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MG2351 PRINCIPLES OF MANAGEMENT
Unit II Planning
A process that involves defining the organizations goals, establishing an overall strategy for
achieving those goals and developing a comprehensive set of plans to integrate and coordinate
organizational work. Stephen P.Robbins & Mary Coulter.
Nature of Planning

Planning is goal-oriented: Every plan must contribute in some positive way towards the
accomplishment of group objectives. Planning has no meaning without being related to
goals.
Primacy of Planning: Planning is the first of the managerial functions. It precedes all
other management functions.
Pervasiveness of Planning: Planning is found at all levels of management. Top
management looks after strategic planning. Middle management is in charge of
administrative planning. Lower management has to concentrate on operational planning.
Efficiency, Economy and Accuracy: Efficiency of plan is measured by its contribution
to the objectives as economically as possible. Planning also focuses on accurate forecasts.
Co-ordination: Planning co-ordinates the what, who, how, where and why of
planning.Without co-ordination of all activities, we cannot have united efforts.
Limiting Factors: A planner must recognize the limiting factors (money, manpower etc)
and formulate plans in the light of these critical factors.
Flexibility: The process of planning should be adaptable to changing
environmental conditions.
Planning is an intellectual process: The quality of planning will vary according to the
quality of the mind of the manager.

Purpose of Planning

Planning gives direction


Reduces the impact of change
Minimizes waste and redundancy
Sets the standards used in controlling

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Planning Process (or) Steps in Planning
Being Aware of Opportunities
Setting Objectives or Goals

Considering Planning Premises

Identifying Alternatives

Comparing Alternatives in light


of goals sought

Choosing an Alternative
Formulating Supporting Plans
Quantifying plans by making
Budgets

1. Being aware of opportunities


Managers should take a preliminary look at possible future opportunities and see
them clearly and completely, know where their company stands in light of its
strengths and weaknesses, understand what problems it has to solve and why and
know what it can expect to gain.
Planning requires a realistic diagnosis of the opportunity situation.
2. Establishing Objectives
The second step in planning is to establish objectives for the entire enterprise and
then for each subordinate work unit.
Objectives specify the expected results and indicate the endpoints of what is to be
done, where the primary emphasis is to be placed and what is to be accomplished
by the network of strategies, policies, procedures, rules, budgets and programs.
Enterprise objectives give direction to the major plans, which by reflecting these
objectives, define the objective of every major department. Major departmental
objectives in turn control the objectives of subordinate departments and so on
down the line. In other words, objectives form a hierarchy.
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Managers should also have the opportunity to contribute ideas for setting their
own goals and those of the enterprise.

3. Developing Premises
The next logical step in planning is to establish, circulate and obtain agreement to
utilize critical planning premises such as forecasts, applicable basic policies and
existing company plans.
In what environment internal or external will our plans operate?
Premises Assumptions about the environment in which the plan is to be carried
out.
It is important for all the managers involved in planning to agree on the premises.
Principle of Planning Premises
o The more thoroughly individuals charged with planning understand and
agree to utilize consistent planning premises, the more coordinated
enterprise planning will be.
Forecasting is important in premising.
4. Determining Alternative Courses
The fourth step in planning is to search for and examine alternative courses of
action.
The more common problem is not finding alternatives but reducing the number of
alternatives so that the most promising may be analysed.
5. Evaluating Alternative Courses
After seeking out alternative courses and examining their strong and weak points,
the next step is to evaluate the alternatives by weighing them in light of premises
and goals.
6. Selecting a Course
This is the point at which the plan is adopted. i.e., the real point of decision
making.
Occasionally, an analysis and evaluation of alternative courses will disclose that
two or more are advisable and the manager may decide to follow several courses
rather than the one best course.
7. Formulating Derivative Plans
Derivative plans are almost invariably required to support the basic plan.
8. Quantifying Plans by Budgeting
After decisions are made and plans are set, the final step is to quantify them by
converting them into budgets.

