PLANNING & DECISION MAKING

Moumita Som Reg no :GREAT EASTERN MANAGEMENT SCHOOL, BANGALORE Year 2010-2011

CERTIFICATE
This is to certify that the Project work Planning & Decision Making is submitted to the college by the Candidate Ms. Moumita Som bearing Reg No. is the product of bonafide research carried out by the candidate Under my supervision in Principle of Management.

Bangalore 15th Jan 2011

(Guide)

Lecturer:- Principle of Management GREAT EASTERN ANAGEMENT SCHOOL BANGALORE

CONTENT
Acknowledgement Abstract 5 6

Chapter 1 Chapter 2 Chapter 3 Chapter 4 References Appendix

Introduction to Planning Introduction to Decision Making Case Studies Summary and conclusions

7 25 26- 46 47 50 51- 52

ACKNOWLEDGEMENT
The Project work was carried out G.S.Hedge Lecturer, under the remarkable guidance of Dr. I am grateful for his

Principle of Management.

guidance, valuable suggestions and for the constant encouragement and cooperation.

I also express my sincere gratitude and thanks to all the subjects participated in the study.

I owe the successful completion of my work to Ms. Mythri for her kind support.

ABSTRACT
Decision making no longer assumes a rational information processor, be it in business management or entrepreneurship. Emotions and conations interact with cognition. This is the received view. But what exactly are emotion and will? True to its title, this article begins by providing a firm grounding on emotions. Next, it considers conscious will: Is it a force or a feeling or is it an illusion? Moving on, this article briefly examines the complex concept of consciousness and its role in decision making from the Euro-American and the East Indian perspectives. Is there a little man, a homunculus, who makes decisions? It then considers an existing theory of planning as a cognitive process. The context for discussion is provided by a case history of an entrepreneur. It examines and highlights the infusion of emotional determinants at each step of the decision-making process. The final section of this article describes tests of executive functions that are biased towards analytic or synthetic aspects of planning..

Chapter 1 Introduction

Planning in organizations and public policy is both the organizational process of creating and maintaining a plan; and the psychological process of thinking about the activities required to create a desired goal on some scale. As such, it is a fundamental property of intelligent behavior. This thought process is essential to the creation and refinement of a plan, or integration of it with other plans, that is, it combines forecasting of developments with the preparation of scenarios of how to react to them. An important, albeit often ignored aspect of planning, is the relationship it holds with forecasting. Forecasting can be described as predicting what the future will look like, whereas planning predicts what the future should look like.[1] The term is also used for describing the formal procedures used in such an endeavor, such as the creation of documents, diagrams, or meetings to discuss the important issues to be addressed, the objectives to be met, and the strategy to be followed. Beyond this, planning has a different meaning depending on the political or economic context in which it is used. Two attitudes to planning need to be held in tension: on the one hand we need to be prepared for what may lie ahead, which may mean contingencies and flexible processes. On the other hand, our future is shaped by consequences of our own planning and actions. The counterpart to planning is spontaneous order.

Overview

Planning is a process for accomplishing purposes. It is a blue print of business growth and a road map of development. It helps in deciding objectives both in quantitative and qualitative terms. It is setting of goals on the basis of objectives and keeping in the resources. What should a plan be? A plan should be a realistic view of the expectations. Depending upon the activities, a plan can be long range, intermediate range or short range. It is the framework within which it must operate. For management seeking external support, the plan is the most important document
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and key to growth. Preparation of a comprehensive plan will not guarantee success, but lack of a sound plan will almost certainly ensure failure. Planning can be summarized in 3 easy steps: 1. choosing a destination, 2. evaluating alternative routes, and 3. deciding the specific course of your plan.

Purpose of a plan Just as no two organizations are alike, so also their plans. It is therefore important to prepare a plan keeping in view the necessities of the enterprise. A plan is an important aspect of business. It serves the following three critical functions:

Helps management to clarify, focus, and research their business's or project's development and prospects.

