Chapter5planinganddicisionmaking 090601161041 Phpapp02

Chapter
Planning and
Decision
Making
Management
4th Edition
Chuck Williams
Chapter 5
Copyright 2007 by South-Western, a division of Thomson Learning. All rights reserved
Prepared by
Deborah Baker
Texas Christian University
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 plant
cant keep up with demand
Youve identified five options:

1.
2.
3.
4.
5.
Add new storage and finishing tanks

Outsource production
Buy another brewery
Build a new factory
Do nothing!
Whats the best way to evaluate these options and

make a decision? What would you do?
Chapter 5
Planning
After reading these sections,
you should be able to:
1.
2.
3.
discuss the benefits and pitfalls of planning.

describe how to make a plan that works.
discuss how companies can use plans at all
management levels, from top to bottom.
Chapter 5
Planning
Planning
Choosing a goal and developing a
method of strategy to achieve that goal
1
Chapter 5
Benefits of Planning
Benefits
Benefits
of
ofPlanning
Planning
Persistence
Persistence
Direction
Direction
Intensified
Intensified
Effort
Effort
1.1
Chapter 5
Creation
Creation
of
of Task
Task
Strategies
Strategies
5
Pitfalls of Planning
Pitfalls
Pitfalls
of
of Planning
Planning
False
FalseSense
Sense
of
ofCertainty
Certainty
Impedes
ImpedesChange
Change
and
andAdaptation
Adaptation
Detachment
Detachment
of
ofPlanners
Planners
1.2
Chapter 5
How to Make a Plan That Works
Set
Set
Goals
Goals
Develop
Develop
Commitment
Commitment
Develop
Develop
Effective
Effective
Action
Action
Plans
Plans
Track
Track
Progress
Progress
Toward
Toward
Goal
Goal
Achievement
Achievement
Maintain
Maintain
Flexibility
Flexibility
Revise
Reviseexisting
existingplan
plan
or
or
Begin
Beginnew
newplanning
planningprocess
process
2
Chapter 5
S.M.A.R.T.
Setting Goals
Specific
Specific
Measurable
Measurable
Attainable
Attainable
Realistic
Realistic
Timely
Timely
2.1
Chapter 5
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, intl, 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.
Chapter 5
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
2.2
Chapter 5
10
Developing Effective Action Plans

An Action Plan Lists
Specific
Specific Steps
Steps
People
People
Resources
Resources
2.3
Time
Time Period
Period
Chapter 5
11
Tracking Progress
Set
Set
Gather
Gather and
and provide
provide
Proximal
Proximal Goals
Goals
Performance
Performance
Feedback
Feedback
Distal
Distal Goals
Goals
2.4
Chapter 5
12
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
2.5
Chapter 5
13
Staying Flexible
Chapter 5
14
Planning from Top to Bottom
3
Chapter 5
Adapted from Exhibit 5.5
15
Starting at the Top

Strategic
StrategicPlans
Plans
Vision
Vision
Mission
Mission
3.1
Clarify
Clarifyhow
howthe
thecompany
companywill
will
serve
servecustomers
customersand
andposition
position
itself
itselfagainst
againstcompetitors
competitors(2-5
(2-5years)
years)
An
Aninspirational
inspirationalstatement
statementof
ofan
an
organizations
organizationspurpose
purpose
(2
(2sentences)
sentences)
Overall
Overallgoal
goalthat
thatunifies
unifiesefforts
effortstoward
toward
its
itsvision,
vision,stretches
stretchesand
andchallenges,
challenges,
and
andpossesses
possessesaafinish
finishline
lineand
and
time
timeframe.
frame.Flows
Flowsfrom
fromvision.
vision.
Chapter 5
16
Planning Time Lines
Strategic
2 Years
5 Years
Plans
6 months
2 years
Tactical
30 days
Operational
3.1
6 months
0
3
Years
Chapter 5
17
Merck Corporations
Vision and Values
3.1
Exhibit 5.7
Source: The Merck Corporate Philosophy,
17 February 2005. Merck & Co, Inc., All rights reserved.
Chapter 5
18
Bending in the Middle

Tactical
Tactical Plans
Plans
Specify
Specifyhow
howaacompany
companywill
willuse
use
resources,
resources,budgets,
budgets,and
andpeople
peopleto
to
accomplish
accomplishgoals
goalswithin
withinits
itsmission.
mission.
(6
(6months
monthsto
to22years)
years)
Management
Management
by
by
Objectives
Objectives
Develop
Developand
andcarry
carryout
outtactical
tacticalplans
plans
1. Discuss possible goals

