Planning and decision making

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This PPT gives an overview of

planning and decision making.

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The process of determining the organization’s goals and objectives and selecting a course of action to accomplish them within the environment inside and outside the organization

So it is deciding in advance :What to do,When to do it,How to do it,Who is to do what

A plan is a predetermined course of action to achieve stated goals

Plans are based on forecasts and assumptions of the future

Plans need to be flexible so that they can adapt to inevitable changes in the environment

The simpler the plan, better it is!

NeedAssessment

EstablishObjectives

DevelopPremises

GenerateAlternatives

SelectAlternative

FormulateDerivative Plans

Implementation & Control

Identify a latent or felt “organizational need”

The “organizational need” could be a result of an opportunity or a problem

While making the need assessment, ensure:CREDIBILITY: They are demonstrably objective and science/knowledge-based,

SALIENCY: Relevant to decision-making needs and stakeholders interests,

LEGITIMATCY: Conducted within a framework that complies with recognized rules, standards, practices, and common interests; acting within appropriate entities.

Now that we are clear of the “organizational need”

in the form of an opportunity or a problem,

What do we hope to achieve?

Planning premises are the assumptions about the

Environment in which the plans will be made & implemented

There will exist multiple methods to achieving

an objective……

Enlist all Possible Alternatives

Brainstorming

Nominal group technique

Delphi technique

The first filter for narrowing down on the list of alternatives is to look for congruence with organizational mission and strategyConduct feasibility analysisThe shortlisted alternatives will then be evaluated for pros and consThe alternatives selected then will be subjected to cost benefit analysisProjections will be developed for possible consequencesThe “optimum” alternative will be selected for implementation

Derivative plans are secondary plans detailing the finer aspects of implementation at departmental and unit levels

It is critical that derivative plans indicate timelines and schedules clearly

Care needs to be taken that the derivative plans for various departments are “oriented” in “one desired” direction

A plan is only as good as its implementation!

Secure cooperation and participation by clarifying the purpose of the plan and role of departments and individuals in the bigger picture

Create an “enabling environment” for the successful implementation of the plan

Simultaneous monitoring and control is necessary to stay on track!

Top – Down

Bottom – Up

Composite

Team Approach

The top management assesses the need, establishes the objective, formulates the plan and then communicates the plan down the hierarchy

Commonly seen in highly centralised organisations

Typical of micro, small and medium enterprises

Typical of large family owned businesses too

Success of plans depends heavily on the experience, style and capabilities of the top management

The planning process is decentralised and lower level managers formulate the department or unit level plans which are then collated by the top management

This is a participatory form of planning

The success of plans now depends on the capabilities and competence of lower level managers

Quite typical of large sales organizations

A more balanced method

The top management defines the objectives and premises and communicates it down the hierarchy

The middle and lower level managers the formulate their plans and communicate them to the top management

Such plans once approved (with modifications if needed) by the top management have been seen to generate maximum ownership and effort by the lower level managers and executives

A team of managers is constituted based on their experience and competence

The team is then tasked to formulate the plan for objectives as communicated to them by the top management

The team of managers the formulates the plan based and communicates it to the top management who evaluates it and approves it

The approved plan is the communicated down the hierarchy to the lower level managers for implementation

Plans can be classified on the basis of their

nature, intended use, time horizon, scope etc..

Formal plans are written down documents defining specific goals and action plans to achieve those goals

Informal plans are often ad hoc unwritten plans which are general in nature and lack continuity

Single use plans are one-time plans specifically designed to meet the needs of a unique situation

Standing plans are ongoing plans that provide guidance for activities performed repeatedly in an organization

A vision statement is essentially an aspirational statement that describes an ideal image an organization would like

be identified with in the future….

A value statement describes the principles, notions and beliefs

that an organization holds supreme and are used to guideindividual and collective decisions and actions

The mission statement of an organization communicates the role it intends to play in the socio economic ecosystem and the value it intends to deliver

Mission is the “purpose”, “the fundamental reason for existence” of an organization

Objectives set down quantifiable aims with clear timelines for the organization to achieve

“Objectives & Goals” indicate the desired future state or target a management program intends to achieve

Policies: A statement that guides decision making in recurring events.