Provides a considered and logical framework within which a business can develop and pursue business strategies over the next three to five years.

Offers a benchmark against which actual performance can be measured and reviewed.

Importance of the planning process A plan can play a vital role in helping to avoid mistakes or recognize hidden opportunities. Preparing a satisfactory plan of the organization is essential. The planning know the business and that they have thought through its development in terms of products, management, finances, and most importantly, markets and competition. Planning helps in forecasting the future, makes the future visible to some extent. It bridges between where we are and where we want to go. Planning is looking ahead.

Types of plans or planning

Architectural planning Business plan Comprehensive planning

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Economic planning Enterprise Architecture Planning Event Planning and Production Family planning Financial planning Land use planning Life planning Marketing plan Network resource planning Strategic planning Succession planning Urban planning Operational planning Contingency planning

Objectives and policies

The objectives The objectives are general parts of the planning process. They are the end-results towards which all business activities are directed. They are needed in every aspect where performance and result directly and vitally affect the survival and success of the firm. In other words, the objective of the firm justifies its existence. Newman and Summer stated, "For managerial purposes, it is useful to think of objectives as the results we want to achieve. Objective covers firm's long-range plans specific departmental goals and short-term individual assignment also." The policies Policies are specific guidelines and constraints for managerial thinking on decision-making and action. Policies provide the framework within which decision-makers are expected to
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operate while making organizational decisions. They are the basic guides to be consistent in decision-making.

Planning basics
Essentials of planning Planning is not done off hand. It is prepared after careful and extensive research. For a comprehensive business plan, management has to: Clearly define the target/goal in writing. It should be set by a person having authority. The goal should be realistic.It should be specific. Acceptability Easily measurable Identify all the main issues which need to be addressed. Review past performance. Decide budgetary requirement. Focus on matters of strategic importance. What are requirements and how will they be met? What will be the likely length of the plan and its structure? Identify shortcomings in the concept and gaps. Strategies for implementation. Review periodically. Define strategies and activities.

Applications In organizations Planning is also a management process, concerned with defining goals for

future organizational performance and deciding on the tasks and resources to be used in order to attain those goals. To meet the goals, managers may develop plans such as a business plan or a marketing plan. Planning always has a purpose. The purpose may be achievement of certain goals or targets. The planning helps to achieve these goals or target by using the available time and resources. To minimize the timing and resources also require proper planning. The concept of planning is to identify what the organization wants to do by using the four questions which are "where are we today in terms of our business or strategy planning? Where are we going? Where do we want to go? How are we going to get there?..."[3]

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In public policy Planning refers to the practice and the profession associated with the idea of planning an idea you (land use planning, urban planning or spatial planning). In many countries, the operation of a town and country planning system is often referred to as "planning" and the professionals which operate the system are known as "planners". It is a conscious as well as sub-conscious activity. It is "an anticipatory decision making process" that helps in coping with complexities. It is deciding future course of action from amongst alternatives. It is a process that involves making and evaluating each set of interrelated decisions. It is selection of missions, objectives and "translation of knowledge into action." A planned performance brings better results compared to an unplanned one. A manager's job is planning, monitoring and controlling. Planning and goal setting are important traits of an organization. It is done at all levels of the organization. Planning includes the plan, the thought process, action, and implementation. Planning gives more power over the future. Planning is deciding in advance what to do, how to do it, when to do it, and who should do it. This bridges the gap from where the organization is to where it wants to be. The planning function involves establishing goals and arranging them in logical order.

Classification of Planning Plans may be classified by short- or long-term, by function, or by breadth or scope. Long-term plans are done at upper management levels and encompass a number of years, such as moving into another market sector. These long-term plans are usually strategic plans designed to identify, determine, and shape the direction of the organization. Short-term plans are done at lower management levels and encompass a short period of time, such as for a project or budget. These plans are usually operational plans helping with day-to-day operation.

