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