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Principles of Management

Lecture 3

Planning and Decision Making

: Sonya Omer

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Today’s Agenda

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

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Overview of Managerial Decision Making

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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

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Decision-Making Styles

Linear Thinking Style Decision style characterized by a

person’s preference for using external data and facts and processing this information through rational,

logical thinking.

Nonlinear Thinking Style Decision style characterized by person’s

preference for Internal sources of information with Internal insights, feelings and intuition to

guide decisions and actions.

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Decision-Making Errors and Biases

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Decision-Making Biases and Errors

Overconfidence Bias Holding unrealistically positive views

of one’s self and one’s performance.

Immediate Gratification Bias Choosing alternatives that offer

immediate rewards and that to avoid immediate costs.

Anchoring Effect Fixating on initial information and

ignoring subsequent information.

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Decision-Making Biases and Errors

Selective Perception Bias Selectively organizing and interpreting

events based on the decision maker’s biased perceptions.

Confirmation Bias Seeking out information that reaffirms

past choices and discounting contradictory information.

Framing Bias Selecting and highlighting certain aspects

of a situation while ignoring other aspects.

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Decision-Making Biases and Errors

Availability Bias Losing decision-making objectivity by

focusing on the most recent events. Representation Bias

Drawing analogies and seeing identical situations when none exist.

Randomness Bias Creating unfounded meaning out of

random events.

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Decision-Making Biases and Errors

Sunk Costs Errors Forgetting that current actions cannot

influence past events and relate only to future consequences.

Self-Serving Bias Taking quick credit for successes and

blaming outside factors for failures. Hindsight Bias

Mistakenly believing that an event could have been predicted once the actual outcome is known (after-the-fact).

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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.

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.

Jury of executive opinion Executives hold a meeting and estimate a

forecast for a particular item. 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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Mission Goals Plans

Goal Attainment(organizationalefficiency andeffectiveness)

The Overall Planning ProcessTM 6-2

Major Components of Planning

Goal A future target or end result that an

organization wishes to achieve. Plan

The means devised for attempting to reach a goal.

Mission The organization’s purpose or

fundamental reason for existence.

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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.” 20

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 21

OperationalGoals

OperationalPlans

TacticalGoals

TacticalPlans

StrategicGoals

StrategicPlans

Top ManagementOrganizationwide

perspective

Middle ManagementDepartment perspective

First LevelManagement

Unit/Individualperspective

TM 6-3

Levels of Goals and Plans

Levels of Goals

Strategic Goals Broadly defines targets or future end

results set by top management. Tactical Goals

Targets or future end results set by middle management for specific departments or units.

Operational Goals Targets or future end results set by lower

management Addresses specific measurable outcomes

required from the lower levels. 23

Levels of Plans

Strategic Plans Detailed action steps mapped out to

reach strategic goals. Tactical Plans

Support implementation of strategic plan and achievement of tactical goals.

Operational Plans Support implementation of tactical plans

and achievement of operational goals.

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OperationalGOALSTactical Strategic

1 year

5+ years

1 to 5 years

ShortRange

IntermediateRange

LongRange

TM 6-7

Time Horizons for Goals and Plans

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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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

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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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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Strengths and Weaknesses of MBO

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