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Function plans may be developed for key organizational functions, such as engineering or finance. Each of these plans could be evaluated for potential conflicts between functional areas.

Breadth or scope plans may address objectives, policies, procedures, methods, or rules. Objectives provide general statements about the mission of the organization or what is to be done. These objectives filter down through the organizational hierarchy where plans are created to achieve them.

Policies are implemented to accomplish objectives and are general guides to action, such as "Subcontracts will not be used unless the company does not have the resources and expertise to accomplish the work".

Procedures give the steps for accomplishing the policies, such as standard operating procedures which show the set of steps, for example, in writing a proposal.

Methods are detailed plans showing the sequence of individual tasks to complete a specific assignment, such as how to complete a prototype design. Rules are prescribed standards of behavior and place restrictions on employee behavior, such as dress codes, smoking regulations, and sexual harassment preventives.

If plans are prolific, employees may be over constrained and have little freedom to do their work. If there are no plans, employees will be frustrated by not knowing what to do.

Plans succeed when they are used, monitored, and changed as work progresses. Plans fail if they are not kept up-to-date, realistic, or clear.

Importance of Planning The importance of the planning function should have be clear to you. We can outline the importance of planning function as follows:
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Provides Direction: Planning provides a clear sense of direction to the activities of the organization and to the job behavior of managers and others. It strengthens their confidence in understanding where the organization is heading and what for, how best to make the organization move along the chosen path, and when should they take what measures to achieve the goals of the organization.

Provides opportunity to analyze alternative courses of action: Another source of importance of planning is that it permits managers to examine and analyze alternative course of action with a better understanding of their likely consequences. If managers have an enhanced awareness of the possible future effects of alternative courses of action, for making a decision or for taking any action, they will be able to exercise judgment and proceed cautiously to choose the most feasible and favorable course of action.

Reduces uncertainties: Planning forces managers to shake off their inertia and insular outlook; it induces them to look beyond those noses, beyond today and tomorrow, and beyond immediate concerns. It encourages them to probe and cut through complexities and uncertainties of the environment and to gain control over the elements of change.

Minimizes impulsive and arbitrary decisions: Planning tends to minimize the incidence of impulsive and arbitrary decisions and ad hoc actions; it obviates exclusive dependence on the mercies of luck and chance elements; it reduces the probability of major errors and failures in managerial actions. It injects a measure of discipline in managerial thinking and

organizational action. It improves the capability of the organization to assume calculated risks. It increases the freedom and flexibility of managers within well-defined limits.
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King-pin function: As stated earlier, planning is a prime managerial function which provides the basis for the other managerial functions. The organizational structure of task and authority roles is built around organizational plans. The functions of motivation, supervision, leadership and communication are addressed to implementation of plans and achievement of organizational objectives. Managerial control is meaningless without managerial planning. Thus, planning is the king-pin function around which other functions are designed.

Resource Allocation: Planning is means of judicious allocation of strategic and scarce resources of the organization in the best possible manner for achieving strategic goals of the organization. The strategic resources include funds, highly competent executives,

technological talent, good contacts with government, exclusive dealer network and so on. If the organization enjoys a distinct advantage in possession of such resources, a careful planning is essential to allocate them into those lines which would strengthen the overall competitive position of the organization.

Resource use efficiency: For an ongoing organization, planning contributes towards a more efficient functioning of the various work units. There is better utilization of the organization's existing assets, resources and capabilities. It prompts managers to close gaps, to plug loopholes, to rectify deficiencies, to reduce wastage and leakages of funds, materials, human efforts and skills so as to bring about an overall improvement in resource use efficiency.

Adaptive responses: Planning tends to improve the ability of the organization to effectively adapt and adjust its activities and directions in response to the changes taking place in the
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external environment. An adaptive behavior on the part of the organization is essential for its survival as an independent entity. For a business organization, for example, adaptive behavior is critical in technology, markets, products and so on.

