Chapter 5 Planing And Dicision Making

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Chapter 5Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved

Chapter 5

Prepared byDeborah Baker

Texas Christian University

Management4th Edition

Chuck Williams

Planning andDecisionMaking

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What Would You Do?

D. G. Yuengling & Son, Pottsville, PA

Sales of Yuengling beer are up 225% in the last six years, but an aging plantcan’t keep up with demand

You’ve identified five options:1. Add new storage and finishing tanks2. Outsource production3. Buy another brewery4. Build a new factory5. “Do nothing!”

What’s the best way to evaluate these options and make a decision? What would you do?

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Planning

After reading these sections, you should be able to:

1. discuss the benefits and pitfalls of planning.

2. describe how to make a plan that works.

3. discuss how companies can use plans at allmanagement levels, from top to bottom.

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Planning

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Planning

Choosing a goal and developing amethod of strategy to achieve that goal

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Benefits of Planning



Creationof Task

Strategies

Creationof Task

Strategies

IntensifiedEffort

IntensifiedEffort

DirectionDirectionPersistencePersistence

1.11.1

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Pitfalls of Planning



Detachmentof Planners

Detachmentof Planners

Impedes Changeand Adaptation

Impedes Changeand Adaptation

False Senseof Certainty

False Senseof Certainty

1.21.2

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How to Make a Plan That Works

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Set Goals

Set Goals

DevelopCommitment

DevelopCommitment

DevelopEffectiveActionPlans

DevelopEffectiveActionPlans

TrackProgressToward

GoalAchievement

TrackProgressToward

GoalAchievement

MaintainFlexibility

MaintainFlexibility

Revise existing planor

Begin new planning process

Revise existing planor

Begin new planning process

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S.M

.A.R

.T.

S.M

.A.R

.T.

S.M

.A.R

.T.

S.M

.A.R

.T. SpecificSpecific

MeasurableMeasurable

AttainableAttainable

RealisticRealistic

TimelyTimely

Setting Goals

2.12.1

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Examples of S.M.A.R.T. Goals?

Starbucks: “In fiscal 2006, we plan to open approximately 1,800 net new stores globally.”

Walgreen: “Second is to hire a significant number of people with disabilities in our South Carolina distribution center, scheduled to open in 2007, and achieve 20% productivity gains there.”

UPS: “65% of drivers will have access to the new technology (implemented in 2004) by the end of 2005.” and “In 2005, we will increase operating profit in each of our 3 key businesses: domestic, int’l, supply chain.”

Wrigley: “In 2005, the company will decrease the long-term rate of return assumption for the assets of its U.S. (pension) plans from 8.75 % to 8.5%.”

Halliburton: “We estimate that 74% of the backlog existing on 12/31 will be eliminated the following fiscal year.”

Martha Stewart Living Omnimedia: “In 2004 we will discontinue the Catalog for Living and its online product options, and sell remaining inventory in early fiscal 2005.”

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Developing Commitment to Goals

The determination to achieve a goal is increased by:

Setting goals participatively Making goals reasonable Making goals public Obtaining top management support

2.22.2

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Developing Effective Action Plans

Specific StepsSpecific Steps

PeoplePeople

ResourcesResources

Time PeriodTime Period2.32.3

An Action Plan Lists…

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Tracking Progress

Set…Set…

Proximal GoalsProximal Goals

Distal GoalsDistal Goals

Gather and provide…Gather and provide…

Performance Feedback

Performance Feedback

2.42.4

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Maintaining Flexibility

Option-based planning keep options open by making

simultaneous investments• invest more in promising options• maintains slack resources

Learning-based planning plans need to be continuously adjusted

2.52.5

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Staying Flexible

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Planning from Top to Bottom

Adapted from Exhibit 5.5

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Starting at the Top

Strategic PlansStrategic PlansClarify how the company will serve customers and position itself against competitors (2-5 years)

Clarify how the company will serve customers and position itself against competitors (2-5 years)

VisionVisionAn inspirational statement of anorganization’s purpose (2 sentences)

An inspirational statement of anorganization’s purpose (2 sentences)

MissionMission

Overall goal that unifies efforts towardits vision, stretches and challenges,and possesses a finish line andtime frame. Flows from vision.

Overall goal that unifies efforts towardits vision, stretches and challenges,and possesses a finish line andtime frame. Flows from vision.3.13.1

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Planning Time Lines

3.13.1 Years0 1 2 3 4 5 6

Pla

ns

Strategic

Tactical

Operational

5 Years

2 years

30 days

6 months

6 months

2 Years

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Merck Corporation’s Vision and Values

Exhibit 5.7Source: “The Merck Corporate Philosophy,” 17 February 2005. ©Merck & Co, Inc., All rights reserved.

