Principles of Management

Lecture 3 Planning and Decision Making

: Sonya Omer

Todays Agenda

Decision Making Styles Decision Making Errors and Biases Forecasting Decision Aid Overall Planning Process Levels of goals and plans

MBO

Overview of Managerial Decision Making

Decision-Making Styles

Dimensions of Decision-Making Styles

Ways of thinking

Rational, logical, and analytical

Intuitive, creative, and unique

Source of information

External data and facts Internal sources: feelings and intuition

Decision-Making Styles

Linear Thinking Style

Decision style characterized by a persons preference for

using external data and facts and processing this information through rational, logical thinking.

Nonlinear Thinking Style

Decision style characterized by persons preference for

Internal sources of information with Internal insights, feelings and intuition to guide decisions and actions. 5

Decision-Making Errors and Biases

Decision-Making Biases and Errors

Overconfidence Bias

Holding unrealistically positive views of ones self and ones performance.

Immediate Gratification Bias

Choosing alternatives that offer immediate rewards and that to avoid immediate costs. Fixating on initial information and ignoring subsequent information.
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Anchoring Effect

Decision-Making Biases and Errors

Selective Perception Bias

Selectively organizing and interpreting events based on the decision makers biased perceptions. Seeking out information that reaffirms past choices and discounting contradictory information. Selecting and highlighting certain aspects of a situation while ignoring other aspects. 8

Confirmation Bias

Framing Bias

Decision-Making Biases and Errors

Availability Bias

Losing decision-making objectivity by focusing on the most recent events. Drawing analogies and seeing identical situations when none exist. Creating unfounded meaning out of random events.
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Representation Bias

Randomness Bias

Decision-Making Biases and Errors

Sunk Costs Errors

Forgetting that current actions cannot influence past events and relate only to future consequences. Taking quick credit for successes and blaming outside factors for failures. Mistakenly believing that an event could have been predicted once the actual outcome is known (after-the-fact). 10

Self-Serving Bias

Hindsight Bias

Characteristics of an Effective Decision-Making Process

It focuses on what is important.

It is logical and consistent. It acknowledges both subjective and objective thinking and blends analytical with intuitive thinking. It requires only as much information and analysis as is necessary to resolve a particular dilemma. It encourages and guides the gathering of relevant information and informed opinion. It is straightforward, reliable, easy to use, and flexible. 11

FORECASTING DECISION AID

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Forecasting

Process of making predictions about changing conditions and future events that may significantly affect the business of an organization.

Categories of forecasting methods

Quantitative Qualitative or Judgmental

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Forecasting Approaches

Quantitative Forecasting

Relies on numerical data and mathematical models to predict future conditions. Used when situation is stable and historical data exists.
Existing products Current technology

E.g. forecasting sales of Sony televisions in Pakistan.

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Forecasting Approaches

Qualitative or Judgmental Forecasting

Relies on individual judgments or committee agreements regarding future conditions. Aimed primarily at predicting long-term trends in technology and other important aspects of the environment. Used when situation is vague and little data exist
New products New technology

Forecasting Approaches

Qualitative forecasting techniques:

Delphi method

Judgments of panel of experts on a specific issue relating to the future.

Executives hold a meeting and estimate a forecast for a particular item.

Jury of executive opinion

Sales-force composite
Predict future sales. Estimates from individual salespersons and sales managers are reviewed for reasonableness, then aggregated.

ESTABLISHING GOALS AND PLANS

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TM 6-2

The Overall Planning Process

Mission

Goals

Plans

Goal Attainment (organizational efficiency and effectiveness)

Major Components of Planning

Goal

A future target or end result that an organization wishes to achieve. The means devised for attempting to reach a goal. The organizations purpose or fundamental reason for existence.

Plan

Mission

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Mission Statement

A broad declaration of the basic, unique purpose and scope of operations that distinguish the organization from others of its type.
We are dedicated to the saving of soles, heeling, and administering to the dyeing. (shoe repair shop)

Taking Pakistan forward by providing an affordable, high

standard education to students from all corners of the country, creating interprovincial harmony, providing solutions through research relevant to the national needs, towards the transformation of the country into a knowledge-based economy.
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Mission Statement

Major components of mission statement:

Customers Products or services Location (where does organization compete) Technology Concerns for survival (commitment to economic objectives) Philosophy (basic beliefs, values, aspirations) Self-concept (major strengths and competitive advantage)

Concern for public image (public responsibilities)

Concern for employees
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TM 6-3

Levels of Goals and Plans

Top Management Organizationwide perspective

Strategic Goals

Strategic Plans

Tactical Goals

Tactical Plans

Middle Management Department perspective

Operational Goals

Operational Plans

First Level Management Unit/Individual perspective

Levels of Goals

Strategic Goals

Broadly defines targets or future end results set by top management. Targets or future end results set by middle management for specific departments or units. Targets or future end results set by lower management

Tactical Goals

Operational Goals

Addresses specific measurable outcomes required from the lower levels.

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Levels of Plans

Strategic Plans

Detailed action steps mapped out to reach strategic goals. Support implementation of strategic plan and achievement of tactical goals. Support implementation of tactical plans and achievement of operational goals.

Tactical Plans

Operational Plans

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TM 6-7

Time Horizons for Goals and Plans

GOALS
Operational Tactical Strategic

1 year 1 to 5 years 5+ years

Short Range

Intermediate Range

Long Range

Management by Objectives
A process through which specific goals are set collaboratively for the organization as a whole and every unit and individual within it, Goals are then used as a basis for

Planning Managing organizational activities Assessing and rewarding contributions.

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Steps in MBO Process

1. Develop organizational goals

2. Establish specific goals 3. Formulate action plans

4. Implement plans, maintain self-control

5. Review progress 6. Appraise performance

Steps in MBO Process

Develop overall organizational goals

Strategic goals based on mission of organization Address targets to be achieved.

Establish specific goals for various departments, subunits and individuals.

Each goal contributes to reaching the overall goals set in step 1. Cascading of goals

Assigning goals to all units at various levels and aligning them

Steps in MBO Process

Formulate action Plans

Action plan what is to be done, how, when, where and by whom Focus on methods and activities necessary to reach particular goals. Contribute to feasibility of reaching goals. Identify problem areas. Facilitate the search for more efficient and effective ways to achieve objectives.

Steps in MBO Process

Implement and maintain self-control

Responsibility for objectives is passed from the organization to its individual members. Everyone is clear about what they should be doing, and how that is beneficial to the whole organization.

Steps in MBO Process

Review progress periodically

Ensure plans are being implemented as expected. Helps in

Checking performance Identifying and removing obstacles Solving problems Altering action plans that are not achieving expected results.

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Steps in MBO Process

Appraise performance

Employees are evaluated on their performance with respect to goal achievement. Goal achievement tied to reward, and recognition. Provide the appropriate feedback.
Extend to which goals are met Shortfalls and reasons.

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Strengths and Weaknesses of MBO

Strengths

Aids coordination of goals and plans Helps clarify priorities and expectations Facilitate vertical and horizontal communication

Greater Employee Involvement and Commitment

Foster employee motivation

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Strengths and Weaknesses of MBO

Weaknesses

Tends to falter without strong, continual commitment from top management Requires considerable training and paperwork Positive and active participation from subordinates is not easily forthcoming Difficulties in Making Organizational Changes May cause overemphasis of quantitative goals
Jeopardizes the qualitative aspect Neglect existing circumstances at the workplace

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