Anticipative action: While adaptation is a behavior in reaction and response to some changes in the outside world, it is not enough in some situations. In recognition of this fact, planning stimulates management to act, to take hold initiatives, to anticipate crises and threats and to ward them off, to perceive and seize opportunities ahead of other competitions, and to gain a competitive lead over others. For the purpose, some enterprises establish environmental scanning mechanism as part of their planning systems. Thereby such enterprises are able to direct and control change, instead of being directed and controlled by the pervasive external forces of change.

Integration: Planning is an important process to bring about effective integration of the diverse decisions and activities of the managers not only at a point of time but also over a period of time. It is by reference to the framework provided by planning that managers make major decisions on organizational activities, in an internally consistent manner.

Advantages & Potential Disadvantages of Planning

Key Advantages The advantages of succession planning include the opportunity to:

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Conduct a SWOT analysis of the business to determine its leadership needs now and in the coming years

Develop a strategic Leadership Human Resource Plan that includes comprehensive position descriptions, needs analysis and plans to bridge the gaps

Build relationships with and carefully study the performance and behavior of successors over a long period of time

Provide a sense of direction, stability and expectations for all key stakeholders: employees, customers, shareholders and vendors

Retain a critically important employee who might otherwise leave if not formally recognized as the successor

Key Disadvantages Its difficult to think that there might be disadvantages to succession planning but here are some things to consider:

Appointing the wrong person can lead to a variety of problems that result in poorer company performance and turnover

Pulling the trigger too quickly to appoint someone only to have a better candidate appear later on

Engaging in succession planning when the business is immature may lead to erroneous conclusions about leadership needs

A poorly conducted succession planning process will lead to poor decisions, disharmony and ultimately poor company performance as well

Lets take a second to look a little closer at these key advantages and disadvantages of succession planning.

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The business SWOT analysis paints a picture of the opportunities and threats in the market, importantly including, what the future of the market looks like and what the special characteristics are that effective leaders will need. The strategic Human Resource Plan is where the rubber meets the road for solving your leadership needs. It includes understanding your leadership needs, creating an organizational plan, developing comprehensive position descriptions to fill those needs and then comparing that to the experience and attributes of internal and external candidates. Internal successor candidates would then receive training to help them become the leaders they will be needed to be. The ability to monitor the performance of internal candidates closely and external candidates to a lesser extent is a great advantage of succession planning. Generally speaking, the availability of more data regarding a persons performance in a variety of situations, the better we can predict their success. Not to be underestimated is the value of managing the expectations of stakeholders via succession planning. Knowing who will be taking over and being confident about that decision matters greatly to shareholders, customers, employees and vendors. Succession which are well managed can be communicated and marketed effectively to all of these groups so that they are pleased with the companys leadership direction. A critically important employee, especially one who knows their value, may not stick around without a succession process that demonstrates the companys commitment to them. They may or may not accept casual verbal comments of support as adequate proof of a commitment to them. The wrong successor will not optimize the firms future. Missing out on the opportunity to hire a better successor will be painful, especially if they go work for a competitor. An immature business may not be capable or have enough information to develop an effective succession plan. It may be better to wait a few years until maturity sets in.
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Even worse than not doing succession planning is doing it poorly. Making poor decisions is never a good practice and this will happen if proper thought, time and consideration are applied. Done well, the advantages outweigh the disadvantages So, in weighing the advantages and disadvantages of succession planning, keep these factors in mind. If you are committed to an excellent process, youll find that the advantages greatly outweigh the disadvantages. An incompetent or half hearted effort reverses this. Succession planning, done well, is an important ingredient in the long term success of your business.