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The overall budget of an enterprise represents the sum total of income and
expenses, with resultant profit or surplus and the budgets of major balance sheet
items such as cash and capital expenditures.
If done well, budgets become a means of adding the various plans and set
important standards against which planned progress can be measured.

Types of Plan
Plans Documents that outline how goals are going to be met including resource allocations,
schedules and other necessary actions to accomplish the goals.
Types
I.

Strategic Plans - Plans that apply to the entire organization, establish the organizations overall
goals and seek to position the organization in terms of its environment.
Operational Plans - Plans that specify the details of how the overall goals are to be achieved.
Long-term plans - Plans within a time frame beyond three years
Short-term plans - Plans covering one year or less.
Directional Plans - Plans that are flexible and that set out general principles.
Specific Plans - Plans that are clearly defined and that leave no room for interpretation
Single-use plan - A one-time plan specifically designed to meet the needs of a unique situation.
Standing Plans - Ongoing plans that provide guidance for activities performed repeatedly.
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II.

Operational plans lead to the achievement of tactical plans, which in turn lead to the attainment
of strategic plans. In addition to these three types of plans, managers should also develop a
contingency plan in case their original plans fail.
a) Strategic plans:
A strategic plan is an outline of steps designed with the goals of the entire organization as a
whole in mind, rather than with the goals of specific divisions or departments. It is further
classified as
i) Mission:
. The mission is a statement that reflects the basic purpose and focus of the organization which
normally remain unchanged. The mission of the company is the answer of the question : why
does the organization exists?
Mission of Ford: we are a global, diverse family with a proud inheritance, providing exceptional
products and services.
ii) Objectives or goals:
Both goal and objective can be defined as statements that reflect the end towards which the
organization is aiming to achieve. However, there are significant differences between the two. A
goal is an abstract and general umbrella statement, under which specific objectives can be
clustered. Objectives are statements that describein precise, measurable, and obtainable terms
which reflect the desired organizations outcomes.
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iii) Strategies:
Strategy is the determination of the basic long term objectives of an organization and the
adoption of action and collection of action and allocation of resources necessary to achieve these
goals.
Strategic planning begins with an organization's mission. Strategic plans look ahead over the
next two, three, five, or even more years to move the organization from where it is currently to
where it wants to be. Requiring multilevel involvement, these plans demand harmony among all
levels of management within the organization. Top-level management develops the directional
objectives for the entire organization, while lower levels of management develop compatible
objectives and plans to achieve them.

Top management's strategic plan for the entire

organization becomes the framework and sets dimensions for the lower level planning.
b) Tactical plans:
A tactical plan is concerned with what the lower level units within each division must do, how
they must do it, and who is in charge at each level. Tactics are the means needed to activate a
strategy and make it work.
Tactical plans are concerned with shorter time frames and narrower scopes than are strategic
plans. These plans usually span one year or less because they are considered short-term goals.
Long-term goals, on the other hand, can take several years or more to accomplish. Normally, it is
the middle manager's responsibility to take the broad strategic plan and identify specific tactical
actions.
c) Operational plans
The specific results expected from departments, work groups, and individuals are the
operational goals. These goals are precise and measurable. Process 150 sales applications each
week or Publish 20 books this quarter are examples of operational goals.

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An operational plan is one that a manager uses to accomplish his or her job responsibilities.
Supervisors, team leaders, and facilitators develop operational plans to support tactical plans (see
the next section). Operational plans can be a single-use plan or a standing plan.
i) Single-use plans apply to activities that do not recur or repeat. A one-time occurrence,
such as a special sales program, is a single-use plan because it deals with the who, what, where,
how, and how much of an activity.

