in assessing choices rather than on future consequences -instead of ignoring sunk costs, they can't forget them
How can you maintain flexibility?
-options-based planning -slack resources
Decision-Making Error and Biases
-overconfidence -immediate gratification -anchoring effect -selective perception -confirmation -framing -availability -representation -randomness -sunk costs -self-serving -hindsight
Explain planning from top to bottom
-planning works best when the goals and action plans at the bottom and middle of the org support the goals and action plans at the top of the org -everybody pulls int he same direction
Types of programmed decisions
-policy -procedure -rule
Most of what you deal with is what kind of decision?
-programmed decisions -the higher up you go, the more you deal with the weird stuff
self-serving bias
-quick to take credit for their successes -blame failure on outside factors
Programmed decision
-repetitive decision -can be handled by a routine approach
Procedure
-series of interrelated steps that can be used to respond (applying a policy) to a structured problem -set of steps
Intuitive decision making
-subconscious process -uses experience, feelings, and accumulated judgement -gut feeling
Nonprogrammer decisions
-unique and nonrecurring -generate unique responses
Framing bias
-when decision makers select and highlight certain aspects of a situation while excluding others -distort what they see and create incorrect reference points
selective perception bias
-when decision makers selective organize and interpret events based on their biased perceptions -this influences the info they pay attention to, the problems they identify, and the alternatives they develop
Steps to the rational decision-making process
1) Identification of a problem 2) Identification of decision criteria 3) allocation of weights to criteria 4) development of alternatives 5) analysis of alternatives 6) selection of an alternative 7) implementation of the alternative 8) evaluation of decision effectiveness -then it circles back
How to make a plan that works
1) Set goals 2) Develop commitment 3) Develop effective action plans: who, what, when, how 4) Track progress toward goal achievement 5) Maintain flexibility
Strategic objective
a more specific goal that unifies company-wide efforts, stretches and challenges the organization, and possesses a finish line and a time frame
Action plan
a plan that lists the specific steps, people, resources, and time period needed to attain a goal
Relative comparisons
a process in which each decision criterion is compared directly with every other criterion
Absolute comparisons
a process in which each decision criterion is compared to a standard or ranked on its own merits
Purpose statement
a statement of a company's purpose or reason for existing
Rational decision making
a systematic process of defining problems, evaluating alternatives, and choosing optimal solutions
satisfice
accepting solutions that are "good enough"
Satisficing
choosing a "good-enough" alternative
Planning
choosing a goal and developing a strategy to achieve that goal
Maximize
choosing the best alternative
Operational plans
day-to-day plans, developed and implemented by lower-level managers, for producing or delivering the organization's products and services over a thirty-day to six-month period
A-type conflict (affective conflict)
disagreement that focuses on individuals or personal issues
C-type conflict (cognitive conflict)
disagreement that focuses on problem- and issue-related differences of opinion
Evaluation apprehension
fear of what others will think of your ideas
S.M.A.R.T. goals
goals that are specific, measurable, attainable, realistic, and timely
Strategic plans
overall company plans that clarify how the company will serve customers and position itself against competitors over the next two to five years
Tactical plans
plans created and implemented by middle managers that direct behavior, efforts, and attention over the next six months to two years
Single-use plans
plans that cover unique, one-time-only events
Standing plans
plans used repeatedly to handle frequently recurring events
To solve a structured problem, you need a
programmed decision
Budgeting
quantitative planning through which managers decide how to allocate available money to best accomplish company goals
Proximal goals
short-term goals or subgoals
Rules and regulations
standing plans that describe how a particular action should be performed or what must happen or not happen in response to a particular event
Policies
standing plans that indicate the general course of action that should be taken in response to a particular event or situation
Procedures
standing plans that indicate the specific steps that should be taken in response to a particular event
hindsight bias
tendency for decision makers to falsely believe that they would have accurately predicted the outcome of an event once that outcome is actually known
Goal commitment
the determination to achieve a goal
Distal goals
long-term or primary goals
who deals with programmed decisions?
lower level managers
Groupthink
a barrier to good decision making caused by pressure within the group for members to agree with each other
Devil's advocacy
a decision-making method in which an individual or a subgroup is assigned the role of critic
Dialectical inquiry
a decision-making method in which decision makers state the assumptions of a proposed solution (a thesis) and generate a solution that is the opposite (antithesis) of that solution
Brainstorming
a decision-making method in which group members build on each others' ideas to generate as many alternative solutions as possible
Electronic brainstorming
a decision-making method in which group members use computers to build on each others' ideas and generate as many alternative solutions as possible
Delphi technique
a decision-making method in which members of a panel of experts respond to questions and to each other until reaching agreement on an issue
Nominal group technique
a decision-making method that begins and ends by having group members quietly write down and evaluate ideas to be shared with the group
Production blocking
a disadvantage of face-to-face brainstorming in which a group member must wait to share an idea because another member is presenting an idea
Management by objectives
a four-step process in which managers and employees discuss and select goals, develop tactical plans, and meet regularly to review progress toward goal accomplishment
Problem
a gap between a desired state and an existing state
Is intuitive decision making or bounded rationality better according to research?
intuitive decision making
Decision making
the process of choosing a solution from available alternatives
Decision criteria
the standards used to guide judgments and decisions