Contingency Based Planning

Contingency-Based Planning deals with uncertainly by identifying specific responses to possible future conditions. A contingency-based plan consists of various if-then statements that define the solutions to be deployed as needed: if a particular problem occurs then we will implement a set of solutions, and if those prove to be insufficient then we will implement an additional set. For example, a contingency-based parking plan might initially allow developers to build fewer parking spaces than normally required provided that they identify the solutions that will be implemented if that proves inadequate. Contingency-based planning recognizes that the future is impossible to predict and conditions may change, and so it is often best to apply flexible and responsive solutions. Because such solutions are only implemented if actually needed and can be adjusted to reflect future conditions, this is usually most efficient. Contingency-based planning is particularly important when trying innovative solutions, and

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when future conditions are uncertain or variable, such as during periods of rapid growth and economic change, or to deal with special events and disasters

Principles of Effective Planning

The following help achieve effective planning. Planning should be integrated, so individual, short-term decisions are consistent with broader, Strategic goals. Analysis should be comprehensive, reflecting all significant perspectives, impacts and objectives. A broad range of options and impacts should be considered. Planners should be objective, fair and respectful. Insure adequate public involvement. Stakeholders should be kept informed and have opportunities for involvement. Clearly define the goals (what you ultimately want), and regularly revisit the question, what exactly are we trying to accomplish? The planning process should be understood by all stakeholders, with clearly defined vision or problem statement, goals, objectives, evaluation criteria and performance indicators. Consider a wide range of possible solutions including some that may initially seem unrealistic but could be appropriate as part of an integrated program. Support innovation: recognizing that some new strategies fail, but even unsuccessful experiments provide useful information. Identify resources, constraints, and conflicts. Draw attention to potential problems. Make sure results are comprehendible to the intended audience, using suitable language and visual information (graphs, maps, images, etc.). Highlight differences between options.

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Identify and avoid token solutions which fail to really address a problem. Modest actions may be appropriate if it is the beginning but not the end of more substantial solutions.

Be prepared for setbacks. A planning process sometimes initially fails, but succeed if repeated due to changing circumstances, more stakeholder understanding and commitment.

Changes should be implemented as predictably and gradually as possible. When appropriate use contingency-based planning, which identifies a wide range of potential solutions and implements the most cost-effective strategies justified at each point in time, with additional strategies available for quick deployment if needed in the future.

Plan Types

Organizational Plan

Standing Plans

Single-Use Plan

Policies

Procedures

Rules

Programmes

Budgets

Fig 1.1 Type of Organizational Plan

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Planning is a crucial element of starting and operating a business. Entrepreneurs create plans to address an array of issues. Plans help business owners to think through complex processes and address each of a series of requirements to accomplish certain goals. Managers draft both standing plans and single-use plans to address the range of challenges they confront in their leadership roles. Understanding the difference between the two can help you to create effective business plans.

Standing Plans Standing plans are used over a long period of time, sometimes indefinitely, and can be altered to adapt to changing circumstances. A standing plan is often created with input from a wide range of individuals over a longer period of time than single-use plans. Standing plans generally encompass a wider scope than single-use plans, involving more than one department or business function. Single-Use Plans Single-use plans are created to address short-term challenges or provide guidance for shortterm initiatives. Single-use plans can be created in teams or by individual managers. The scope of these plans is generally smaller than the scope of standing plans. For example, singleuse plans can be created for specific work groups or departments to guide their contributions to short-term company objectives.

Examples:

Business plans are an ideal example of a standing plan. Entrepreneurs draft business plans before opening the doors to their business, and they can use their plan to guide their efforts for years into the future. Initially used to guide business owners through the process of addressing every aspect of their operations and finances, as well as to attract lenders and investors, business plans can also guide future product development initiatives, marketing campaigns and other strategic decisions.
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An outline for an advertising campaign is an example of a single-use plan. An ad campaign plan may contain the number and types of advertisements to be used in the campaign, the specific outlets that will be used, and the frequency and duration of the advertisements' exposures. After the campaign runs its course, the short-term plan will lose its relevance, except as a guide for creating future plans.

