Lesson 8 Planning and Decision Making

Planning is a primary management function that determines and outlines the system to be followed by
the business.

Frameworks defines the operations, tasks, and relationships within the business.

Systems are defined by inputs, processes, outputs and outcomes.

Inputs include raw materials, money, technology and people. It enables the company to conduct its
various processes and operations.

Outputs are tangible results of business processes such as products or services.

Outcomes refer to the impact brought about by outputs. They include benefits to consumers, worker’s
remuneration and environmental and social impacts.

THE NATURE OF PLANNING

Planning. It is the initial task that defines all the other management functions.

Planning by nature is an intellectual exercise.

Top Management defines the goals and comes up of general plans.

Lower Management conduct their own planning to implement the general plans and come up with
concrete means to achieve the goals of top management.

VISION AND MISSION STATEMENTS

Vision Statement describes what the company wants to achieve and where it wants to go in the
future. It determines the course and the direction of the company and identifies which markets,
technologies, products or customers to focus on.

Characteristics of Effectively Worded Vision Statements:

1. Graphic. It projects the kind of company the management wants to create and the kind of
company it aspires to be.
2. Directional. It describes the path where the company wants to go and presents specific plans to
move forward in the future.
3. Focused. The vision is very specific so managers are properly guided on what to do in terms of
resources and strategies.
4. Flexible. It allows room for managers to change based on market situations, technological
advancements and customer preferences.
5. Feasible. The vision is achievable and realistic.
6. Desirable. The vision is clear on why the path is practically sensible and serves the interests of
members in the long run.
 7. Easy to communicate. The vision is easy to understand, articulated, and can be simplified into a
powerful slogan.

A mission statement describes a company’s reason for its existence. It answers the question why the
company exists.

GOALS AND OBJECTIVES

Goals are specific accomplishments or action plans that are usually attained after a long period. These
are broader in scope.

Objectives refer to the action plans that involve shorter periods. They tend to be more specific.

TYPES OF PLANS

3 Main Types of Plans:

1. Strategic Plans – These are the plans designed by the top management such as CEO and
president.
2. Tactical Plans – Specific plans for specific areas in the company. These plans translate broader
plans into functional goals for each area of department. Elements include budget, resources and
goals with specific deadlines.
3. Operational Plans – These are the specific procedures and processes made by frontline or low-
level managers. It involves marketing campaigns, campus recruitment and others. It also
involves the formulation of ongoing plans that define the specific operations of the organization.
a. Policy – a set of principles that guide managers in addressing a particular issue
b. Rule – a regulation which describes and regulates the functions of organization
c. Procedure – a step by step process in accomplishing a task or achieving an objective.

CONTINGENCY PLAN

Contingency Plan is a special plan created for unexpected scenarios or changes.

TYPES OF CONTIGENCY PLAN

a. Crisis Management Plan – plan made for disasters that can be anticipated like fire or natural
disasters.
b. Scenario Planning – plans for both positive and negative scenarios that may arise from the
implementation of plans.
 PLANNING PROCESS

5 Steps of planning process:

1. Formulation of goals and objectives

2. Identification of the appropriate courses of action
3. Assignment of responsibilities
4. Documentation and distribution of the plan to the people concerned
5. Review Plan — ensures that any proposed revisions should be acknowledge, discussed and
approved.

PLANNING AT DIFFERENT LEVELS IN THE FIRM

1. Top-level Management Planning

Corporate strategy is usually conceptualized by the CEO and the other members of the top
management. They formulate the general business strategy which is concern of building a
competitive advantage for a single business unit of a diversified company.

2. Middle-level Management Planning

Functional Strategy determines a particular function or process.

3. Low-level Management Planning

Operational Strategy is a narrower and more focused strategy formulated by low-level

managers or frontline supervisors.

Financial Resources include the capital or investment that a company needs to start and sustain a
business.

Human Resources are the company’s primary assets.

Physical Resources include production facilities, distribution channels and information technology.

PLANNING TECNIQUES AND TOOLS

3 Qualitative Techniques:

1. Brainstorming- it stimulates thinking and allows group to work together in generating ideas.
2. Nominal Group Technique- this is a highly structured method that allows members to give their
own inputs based on agenda. There is a presence of discussion.
3. Delphi Technique- similar to the NGT but this technique does not require group meeting.

2 Quantitative Techniques

1. Decision tree- it is an excellent tool for weighing different alternatives. It consists of graph
showing potential and alternative decision paths for proposed plan.
 2. Payback Method- used this in evaluating alternatives in purchasing equipment, furniture and
fixtures. Managers consider certain factors generated for a specific period before actually
buying the product.

DECISION MAKING AND THE COMMON TYPES OF DECISION MODELS

1. Rational or Logical Decision Model

This process involves a logical step by step analysis of several possible contributing factors in
making the decision.

The rational model relies heavily on data, facts, research and a thorough analysis of situations.
This is the preferred model by managers.

2. Intuitive Decision Model

Managers used their gut feeling and instincts. Managers rely on their experiences and
knowledge based on their previously encountered scenarios.

3. Predisposed Decision Model

The manager, once decided for a solution, will no longer look for another alternative.

COGNITIVE BIASES

This refers to the tendency to look at situations based on subjective standards or perspectives.

1. Escalating Commitment – despite the manager knowing the failure of the project, still won’t
abandon it
2. Prior Hypothesis Bias- the project will succeed even if not. Accepts opinions who supports his
views
3. Representativeness- generalizations based on a small sample or single experience
4. Reasoning by analogy- Results can be repeated in a similar situation
5. Illusion of control- overconfident with their ability, underestimating the problems they might
encounter
6. Framing bias- correlates the outcome with how a problem is framed
7. Availability error- immediately use rather than waiting

CONTEMPORARY STRUCTURED DECISION-MAKING MODELS

Kepner-Tregoe Matrix Model

This model refers a systematic way of evaluating alternatives by implementing a rational process
of analyzing aspects of a situation.

4 Basic Steps:

1. Situation appraisal — clarifies aspects of the scenario and outlines of possible causes.
2. Problem analysis — the root cause of the problem is identified.
 3. Decision analysis — various solutions and courses of action are identified.
4. Potential problem analysis — a possible final decision is determined.

Vroom-Yetton-Jago Decision Model

This model focuses not on identifying possible decisions, but on selecting the best leadership style
suited for planning and decision making.

5 Leadership Style:

1. Autocratic I (A1) — The leader is the sole decision-maker.

2. Autocratic II (A2) — The manager gathers pertinent information from members of the group but
they do not know the purpose of the info.
3. Consultative I (C1) — This leadership style lets the group members know the problem but the
manager still makes the decision.
4. Consultative II (C2) — The manager discusses the situation with the group but still, he makes the
decision.
5. Group II (G2) — All the group members are responsible for coming up with the final decision.

Observe-Orient-Decide-Act (OODA) Loop Model

This model was brought about by the application of military tactics in business.

4 Basic Steps:

1. Observe — scans the environment and observes what the competitors are doing and how the
customers respond to the product or services. The manager conducts SWOT and PEST analysis to
gather information.
2. Orient — After scanning the environment, the manager takes a closer look to the information
gathered.
3. Decide — The manager now decides and chooses the best alternatives.
4. Act — The manager puts the plan into action and supervises its implementation.