Programme: Programme consists of an ordered list of events to be followed to execute a

project.
Budget: A budget predicts sources and amounts of income and how much they are used for a
specific project.
ii) Standing plans are usually made once and retain their value over a period of years while
undergoing periodic revisions and updates. The following are examples of ongoing plans:
Policy: Policies are general statements that explain how a manager should attempt to handle
routine management responsibilities. Typical human resources policies, for example, address
such matters as employee hiring, terminations, performance appraisals, pay increases, and
discipline.
Procedure: A procedure is a set of step-by-step directions that explains how activities
or tasks are to be carried out. Most organizations have procedures for purchasing supplies and
equipment, for example. This procedure usually begins with a supervisor completing a
purchasing requisition. The requisition is then sent to the next level of management for approval.
The approved requisition is forwarded to the purchasing department. Depending on the amount
of the request, the purchasing department may place an order, or they may need to secure
quotations and/or bids for several vendors before placing the order. By defining the steps to be
taken and the order in which they are to be done, procedures provide a standardized way of
responding to a repetitive problem.

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Rule: A rule is an explicit statement that tells an employee what he or she can and cannot do.
Rules are do and don't statements put into place to promote the safety of employees and the
uniform treatment and behavior of employees. For example, rules about tardiness and
absenteeism permit supervisors to make discipline decisions rapidly and with a high degree of
fairness.
d) Contingency plans
Intelligent and successful management depends upon a constant pursuit of adaptation, flexibility,
and mastery of changing conditions. Strong management requires a keeping all options open
approach at all times that's where contingency planning comes in.
Contingency planning involves identifying alternative courses of action that can be implemented
if and when the original plan proves inadequate because of changing circumstances.
Unexpected problems and events frequently occur. When they do, managers may need to change
their plans. Anticipating change during the planning process is best in case things don't go as
expected. Management can then develop alternatives to the existing plan and ready them for use
when and if circumstances make these alternatives appropriate.
Objective

Objectives or goals are the ends toward which activity is aimed.


An objective is verifiable when at the end of the period one can determine whether or not
it has been achieved.

Nature of objectives

Objectives state end results


Overall objectives need to be supported by sub objectives.
Objectives form a hierarchy as well as network.

Hierarchy of Objectives
Key Result Area (KRA) An area in which performance is essential for the success of the
enterprise.
Non-verifiable objective: Eg., To make a reasonable profit.
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Verifiable objective: Eg., To achieve a return on investment of 12% at the end of the current
fiscal year.

Management By Objectives(MBO)
A management system in which specific performance goals are jointly determined by
employees and their managers, progress toward accomplishing those goals is periodically
reviewed and rewards are allocated on the basis of this progree. - Stephen P.Robbins and Mary
Coulter
Elements

Goal specificity
Participative decision-making
An explicit time period
Performance feedback

Process of MBO

Setting of Organizational purpose and Objectives


o The first basic step in MBO is the definition of organizational purpose and
objectives
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o Questions, such as why does the organization exist?, what business are we in?
and what should be our business? provide guidelines for the statement of
purpose. This, in interaction with external factors then determines the long-range
strategic objectives.
Key Result Areas (KRAs)
o Organizational objectives and planning premises together provide the basis for the
identification of key result areas.
o It may be emphasized that KRAs are derived from the expectations of various
stakeholders and indicate the priorities for organizational performance.
Setting subordinates objectives
o The organizational objectives are achieved through individuals. Therefore, each
individual manager must kow in advance what he is expected to achieve.
o The process of objective setting begins with superiors proposed
recommendations fro his subordinates objectives. In turn, the subordinate states
his own objectives as perceived by him. Thereafter, the final objectives for the
subordinate are set by the mutual negotiation between superior and subordinate.