Correlation

Single-use plans and standing plans are not always used independently. You can often find single-use plans used within standing plans to aid in accomplishing the grand goals of the standing plans. Consider a 20-year plan to maintain market dominance through frequent new product introductions, for example. This plan is likely to require a large number of smaller product development and marketing plans, as well as plans for developing and retaining the top talent in the industry. Steps Involved in Effective Planning

The process of strategic planning involves four major steps viz. development, testing, implementation and maintenance. The planning process as a whole, plays an important role in the functioning of an organization.

A process followed by organizations through various procedures and operations, in order to reach the state that is envisioned by the management of the company is called strategic planning. The future course of a company is decided with the help of strategic planning. Various techniques of analyzing the company's performance such as the SWOT (Strengths, Weaknesses, Opportunities and Threats), STEER (Socio-cultural, Technological, Economic, Ecological, and Regulatory factors) and PEST (Political, Economic, Social, and Technological analysis) are used in strategic planning.
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Steps in Strategic Planning Process

The important steps in the strategic planning process include plan development, testing, implementation and the maintenance phase.

Plan Development This step in strategic planning is subdivided into four phases i.e. visioning, mission formulation, business modeling and strategy development.

Visioning: It is an activity of forming an idealized image of the company's future position. It is the driving force in guiding the company's progress towards goals.

Mission Formulation: It is a brief description about the purpose of an organization's existence. It explains the company's services or products, the segmentation of the market, the distribution strategy, etc.

Business Modeling: This activity involves identifying the Lines of Business (LOB) and establishing the Critical Success Indicators (CSI).

Strategy Development: This process identifies the thrust areas and provides a culture that helps meet the goals specified under the thrust areas.

Testing the Plan This phase of strategic planning involves performance audit and gap analysis.

Performance Audit: It helps gauge the ability of an organization in reaching the targets set. In this process, the line of business that helps in moving the business forward are identified. The performance of tracking systems is checked. The strengths and weaknesses of the organization are identified with the help of the SWOT test. The ability to grab opportunities and overcome threats is also tested. Risk assessment is a
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part of the performance audit. In this activity, the hidden risks that might affect the company in the future are uncovered. It helps in dealing with the problems effectively.

Gap Analysis: It helps in determining where the company stands, in terms of achieving targets. The difference between the current and the desired position of the company is marked with the help of gap analysis.

Implementation This phase of the planning process deals with implementation of the plans devised by the company. It is checked whether there is a consensus among employees in following a set plan. It is also checked whether the plans affect the inter-functional performance of different departments. Human capital planning is a part of the implementation phase. It stresses on the importance of having the right people at the right positions in an organization. The Balanced Scorecard is a method used to monitor the implementation of business strategies. It checks the effects of methods and businesses adopted in implementing business strategy. The balanced scorecard method operates within the framework of the following points

Customer orientation Financial objectives and measurements Learning and capability growth Internal Processes

Maintenance It is a kind of feedback system which helps in taking corrective action to deal with problems in the planning process.

Planning helps in meeting the objectives or goals of an organization in an effective manner. The plans that are prepared also help in monitoring the implementation of an activity. Thus, strategic planning is an important activity from the point of view of the development of an organization.

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Chapter 2 Decision making

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Decision making can be regarded as the mental processes (cognitive process) resulting in the selection of a course of action among several alternatives. Every decision making process produces a final choice. The output can be an action or an opinion of choice.

Overview
Human performance in decision-making terms has been the subject of active research from several perspectives. From a psychological perspective, it is necessary to examine individual decisions in the context of a set of needs, preferences an individual has and values they seek. From a cognitive perspective, the decision making process must be regarded as a continuous process integrated in the interaction with the environment. From a normative perspective, the analysis of individual decisions is concerned with the logic of decision makingand rationality and the invariant choice it leads to. Yet, at another level, it might be regarded as a problem solving activity which is terminated when a satisfactory solution is found. Therefore, decision making is a reasoning or emotional process which can be rational or irrational, can be based on explicit assumptions or tacit assumptions. Logical decision making is an important part of all science-based professions, where specialists apply their knowledge in a given area to making informed decisions. For example, medical decision making often involves making a diagnosis and selecting an appropriate treatment. Some research using naturalistic methods shows, however, that in situations with higher time pressure, higher stakes, or increased ambiguities, experts use intuitive decision making rather than structured approaches, following a recognition primed decision approach to fit a set of indicators into the expert's experience and immediately arrive at a satisfactory course of action without weighing alternatives. Recent robust decision efforts have formally integrated uncertainty into the decision making process. However, Decision Analysis, recognized and included uncertainties with a structured and rationally justifiable method of decision making since its conception in 1964.