Procedures: A chronological sequence of action steps needed to be taken.

Programs: An aggregate of related action plans designed to accomplish a task or an objective.

Schedules: A time table of work clarifying the chronological order of tasks and time the tasks need to be executed.

Rules describe in detail the manner in which a task is to be carried out

Rules leave no scope for individual discretion or judgment

Guidelines are broad guides for decision making

Guidelines are not rigid and leave considerable scope for individual discretion and judgment

Strategy is the direction and scope of an organisation over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectation

Tactics are actionable steps, decisions and maneuvers made to successfully execute strategy

The internal environment of an organizationThe manpower, capital, structure, mission, policies etc

The external environmentPolitical environmentEconomic environmentSocial environmentTechnological environmentNatural environmentLegal environment

Decision is a choice from available alternatives

It is a “Process”, not an event

It is the core of planning (choosing from alternatives)

Decision MakingProcess

Decision Making Approach• Rational• Bounded Rationality• Intuitive

Decision Maker’s Style• Directive• Analytical• Conceptual• Behavioural

Decision Making Conditions• Certainty• Risk• Uncertainty

Type of Decision• Programmed• Non-Programmed

Programmed

In structured and routine

problems

Relies on established criteria

Decision making by precedent

Non-Programmed

In unstructured, novel, ill

defined non recurring situations

Relies on subjective judgments

Involves greater risk

ProgrammedDecisions

Non programmedDecisions

Level inOrganization

LowerWell-Structured

Ill-Structured

Type ofProblem

Certainty: Only one state of nature can exist

Risk: Several known states of nature may exist and each has a known probability of occurring

Uncertainty: What state of nature can occur is unknown and consequently probabilities cannot be assigned

Uncertainty Risk Certainty

Rationality

Bounded rationality and satisficing

Intuitive decision making

RationalDecisionMaking

Problem isclear and

unambiguous

Single, well-defined goalis to be achieved

All alternativesand consequences

are known

Preferencesare clear

Preferencesare constantand stable

No time or costconstraints exist

Final choicewill maximize

payoff

Conditions for rational decision making are rarely met!

In the absence of “ideal” decision making conditions, the “best possible” decision will have to do

So, rational action limited due to lack of information, time, or ability to analyze alternatives in light of a goal sought; unclear goals; or a lack of ability to take a risk

The absence of ideal rational decision making conditions is called “bounded rationality”!

Tendency of managers to make decisions while facing a “situation of bounded rationality”, which is almost always

The course of action “good enough” is chosen

The making of a “good enough decision” considering the existence of bounded rationality is called satisficing!

The decision making depends on the psychology of the manager which can range from Intuitive to rationalThe critical factor is “tolerance for ambiguity” which differs from a need for consistency and order to the ability to process many thoughts simultaneously

Directive: Fast, efficient, and logical

Analytical: Careful and able to adapt or cope with new situations

Conceptual: Able to find creative solutions

Behavioural: Seeks acceptance of decisions40

Individualism versus collectivism

Power distance

Tolerance of uncertainty and risk

Perceptions of acceptability and/or desirability of outcomes

IdentifyProblem

EstablishDecision Making

Criteria

Allocation of Weights to

Criteria

GenerateAlternatives

EvaluateAlternative

SelectAlternatives

Implementation & Control

Problems are clear

Objectives are clear

People agree on criteria and weights

All alternatives are known

All consequences can be anticipated

Decision makers are rational

Candidate Criteria Rating X Weight = Score Rahul Motivation 8 x .30 = 2.40

Interpersonal 6 x .25 = 1.50Sales Knowledge 7 x .25 = 1.75

Product Knowledge 6 x .20 = 1.20

Total Score= 6.85

Candidate Criteria Rating X Weight = ScoreAshish Motivation 9 x .30 = 2.70

Interpersonal 8 x .25 = 2.00Sales Knowledge 6 x .25 = 1.50

Product Knowledge 5 x .20 = 1.00

Total Score= 7.20

Possible solutions examined one at a time

If alternative is unworkable it is discarded

When acceptable (not necessarily best) solution is found, it is likely to be accepted

Thus search and analysis effort is likely to stop at first acceptable solution

Explicit criteria and weights not used to evaluate alternatives

Decision makers use heuristicsA rule that guides the search for alternatives into areas that have a high probability for yielding success

Google “Heuristics”!!