3.13.1

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Bending in the Middle

Tactical PlansTactical Plans

Specify how a company will use resources, budgets, and people toaccomplish goals within its mission. (6 months to 2 years)

Specify how a company will use resources, budgets, and people toaccomplish goals within its mission. (6 months to 2 years)

Managementby

Objectives

Managementby

ObjectivesDevelop and carry out tactical plansDevelop and carry out tactical plans

1. Discuss possible goals

2. Participatively select goals consistent with overall goals

3. Jointly develop tactical plans

4. Meet to review progress3.23.2

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What Really WorksManagement by Objectives

MBO10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

probability of success 97%

MBO is based on goals, participation and feedback

Companies that use MBO are 97% more likely to outperform companies that don’t!

3.23.2

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Finishing at the Bottom

Operational Plans

Operational Plans

Day-to-day plans for producing or delivering products and services overa 30-day to six-month period

Day-to-day plans for producing or delivering products and services overa 30-day to six-month period

3.33.3

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Kinds of Operational Plans

Single-Use PlansSingle-Use Plans Plans that cover unique, one-time-only events

Plans that cover unique, one-time-only events

Standing PlansStanding Plans

Plans used repeatedly to handle frequently recurring events.Three kinds are: policies, procedures,and rules and regulations.

Plans used repeatedly to handle frequently recurring events.Three kinds are: policies, procedures,and rules and regulations.

BudgetsBudgetsQuantitative planning to decide howto allocate money to accomplish company goals

Quantitative planning to decide howto allocate money to accomplish company goals

3.33.3

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What Is Rational Decision Making?

After reading these sections, you should be able to:

4. explain the steps and limits to rational decision making.

5. explain how group decisions and groupdecision-making techniques can improvedecision-making.

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What Is Rational Decision Making?

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Decision Making

The process of choosing a solution fromavailable alternatives.

Rational Decision Making

A systematic process of defining problems, evaluating alternatives, and choosing optimal solutions.

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Steps to Rational Decision Making

Define the problemDefine the problem

Identify decision criteriaIdentify decision criteria

Weight the criteriaWeight the criteria

Generate alternative courses of actionGenerate alternative courses of action

Evaluate each alternativeEvaluate each alternative

Compute the optimal decisionCompute the optimal decision

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44

55

6644

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Define the problemDefine the problem11

Problem exists when there is a gap between a desired state and an existing state

To make decisions about problems, managers must: be aware of the gap be motivated to reduce the gap have the knowledge, skills, abilities, and

resources to fix the problem

4.14.1

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Defining the Problem

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Identify decision criteriaIdentify decision criteria22

Standards used to guide judgments and decisions

The more criteria a potential solution meets, the better that solution should be

4.24.2

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Weight the criteriaWeight the criteria33

Absolute comparisons each criterion is compared to a standard

or ranked on its own merits

Relative comparisons each criterion is compared directly to

every other criterion

4.34.3

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4.34.3

Absolute Weighting of Decision CriteriaAbsolute Weighting of Decision Criteria

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4.34.3

Relative Weighting of Decision CriteriaRelative Weighting of Decision Criteria

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Generate alternative courses of actionGenerate alternative courses of action44

4.44.4

The idea is to generate as many alternatives as possible

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Evaluate each alternativeEvaluate each alternative55


4.54.5

This step can take much longer and be more expensive than other steps in the process

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Compute the optimal decisionCompute the optimal decision66


Multiply the rating for each criterion by the weight for that criterion

Sum the scores for each alternative course of action

4.64.6

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PLUS—A Process for Ethical Decision Making

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PoliciesPolicies

LegalLegal

UniversalUniversal

SelfSelf

PP

LL

UU

SS

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Limits to Rational Decision Making

4.74.7

Bounded Rationality

A decision-making process restricted in the real world by:

limited resources incomplete and imperfect information managers’ limited decision-making

capabilities

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Limits to Rational Decision Making

4.74.7

MaximizeMaximize SatisficeSatisfice

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Using Groups to Improve Decision Making

DelphiTechnique

DelphiTechnique

StepladderTechnique

StepladderTechnique

ElectronicBrainstorming

ElectronicBrainstorming

StructuredConflict

StructuredConflict

NominalGroup

Technique

NominalGroup

Technique

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Group Decision Making

1. View problems from multiple perspectives

2. Find and access more information

3. Generate more alternative solutions

4. More committed to making chosen solutions work

1. View problems from multiple perspectives

2. Find and access more information

3. Generate more alternative solutions

4. More committed to making chosen solutions work

Advantages

5.15.1

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Group Decision Making

1. Susceptible to groupthink and to considering a limited number of solutions

2. Takes considerable time

3. One or two people can dominate group discussion

4. Members don’t feel personally accountable for decisions and actions

1. Susceptible to groupthink and to considering a limited number of solutions

2. Takes considerable time

3. One or two people can dominate group discussion

4. Members don’t feel personally accountable for decisions and actions

Disadvantages

5.15.1

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Groupthink

The group is insulated from others with different perspectives

The group leader expresses a strong preference for a particular decision

There is no established procedure for defining problems and exploring alternatives