2. Participatively select goals consistent with overall goals
3. Jointly develop tactical plans
3.2
4. Meet to review progress

Chapter 5
19
What Really Works

Management by Objectives
MBO
10% 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 dont!
3.2
Chapter 5
20
Finishing at the Bottom

Operational
Operational
Plans
Plans
Day-to-day
Day-to-dayplans
plansfor
forproducing
producingor
or
delivering
deliveringproducts
productsand
andservices
servicesover
over
aa30-day
30-dayto
tosix-month
six-monthperiod
period
3.3
Chapter 5
21
Kinds of Operational Plans

Plans
Plansthat
thatcover
coverunique,
unique,
Single-Use
Plans
Single-Use Plans one-time-only events
one-time-only events
Standing
StandingPlans
Plans
Budgets
Budgets
3.3
Plans
Plansused
usedrepeatedly
repeatedlyto
tohandle
handle
frequently
frequentlyrecurring
recurringevents.
events.
Three
Threekinds
kindsare:
are: policies,
policies,procedures,
procedures,
and
andrules
rulesand
andregulations.
regulations.
Quantitative
Quantitativeplanning
planningto
todecide
decidehow
how
to
toallocate
allocatemoney
moneyto
toaccomplish
accomplish
company
companygoals
goals
Chapter 5
22
What Is Rational Decision Making?

After reading these sections,
you should be able to:
4.
5.
explain the steps and limits to rational

decision making.
explain how group decisions and group
decision-making techniques can improve
decision-making.
Chapter 5
23
What Is Rational Decision Making?

Decision Making
The process of choosing a solution from
available alternatives.
Rational Decision Making

A systematic process of defining
problems, evaluating alternatives, and
choosing optimal solutions.
4
Chapter 5
24
Steps to Rational Decision Making
11
Define
Define the
the problem
problem
22
Identify
Identify decision
decision criteria
criteria
33
Weight
Weight the
the criteria
criteria
44
Generate
Generate alternative
alternative courses
courses of
of action
action
55
Evaluate
Evaluate each
each alternative
alternative
66
Compute
Compute the
the optimal
optimal decision
decision
Chapter 5
25

11
Define
Define the
the problem
problem
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
4.1
Chapter 5
26
Defining the Problem
Chapter 5
27

22
Identify
Identify decision
decision criteria
criteria
Standards used to guide judgments and

decisions
The more criteria a potential solution meets,

the better that solution should be
4.2
Chapter 5
28

33
Weight
Weight the
the criteria
criteria
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
4.3
Chapter 5
29

Absolute
Absolute Weighting
Weighting of
of Decision
Decision Criteria
Criteria
4.3
Chapter 5
30

Relative
Relative Weighting
Weighting of
of Decision
Decision Criteria
Criteria
4.3
Chapter 5
31

44
Generate
Generate alternative
alternative courses
courses of
of action
action
The idea is to generate as many alternatives

as possible
4.4
Chapter 5
32

55
Evaluate
Evaluate each
each alternative
alternative
This step can take much longer and be more

expensive than other steps in the process
4.5
Chapter 5
33

66
Compute
Compute the
the optimal
optimal decision
decision
Multiply the rating for each criterion
by the weight for that criterion
Sum the scores for each alternative course
of action
4.6
Chapter 5
34
PLUS
A Process for Ethical Decision Making
PP
Policies
Policies
LL
Legal
Legal
U
U
Universal
Universal
SS
Self
Self
4
Chapter 5
35
Limits to Rational Decision Making

Bounded Rationality
A decision-making process restricted in
the real world by:
limited resources
incomplete and imperfect information
managers limited decision-making
capabilities
4.7
Chapter 5
36
Limits to Rational Decision Making
Maximize
Maximize
Satisfice
Satisfice
4.7
Chapter 5
37
Using Groups to Improve

Decision Making
Structured
Structured
Conflict
Conflict
Delphi
Delphi
Technique
Technique
Nominal
Nominal
Group
Group
Technique
Technique
Stepladder
Stepladder
Technique
Technique
Electronic
Electronic
Brainstorming
Brainstorming
5
Chapter 5
38
Group Decision Making