Planning Premises

Organizational Purpose and


Objectives

Key Result Areas

Superiors Objectives

Superiors recommendation for


subordinates objectives

Matching Resources

Subordinates statement of his


objectives

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Subordinates
agreed
objectives
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Subordinates Performance

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Matching resources with objectives


o Resource availability becomes an important aspect of objective setting because it
is the proper application of resources which ensures objective achievement.
Therefore, there should be a matching between objectives and resources.
o The allocation and movement of resources should be done in consultation with the
subordinate manager.
Appraisal
o Appraisal aspect of MBO tries to measure whether the subordinate is achieving
his objective or not. If not, what are the problems and how these problems can be
overcome.
o It is taken as a matter of system to ensure that everything is going as planned and
the organization is able to achieve its objectives.

Recycling
o The outcome of appraisal at on level is recycled to see if the objectives have been
set properly at the level concerned and also at the next higher level.
o The three aspects involved in recycling process include setting of objectives at
various levels, action planning in the context of those objectives and performance
review. Each of these aspects gives base for others.

Benefits of MBO

Improvement of managing through results-oriented planning


Clarification of organizational roles and structures as well as delegation of authority
according to the results expected by the people occupying the roles.
Encouragement of commitment to personal and organizational goals.
Development of effective controls that measure results and lead to corrective actions.

Problems and Limitations of MBO


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Time and Cost


Failure to teach MBO philosophy
Problems in objective setting
Emphasis on short-term objectives
Inflexibility
Frustration

Prerequisites for installing MBO Programme

Purpose of MBO
Top management support
Training for MBO
Participation
Feedback for self-direction and self-control.

Strategy
The determination of the mission or purpose and the basic long-term objectives of an enterprise,
followed by the adoption of courses of action and allocation of resources necessary to achieve
these aims.
Strategic Management
The set of managerial decisions and actions that determines the long-run performance of an
organization.
Strategic management process - a six-step process that encompasses strategic planning,
implementation, and evaluation.

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Types of Organizational Strategies

Corporate-Level Strategy
o An organizational strategy that seeks to determine what businesses a company
should be in or wants to be in.
o Determines the direction that the organization is going and the roles that each
business unit in the organization will play in pursuing that direction.
o Grand Strategy
Stability strategy - A corporate-level strategy characterized by an absence
of significant change.
Growth strategy
A corporate-level strategy that seeks to increase the level of the
organizations operations.
Growth through direct expansion ( also called concentration) is
achieved by internally increasing a firms sales, production
capacity or workforce.
Growth through vertical integration is an attempt to gain control of
inputs, outputs or both.
In horizontal integration, a company grows by combining with other
organizations in the same industry that is, combining operations
with competitors.
Diversification
Related diversification is when a company grows by merging with
or acquiring firms in different but related industries.
Unrelated diversification is when a company grows by merging with
or acquiring firms in different and unrelated industries.
Retrenchment strategy
A corporate-level strategy designed to address organizational
weaknesses that are leading to performance declines.
o Corporate Portfolio Analysis: BCG Matrix
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A strategy tool that guides resource allocation decisions on the basis of


market share and growth rate of SBUs.

Business-Level Strategy
o An organizational strategy that seeks to determine how an organization should
compete in each of its businesses.
o Strategic Business Units (SBUs)
When an organization is in several different businesses, these single
businesses that are independent and that formulate their own strategies.
Competitive Advantage: What sets an organization apart: its distinct
edge.

Competitive Strategies: Porters Five Forces Model

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Three Generic Strategies


o Cost Leadership Strategy A business-level strategy in which the
organization is the lowest-cost producer in its industry.
o Differentiation Strategy A business-level strategy in which a
company offers unique products that are widely valued by customers.
o Focus Strategy A business-level strategy in which a company
pursues a cost or differentiation advantage in a narrow industry
segment.

Functional-level strategy
An organizational strategy that seeks to determine how to support the business-level strategy.
Policies

Policy is a statement and predetermined guideline that provides directions for decision
making and taking action.
General statements or understandings that guide or channelize thinking in decision making.

