Chapter 5: Planning and Decision Making

Evaluate Each Alternative

The next step is to systematically evaluate each alternative against each criterion. Because of the amount of information that must be collected, this step can take much longer and be much more expensive than other steps in the decision-making process.

Weigh the Criteria

after identifying decision criteria, the next step is deciding which criteria are more or less important. Although there are numerous mathematical models for weighing decision criteria, all require the decision maker to provide an initial ranking of the criteria. Some use absolute comparisons, in which each criterion is compared with a standard or is ranked on its own merits. Another method uses relative comparisons, in which each criterion is compared directly with every other criterion.

Rules and Regulations

are even more specific than procedures because they specify what must happen or not happen. They describe precisely how a particular action should be performed.

Procedures

are more specific than policies because they indicate the series of steps that should be taken in response to a particular event.

Single Use Plans

deal with unique, one-time-only events.

Policies

indicate the general course of action that company managers should take in response to a particular event or situation. A well-written policy will also specify why the policy exists and what outcome the policy is intended to produce.

Standing Plans

save managers time because after the plans are created, they can be used repeatedly to handle frequently recurring events. There are three kinds of standing plans: policies, procedures, and rules and regulations.

Tactical Plans

specify how a company will use resources, budgets, and people to accomplish specific goals related to its strategic objective for the next five years. Whereas strategic plans and objectives are used to focus company efforts over the next two to five years, tactical plans and objectives are used to direct behavior, efforts, and attention over the next six months to two years.

Nominal Group Technique

(NGT) received its name because it begins with a quiet time in which group members independently write down as many problem definitions and alternative solutions as possible. In other words, the NGT begins by having group members act as individuals. After the quiet time, the group leader asks each member to share one idea at a time with the group. As they are read aloud, ideas are posted on flip charts or wallboards for all to see. This step continues until all ideas have been shared. In the next step, the group discusses the advantages and disadvantages of the ideas. The NGT closes with a second quiet time in which group members independently rank the ideas presented. Group members then read their rankings aloud, and the idea with the highest average rank is selected.

Purpose Statement

A purpose statement, which is often referred to as an organizational mission or vision, is a statement of a company's purpose or reason for existing.* Purpose statements should be brief—no more than two sentences. They should also be enduring, inspirational, clear, and consistent with widely shared company beliefs and values.

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. In general, at this step, the idea is to generate as many alternatives as possible.

Identify Decision Criteria

Decision criteria are the standards used to guide judgments and decisions. Typically, the more criteria a potential solution meets, the better that solution will be.

Compute the Optimal Decision

The final step in the decision-making process is to compute the optimal decision by determining the optimal value of each alternative. This is done by multiplying the rating for each criterion (Step 5-4e) by the weight for that criterion (Step 5-4c), and then summing those scores for each alternative course of action that you generated (Step 5-4d).

Pitfalls of Planning

The first pitfall of planning is that it can impede change and prevent or slow needed adaptation. Sometimes companies become so committed to achieving the goals set forth in their plans or on following the strategies and tactics spelled out in them that they fail to see that their plans aren't working or that their goals need to change. The second pitfall is that planning can create a false sense of certainty. Planners sometimes feel that they know exactly what the future holds for their competitors, their suppliers, and their companies. However, all plans are based on assumptions. For plans to work, the assumptions on which they are based must hold true. If the assumptions turn out to be false, then the plans based on them are likely to fail. The third potential pitfall of planning is the detachment of planners. In theory, strategic planners and top-level managers are supposed to focus on the big picture and not concern themselves with the details of implementation (that is carrying out the plan). Plans are meant to be guidelines for action, not abstract theories. Consequently, planners need to be familiar with the daily details of their businesses if they are to produce plans that can work.

Define the Problem

The first step in decision making is identifying and defining the problem. A problem exists when there is a gap between a desired state (what is wanted) and an existing state (the situation you are actually facing).

Strategic Plans

Top management is responsible for developing long-term strategic plans that make clear how the company will serve customers and position itself against competitors in the next two to five years. Strategic planning begins with the creation of an organizational purpose.

Planning Benefits

intensified effort, persistence, direction, and creation of task strategies.* First, managers and employees put forth greater effort when following a plan. Second, planning leads to persistence, that is, working hard for long periods. In fact, planning encourages persistence even when there may be little chance of short-term success. The third benefit of planning is direction. The fourth benefit of planning is that it encourages the development of task strategies. In other words, planning not only encourages people to work hard for extended periods and to engage in behaviors directly related to goal accomplishment, it also encourages them to think of better ways to do their jobs. Finally, perhaps the most compelling benefit of planning is that it has been proven to work for both companies and individuals. On average, companies with plans have larger profits and grow much faster than companies without plans.* The same holds true for individual managers and employees: There is no better way to improve the performance of the people who work in a company than to have them set goals and develop strategies for achieving those goals.

Management Objectives

is a four-step process in which managers and their employees (1) discuss possible goals; (2) collectively 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; and (4) meet regularly to review progress toward accomplishment of those goals.

Rational Decision Making

is a systematic process in which managers define problems, evaluate alternatives, and choose optimal solutions that provide maximum benefits to their organizations.

Budgeting

is quantitative planning because it forces managers to decide how to allocate available money to best accomplish company goals.

Delphi Techniques

the members of a panel of experts respond to questions and to each other until reaching agreement on an issue. The first step is to assemble a panel of experts. Unlike other approaches to group decision making, however, it isn't necessary to bring the panel members together in one place. Because the Delphi technique does not require the experts to leave their offices or disrupt their schedules, they are more likely to participate. The second step is to create a questionnaire consisting of a series of open-ended questions for the group. In the third step, the group members' written responses are analyzed, summarized, and fed back to the group for reactions until the members reach agreement. Asking group members why they agree or disagree is important because it helps uncover their unstated assumptions and beliefs. Again, this process of summarizing panel feedback and obtaining reactions to that feedback continues until the panel members reach agreement.

Operational Plans

which are the day-to-day plans for producing or delivering the organization's products and services. Operational plans direct the behavior, efforts, and priorities of operative employees for periods ranging from thirty days to six months. here are three kinds of operational plans: single-use plans, standing plans, and budgets.

Strategic Objective

which flows from the purpose, is a more specific goal that unifies company-wide efforts, stretches and challenges the organization, and possesses a finish line and a time frame.