Advantages
1.
1. View
View problems
problemsfrom
frommultiple
multipleperspectives
perspectives
2.
2. Find
Findand
andaccess
accessmore
moreinformation
information
3.
3. Generate
Generatemore
more alternative
alternativesolutions
solutions
4.
4. More
Morecommitted
committedto
tomaking
makingchosen
chosensolutions
solutionswork
work
5.1
Chapter 5
39
Group Decision Making

Disadvantages
1.
1. Susceptible
Susceptibleto
togroupthink
groupthinkand
andto
toconsidering
consideringaa
limited
limitednumber
number of
of solutions
solutions
2.
2. Takes
Takesconsiderable
considerabletime
time
3.
3. One
One or
ortwo
twopeople
peoplecan
candominate
dominategroup
group discussion
discussion
4.
4. Members
Membersdont
dontfeel
feel personally
personallyaccountable
accountable
for
fordecisions
decisionsand
and actions
actions
5.1
Chapter 5
40
Groupthink
Groupthink is likely to occur when
The
Thegroup
groupis
isinsulated
insulatedfrom
fromothers
otherswith
withdifferent
different
perspectives
perspectives
The
Thegroup
groupleader
leaderexpresses
expressesaastrong
strongpreference
preference
for
foraaparticular
particulardecision
decision
There
Thereis
isno
noestablished
establishedprocedure
procedurefor
fordefining
defining
problems
problemsand
andexploring
exploringalternatives
alternatives
Group
Groupmembers
membershave
havesimilar
similarbackgrounds
backgrounds
5.1
Chapter 5
41
Effect of Groupthink
Chapter 5
42
Structured Conflict
C-Type
C-Type Conflict
Conflict
Cognitive
Cognitive conflict.
conflict.
Disagreement
Disagreement that
that focuses
focuses on
on
problemproblem- and
and issue-related
issue-related
differences
differences of
of opinion
opinion
A-Type
A-Type Conflict
Conflict
Affective
Affective conflict.
conflict.
Disagreement
Disagreement that
that focuses
focuses on
on
individuals
individuals or
or personal
personal issues
issues
5.2
Chapter 5
43
Devils Advocacy
Steps to Establish a Devils Advocacy Program
1.
1. Generate
Generateaapotential
potentialsolution
solution
2.
2. Assign
Assignaadevils
devilsadvocate
advocateto
tocriticize
criticizeand
andquestion
question
3.
3. Present
Presentthe
thecritique
critiqueof
ofthe
thesolution
solutionto
to
key
keydecision
decisionmakers
makers
4.
4. Gather
Gatheradditional
additionalinformation
information
5.
5. Decide
Decidewhether
whetherto
touse,
use,change,
change,or
ornot
notuse
use
the
theoriginally
originallyproposed
proposedsolution
solution
5.2
Chapter 5
44
Dialectical Inquiry
Steps to Establish a Dialectical Inquiry Process
5.2
1.
1. Generate
Generateaapotential
potentialsolution
solution
2.
2. Identify
Identifythe
theassumptions
assumptionsunderlying
underlyingthe
the
potential
potentialsolution
solution
3.
3. Generate
Generateaaconflicting
conflictingcounterproposal
counterproposalbased
based
on
onopposite
oppositeassumptions
assumptions
4.
4. Have
Haveadvocates
advocatesof
ofeach
eachposition
positionpresent
presenttheir
their
arguments
argumentsand
andengage
engagein
inaadebate
debatein
infront
frontof
of
decision
decisionmakers
makers
5.
5. Decide
Decidewhether
whetherto
touse,
use,change,
change,or
ornot
notuse
use
the
theoriginally
originallyproposed
proposedsolution
solution
Chapter 5
45
What Really Works

Devils Advocacy
10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
58%
Dialectical Inquiry
10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
55%
Considering Negative Consequences

10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
86%
Chapter 5
46
Nominal Group Technique