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Types
Policies
On the basis
of levels

On the basis
of functions

On the basis
of sources

Basic Policy

Production
Policy

Originated
Policy

General
Policy

Marketing
Policy

Appealed
Policy

Division
Policy

Personnel
Policy

External
Policy

Accounting
Policy

On the basis of levels


o Basic policies are set by top level management
o General policies are set by middle level management
o Division policies are set by division heads or first line supervisors.
On the basis of functions
o Separate policies are set by management for different managerial functions such
as production policy, purchasing policy, pricing policy, dividend policy, quality
policy, sales policy, personnel, financial etc.
On the basis of sources
o Originated policies are formulated by top level managers on their own intuition
and experience.
o Appealed policies are formulated by top level managers in response to appeals
made by lower level mangers
o Imposed policies are those which are imposed upon the organization by external
agencies such as government, trade union and trade associations.

Policy Making Process (or) Steps in Policy Making

Policy formulation Policies are formulated by top management. Such policies arise out
of needs and purpose perceived and defined by top management.

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Policy
Formualtion

Policy
Commuication

Policy
Application

Policy Review
and Appraisal

Policy communication After framing the policy, the policy is communicated to those
who are responsible for its applications.
o Communication of policy may be in the form of policy manuals, written
memorandums, board letters and announcements.
Policy Application The policy should be strictly applied by subordinates. Some
flexibility is also essential in day-to-day activities.
Policy Review and Appraisal Policy become obsolete when it is not reviewed
periodically.
o Periodical review of policy is essential to avoid complacency in the future.
o Management should analyse the existing policies and outdated policies must be
scraped out.

Decision Making
Decision A choice from two or more alternatives.
Decision Making Process
A set of eight steps including identifying a problem, selecting an alternative and evaluating the
decisions effectiveness.
1. Identification of a problem
The decision making process begins with the existence of a problem.
Problem : A discrepancy between an existing and a desired state of affairs.
Problem identification is subjective.
Before something can be characterized as a problem, managers have to be aware
of the problem, be under pressure to take action and have the resources needed to
take action.
2. Identification of Decision Criteria
Once a manager has identified a problem that needs attention, the decision criteria
important to resolving the problem must be identified.
Decision Criteria: Criteria that define whats relevant in a decision.
These might include criteria such as price, product model and manufacturer,
standard features, optional equipment, service warranties, repair record and
service support after purchase.
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Whether they are explicitly stated or not, every decision maker has criteria that
guide his or her decisions

3. Allocation of weights to criteria


The criteria identified in step 2 are not all equally important, so the decision
maker must weight the items in order to give them correct priority in the decision.
A simple approach is to give the most important criterion a weight of 10 and then
assign weights to the rest against that standard.
The idea is to use personal preferences to prioritize the criteria identified in step 2
by assigning a weight to each.
4. Development of alternatives
The fourth step requires the decision maker to list the viable alternatives that
could resolve the problem.
No attempt is made in this step to evaluate the alternatives, only to list them.
5. Analyzing alternatives
Once the alternatives have been identified, the decision maker must critically
analyze each one.
Each alternative is evaluated by appraising it against the criteria established in
steps 2 and 3. From this comparison, the strengths and weaknesses of each
alternative become evident.
6. Selection of an alternative
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The sixth step is the important act of choosing the best alternative from among
those considered.
The decision makers have to choose the alternative that generated the highest
score in step 5.
7. Implementation of the alternative
Step 7 is concerned with putting the decision into action.
Implementation involves conveying the decision to those affected by it and
getting their commitment to it.
8. Evaluating decision effectiveness
The last step in the decision-making process involves appraising the outcome of
the decision to see if the problem has been resolved.
Did the alternative chosen in step 6 and implemented in step 7 accomplish the
desired result? Answer to this question might send the manager back to one of the
earlier steps.
Type of Decisions

Programmed Decisions

A repetitive decision that can be handled by a routine approach


The programmed decision process is characterized by high levels of certainty for both the
problem formulation and the problem solution phases.
Rules and procedures typically spell out exactly how to respond
Programmed decisions are used for structured or routine work. Eg., Promotion decisions

Non-programmed decisions

Decisions that must be custom-made to solve unique and nonrecurring problems


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Non-programmed decisions are made by upper-level managers, this is because upperlevel managers have to deal with unstructured problems.
Non-programmed decisions are used for unstructured, novel and ill-defined situations of
a non recurring nature. Eg., Introduction of the Macintosh Computer by Apple Computer.