Satisficing

Selection of a minimally acceptable solution

Rather than being an optimizer, this model sees him or her as being a satisficer

Implicit favorite is identified early in decision process

Perceptual distortion of information occurs

Decision rules are adopted that favor the implicit favorite

Positive features of the implicit favorite highlighted over the alternative

By experience

Experimentation

Systematic analysis of relevant data

Provide a numerical basis for decision making – reduces decisions to looking at a monetary value placed on different choices

Qualitative factors look to take account of these other issues that may influence the outcome of a decision

Can be wide ranging and especially need to consider the impact on human resources and their response to decisions

Quantitative

Investment appraisal

Break even analysis

NPV / IRR / EVA

Cost benefit analysis

Forecasting

Market research

Critical path analysis

Decision trees

Qualitative

PESTEL analysis

Alignment with mission

Effect on image

Effect on brand

Long term implications51

A decision support tool that uses a tree-like graph or model of decisions and their possible consequences, including chance event outcomes, resource costs, and utility

Drawn from left to right, decision trees have three types of nodes:

Decision Nodes (represented by squares)Chance Nodes (represented by circles)End Nodes (represented by triangles)

Determining the effect of decreasing one or more key factors and simultaneously increasing one or more other key factors in a decision

A systemic approach to balancing the trade-offs between time, cost and performance

“How much must I give up to get a little more of what I want most?”

What is “Pareto Optimality”?54

Decision Maker Characteristics

KnowledgeAbility

Motivation

Problem CharacteristicsUnfamiliarity

AmbiguityComplexityInstability

Decision Environment Characteristics

IrreversibilitySignificance

AccountabilityTime and monetary constraints

But in most business organizations, decisions are made by

GROUPS, not individuals!

Groups can accumulate more knowledge.

Groups have a broader perspective and consider more alternatives.

Individuals who participate in group decisions are more satisfied with the decision and are more likely to support it.

Group decision processes serve an important communication function, as well as a useful political function.

Groups often work more slowly than individuals.

Group decisions involve considerable compromise that may lead to less than optimal decisions.

Groups are often dominated by one individual or a small clique, thereby negating many of the virtues of group processes.

Over-reliance on group decision making can inhibit management’s ability to act quickly and decisively when necessary.

When groups are...

• Highly cohesive

• Insulated from outside input

• Dominated by leader

Leading to decisions characterized by...

• Limited search for information

• Limited analysis of alternatives

• Rejection of expert opinions

• Few, if any, contingency plans

...They often experience...

• Illusion of invulnerability

• Illusion of morality

• Illusion of unanimity

• Self-censorship

• Peer pressure for conformity

• Stereotyping of opponents

• Rationalization

That results in...

• Decisions of poor quality

• Poor group performance

• Wasted resources

• Lost opportunities

The modern business environment is highly competitive and speed is the key!

1. Real-time information: Fast decision makers must have access to and be able to process real-time information.

2. Multiple simultaneous alternatives: Fast decision makers examine several possible alternative courses of action simultaneously, not sequentially.

3. Two-tiered advice process: A two-tiered advisory system, whereby all team members are allowed input but greater weight is given to the more experienced coworkers.

4. Consensus with qualification: Fast decision makers attempt to gain widespread consensus on the decision as it is being made, not after.

5. Decision integration: Fast decision makers integrate tactical planning and issues of implementation within the decision process itself.

Training for decision making

Advanced levels of data mining

Use of artificial intelligence in DSS

Heuristics

Fuzzy logic

Statistical and econometric modeling…The list goes on!!

Google these terms!!61

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