Steps to Establish Nominal Group Technique
1.
1. During
Duringaaquiet
quiettime,
time,group
groupmembers
memberswrite
writedown
down
as
asmany
manyproblems
problemsand
andsolutions
solutionsas
aspossible
possible
2.
2. Each
Eachmember
membershares
sharesone
oneidea
ideaat
ataatime
time
3.
3. Ideas
Ideasare
areposted
postedon
onflipcharts
flipchartsuntil
untilall
allideas
ideasare
areshared
shared
4.
4. Group
Groupdiscusses
discussesadvantages/disadvantages
advantages/disadvantages
5.
5. Ideas
Ideasare
areranked
rankedduring
duringaasecond
secondquiet
quiettime
time
6.
6. Members
Membersread
readrankings
rankingsaloud,
aloud,and
andthe
theidea
ideawith
withthe
the
highest
highestaverage
averagerank
rankis
isselected
selected
5.3
Chapter 5
47
Delphi Technique
Steps to Establish Delphi Technique
1.
1. Assemble
Assembleaapanel
panelof
ofexperts.
experts.
2.
2. Create
Createaaquestionnaire
questionnaireof
ofopen-ended
open-endedquestions.
questions.
3.
3. Summarize
Summarizethe
theresponses
responsesand
andfeed
feedback
backto
tothe
thepanel
panel
until
untilthe
themembers
membersreach
reachagreement.
agreement.
4.
4. Create
Createaabrief
briefreport
reportand
andsend
sendto
tothe
thepanel
panelmembers
membersfor
for
agreement/disagreement.
agreement/disagreement.
5.
5. Continue
Continuethe
thefeedback
feedbackprocess
processuntil
untilpanel
panelreaches
reaches
agreement.
agreement.
5.4
Chapter 5
48
Stepladder Technique
Member 4 Joins Group
Shares thoughts, ideas,
recommendations
Members 1, 2, & 3
Share previous
thoughts, ideas,
recommendations
Discussion is Held and

Tentative Group
Decision is Made
Step 2
Member 3 Joins Group

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

Tentative Group
Decision is Made
Step 1
Member 1
recommendations
Member 2
recommendations

Tentative Group
Decision is Made
Step 3
5.5
Chapter 5
Adapted From Exhibit 5.13
49
Electronic Brainstorming
Four Rules of Brainstorming
1.
1. The
Themore
moreideas,
ideas,the
thebetter.
better.
2.
2. All
Allideas
ideasare
areacceptable,
acceptable,no
nomatter
matter
how
how wild
wildor
orcrazy.
crazy.
3.
3. Other
Othergroup
groupmembers
membersideas
ideasshould
shouldbe
beused
used
to
tocome
comeup
upwith
witheven
evenmore
moreideas.
ideas.
4.
4. Criticism
Criticismor
orevaluation
evaluationof
of ideas
ideasis
isnot
notallowed.
allowed.
5.6
Chapter 5
50
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
5.6
Chapter 5
51
Disadvantages of Electronic Brainstorming
Greater expense
No automatic acceptance of ideas because
of ones position
Some find it difficult to express themselves
in writing
Lack of typing skills can frustrate
participants
5.6
Chapter 5
52

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Chapter

What Would You Do?

Sales of Yuengling beer are up 225%

Youve identified five options:

Add new storage and finishing tanks

Whats the best way to evaluate these options and

discuss the benefits and pitfalls of planning.

How to Make a Plan That Works

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

Starbucks: In fiscal 2006, we

Walgreen: Second is to hire a

UPS: 65% of drivers will have

Wrigley: In 2005, the company

Halliburton: We estimate that

Martha Stewart Living

Developing Commitment to Goals

Setting goals participatively

Developing Effective Action Plans

Planning from Top to Bottom

Adapted from Exhibit 5.5

Starting at the Top

Planning Time Lines

Bending in the Middle

1. Discuss possible goals

4. Meet to review progress

What Really Works

MBO is based on goals, participation and feedback

Finishing at the Bottom

Kinds of Operational Plans

What Is Rational Decision Making?

explain the steps and limits to rational

What Is Rational Decision Making?

Rational Decision Making

Steps to Rational Decision Making

Steps to Rational Decision Making

Problem exists when there is a gap between a

To make decisions about problems, managers

Defining the Problem

Steps to Rational Decision Making

Standards used to guide judgments and

The more criteria a potential solution meets,

Steps to Rational Decision Making

Steps to Rational Decision Making

Steps to Rational Decision Making

Steps to Rational Decision Making

The idea is to generate as many alternatives

Steps to Rational Decision Making

This step can take much longer and be more

Steps to Rational Decision Making

Limits to Rational Decision Making

Limits to Rational Decision Making

Using Groups to Improve

Group Decision Making

Group Decision Making

What Really Works

Considering Negative Consequences

Nominal Group Technique

Discussion is Held and

Member 3 Joins Group

Discussion is Held and

Discussion is Held and

Adapted From Exhibit 5.13

Overcomes production blocking