Comparison of Programmed and Non-Programmed Decisions

Rational Decision Making


Describes choices that are consistent and value maximizing within specified constraints.

Bounded Rationality
Behaviour that is rational within the parameters of a simplified decision-making process, which
is limited (or bounded) by an individuals ability to process information.
Satisficing
Acceptance of solutions that are good enough.
Escalation of Commitment
An increased commitment to a previous decision despite evidence that it may have been wrong.
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Intuitive decision-making
A subconscious process of making decisions on the basis of experience and accumulated
judgement.

Rational Decision Making Process


Recognise the need for a decision
Definition of the problem
Search and develop alternatives
Evaluate alternatives
Selecting an alternative among alternatives
Implement chosen alternative
Learn from feedback

Recognize the need for a decision


o Manager recognize the need for a decision in the form of a problem or
opportunity.
Definition of the problem
o A problem is the gap between present and the desired state of affairs on the
subject matter of the decision.
o The definition and diagnosis of the problem involves three types of skills:
noticing, interpreting and incorporating.
Search and develop alternatives
o The alternative course of action can be developed by collecting more information,
thinking creatively, consulting experts and undertaking research.
o Limiting Factor: A limiting factor is something that stands in the way of
accomplishing a desired objective.
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o Principle of the Limiting Factor: By recognizing and overcoming factors that


stand critically in the way of a goal, the best alternative course of action can be
selected.
Evaluate Alternatives
o After identifying alternative courses of action, they must be compared and
evaluated. This step determines the relative cost of each alternative.
o Managers have to determine the advantages and disadvantages of ach alternative.
o Selecting an alternative course of action among alternatives

Experimentation

Reliance on the past

How to select from


amongst
alternatives?

Choice made

Research and Analysis

Experience
o Experience on the part of managers greatly influence the decision making process.
o Selecting a best alternative not only depends on the managers past experience but
also depends on the creative thinking and innovative skills of the manager.
Experimentation
o Manager tests the alternatives under actual and prevailing conditions
o The experimentation may be in the form of test marketing of a new product
o This method of selecting an alternative is more expensive.
Research and Analysis
o Research and analysis involves a search for relationships among the critical
variables, constraints and premises.
o This approach requires modeling of problems and to stimulate them
o It is mainly a mathematical approach. The expenses required for this criterion is
very less compared to experimentation.
o This is one of the effective criteria to choose the best alternative course of action.
This method is more accurate one.
Implement chose alternative
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o The decision taken by the management will not serve the purpose if it is not
executed properly.
o Manager has to take essential steps to implement the solution.
Learn from feedback
o Feedback is important because decision making is a continuous and never ending
process
o Feedback information is very much useful in taking the corrective measures and
in taking right decisions in the future.

Common decision making errors and biases

Decision Making under different conditions

Decision making under certainty


o A situation in which a manager can make accurate decisions because all outcomes
are known.
o It is more idealistic than realistic.
Decision making under Risk
o Those conditions in which the decision maker is able to estimate the likelihood of
certain outcomes.
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o The ability to assign probabilities to outcomes may be the result of personal


experiences or secondary information.
Decision making under Uncertainty
o A situation in which a decision maker has neither certainty nor reasonable
probability estimates available.
o Force managers to rely on intuition, hunches, and gut feelings.
o Approaches
The optimistic manager will follow a maximax choice (maximizing the
maximum possible payoff)
The pessimist will follow a maximin choice (maximizing the minimum
possible payoff)
The manager who desires to minimize his maximum regret will opt for a
minimax choice.

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