Group members have similar backgrounds

The group is insulated from others with different perspectives

The group leader expresses a strong preference for a particular decision

There is no established procedure for defining problems and exploring alternatives

Group members have similar backgrounds

Groupthink is likely to occur when…

5.15.1

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Effect of Groupthink

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Structured Conflict

C-Type ConflictC-Type Conflict

Cognitive conflict. Disagreement that focuses onproblem- and issue-related differences of opinion

Cognitive conflict. Disagreement that focuses onproblem- and issue-related differences of opinion

A-Type ConflictA-Type ConflictAffective conflict.Disagreement that focuses onindividuals or personal issues

Affective conflict.Disagreement that focuses onindividuals or personal issues

5.25.2

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Devil’s Advocacy

Steps to Establish a Devil’s Advocacy Program

1. Generate a potential solution

2. Assign a devil’s advocate to criticize and question

3. Present the critique of the solution to key decision makers

4. Gather additional information

5. Decide whether to use, change, or not usethe originally proposed solution


2. Assign a devil’s advocate to criticize and question

3. Present the critique of the solution to key decision makers

4. Gather additional information


5.25.2

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Dialectical Inquiry

Steps to Establish a Dialectical Inquiry Process


2. Identify the assumptions underlying thepotential solution

3. Generate a conflicting counterproposal basedon opposite assumptions

4. Have advocates of each position present theirarguments and engage in a debate in front ofdecision makers



2. Identify the assumptions underlying thepotential solution

3. Generate a conflicting counterproposal basedon opposite assumptions

4. Have advocates of each position present theirarguments and engage in a debate in front ofdecision makers


5.25.2

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What Really Works

Devil’s Advocacy10% 20% 30% 40% 50% 60% 70% 80% 90% 100%


Dialectical Inquiry10% 20% 30% 40% 50% 60% 70% 80% 90% 100%


Considering Negative Consequences10% 20% 30% 40% 50% 60% 70% 80% 90% 100%


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Nominal Group Technique

Steps to Establish Nominal Group Technique

1. During a “quiet time,” group members write down as many problems and solutions as possible

2. Each member shares one idea at a time

3. Ideas are posted on flipcharts until all ideas are shared

4. Group discusses advantages/disadvantages

5. Ideas are ranked during a second “quiet time”

6. Members read rankings aloud, and the idea with thehighest average rank is selected

1. During a “quiet time,” group members write down as many problems and solutions as possible

2. Each member shares one idea at a time

3. Ideas are posted on flipcharts until all ideas are shared

4. Group discusses advantages/disadvantages

5. Ideas are ranked during a second “quiet time”

6. Members read rankings aloud, and the idea with thehighest average rank is selected

5.35.3

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Delphi Technique

Steps to Establish Delphi Technique

1. Assemble a panel of experts.

2. Create a questionnaire of open-ended questions.

3. Summarize the responses and feed back to the panel until the members reach agreement.

4. Create a brief report and send to the panel members for agreement/disagreement.

5. Continue the feedback process until panel reaches agreement.

1. Assemble a panel of experts.

2. Create a questionnaire of open-ended questions.

3. Summarize the responses and feed back to the panel until the members reach agreement.

4. Create a brief report and send to the panel members for agreement/disagreement.

5. Continue the feedback process until panel reaches agreement.

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Stepladder Technique

Member 1Shares thoughts, ideas, recommendations

Member 2Shares thoughts, ideas, recommendations

Discussion is Held and Tentative Group Decision is Made

Member 3 Joins Group Shares thoughts, ideas, recommendations

Members 1 & 2Share previous thoughts, ideas, recommendations


Member 4 Joins Group Shares thoughts, ideas, recommendations

Members 1, 2, & 3 Share previous thoughts, ideas, recommendations


Adapted From Exhibit 5.13

Step 1

Step 2

Step 3

5.55.5

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Electronic Brainstorming

Four Rules of Brainstorming

1. The more ideas, the better.

2. All ideas are acceptable, no matter how wild or crazy.

3. Other group members’ ideas should be usedto come up with even more ideas.

4. Criticism or evaluation of ideas is not allowed.

1. The more ideas, the better.

2. All ideas are acceptable, no matter how wild or crazy.

3. Other group members’ ideas should be usedto come up with even more ideas.

4. Criticism or evaluation of ideas is not allowed.

5.65.6

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Advantages of Electronic Brainstorming

Overcomes production blocking technology allows everyone to record their

ideas as they are created no ideas lost “waiting your turn” to speak

Overcomes evaluation apprehension anonymity creates free expression

5.65.6

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Disadvantages of Electronic Brainstorming

Greater expense No automatic acceptance of ideas because

of one’s position Some find it difficult to express themselves

in writing Lack of typing skills can frustrate

participants

5.65.6

Business

Chapter 5 Planing And Dicision Making