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A major part of decision making involves the analysis of a finite set of alternatives described in terms of some evaluative criteria. These criteria may be benefit or cost in nature. Then the problem might be to rank these alternatives in terms of how attractive they are to the decision maker(s) when all the criteria are considered simultaneously. Another goal might be to just find the best alternative or to determine the relative total priority of each alternative (for instance, if alternatives represent projects competing for funds) when all the criteria are considered simultaneously. Solving such problems is the focus of multi-criteria decision analysis (MCDA) also known as multi-criteria decision making (MCDM). This area of decision making, although it is very old and has attracted the interest of many researchers and practitioners, is still highly debated as there are many MCDA / MCDM methods which may yield very different results when they are applied on exactly the same data.[3] This leads to the formulation of a decision making paradox.

Problem Analysis vs Decision Making

It is important to differentiate between problem analysis and decision making. The concepts are completely separate from one another. Problem analysis must be done first, then the information gathered in that process may be used towards decision making. Problem Analysis Analyze performance, what should the results be against what they actually are Problems are merely deviations from performance standards Problem must be precisely identified and described Problems are caused by some change from a distinctive feature Something can always be used to distinguish between what has and hasn't been effected by a cause Causes to problems can be deducted from relevant changes found in analyzing the problem Most likely cause to a problem is the one that exactly explains all the facts

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Decision Making Objectives must first be established Objectives must be classified and placed in order of importance Alternative actions must be developed The alternative must be evaluated against all the objectives

The alternative that is able to achieve all the objectives is the tentative decision The tentative decision is evaluated for more possible consequences

The decisive actions are taken, and additional actions are taken to prevent any adverse consequences from becoming problems and starting both systems (problem analysis and decision making) all over again

Factor Affecting Decision Making

Whenever we are involved in making decisions a number of factors can affect the process we follow and ultimately the decision we make. We can organize the factors affecting decision making into three major groups:

Perception Issues Organizational Issues Environmental Issues

Perception Issues: Perception can be described as the way in which individuals interpret their environment. An individual's perception can influence how they make decisions and solve problems. For example, when information about a problem needs to be gathered the individual's perception

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will impact on where the information is sought and the type of information regarded as relevant. Perception can be influenced by the following:

The perceiver The object The situation

The Perceiver The perceiver, the individual perceiving the object, will be heavily influenced by their personal characteristics. The types of personal characteristics that can affect an individual's perception include:

Background and experience Personal values Personal expectations Personal interests

The Object The object, which refers to any person, item or event can have an impact on the way it is perceived. For example, when a manager receives a number of reports to read he may be more inclined to read the one with the most colourful cover as this one stands out. The relation an object has to other objects can also affect the perception of the perceiver. For example, an individual team member may be judged on the actions of the whole team even when it is more appropriate for them to be judged on their own merits. The Situation

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Time, location and other situational factors can influence our perception of an object. For example, a Team Leader may notice team members who work late on the same evenings as the Team Leader. However, team members who work late on other evenings may not be noticed by the Team Leader. Issues within the Organization: A number of organisational issues can impact on the decision making process. These issues include:

Policies and procedures Organisational hierarchy Organisational politics

Policies and Procedures Many organisations have formalised policies and procedures which have been developed to resolve common problems and to guide managers when making decisions. For example, many organisations have documented disciplinary procedures which guide managers through a process of resolving issues with staff members. Organisational Hierarchy Organisational hierarchy refers to the management structure of the organisation. Most organisations have different levels of management which carry with them different degrees of authority. The degree of authority directly impacts on the nature of the decisions an individual can make. For example, a Customer Contact Centre Team Leader cannot make decisions about the overall goals of the organisation. However, the Team Leader can make decisions about how their team contributes to the achievement of the organisation's goals. Organisational Politics

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Organisational politics refers to behaviour displayed by individuals and groups which is designed to influence others. Individuals and teams will often use politics to:

Advance their careers Advance their interests and ideas Increase their rewards

Organisations are made up of individuals with different beliefs, values and interests. These differences are often the driving forces behind organisational politics. For example, two teams believe they require an extra team member. Unfortunately the organisation can only afford one new employee. The two teams may well use politics in an attempt to influence their manager to allocate the new employee to their team. Issues within the Environment: Environmental issues are the external factors that affect the organisation. The types of external factors that can have an effect on decision making include:

The market in which the organisation operates The economy Government legislation Customers' reaction to the organizations products and services

For example, B&B online decided to create a new team, B&B for Busy Bodies because they believed that a corporate market existed for the bed and breakfast industry.

Common Decision Making Mistakes

Many of the factors which affect the decision making process can lead to mistakes being made. By being aware of the types of mistakes that can be made and by understanding the reasons for the mistakes a Team Leader is in a better position to avoid making them. Some common mistakes that decision makers should be aware of include:
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Only hearing and seeing what we want. Each individual has their own unique set of preferences or biases which blinker them to certain information. The best way to deal with this problem is to identify your preferences and biases whilst attempting to be open to the information around you.

Placing too great a reliance on the information you receive from others. Often we rely on certain individuals to provide support and guidance. This may be a suitable course of action in many cases. However, if the individual is not closely involved in the problem situation they may not have the necessary information or knowledge to help make the decision.

Placing too little emphasis on the information you receive from others. This issue can easily occur in a team situation. In many cases the team members are the people who are most closely involved in a problem situation and they often have the most pertinent information in relation to the problem. The best way to deal with this issue is to ensure that team members are involved in the decision making process.

Ignoring your intuition. On many occasions we are actually aware at a subconscious level of the correct course of action. Unfortunately, we often tend to ignore our intuition.

Everyday techniques
Some of the decision making techniques people use in everyday life include:

Pros and Cons: Listing the advantages and disadvantages of each option, popularized by Plato and Benjamin Franklin

Simple Prioritization: Choosing the alternative with the highest probabilityweighted utility for each alternative (see Decision Analysis) or

derivative Possibilianism: Acting on choices so as not to preclude alternative understandings of equal probability, including active exploration of novel possibilities and emphasis on the necessity of holding multiple positions at once if there is no available data to privilege one over the others.
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Satisfying: Accepting the first option that seems like it might achieve the desired result

Acquiesce to a person in authority or an "expert", just following orders Flipism: Flipping a coin, cutting a deck of playing cards, and other random or coincidence methods

Prayer, tarot cards, astrology, augurs, revelation, or other forms of divination

Decision-Making Stages
Developed by B. Aubrey Fisher, there are four stages that should be involved in all group decision making. These stages, or sometimes called phases, are important for the decisionmaking process to begin Orientation stage- This phase is where members meet for the first time and start to get to know each other. Conflict stage- Once group members become familiar with each other, disputes, little fights and arguments occur. Group members eventually work it out. Emergence stage- The group begins to clear up vague in opinions is talked about. Reinforcement stage- Members finally make a decision, while justifying themselves that it was the right decision.

Decision-Making Steps
When in an organization and faced with a difficult decision, there are several steps one can take to ensure the best possible solutions will be decided. These steps are put into seven effective ways to go about this decision making process (McMahon 2007). The first step - Outline your goal and outcome. This will enable decision makers to see exactly what they are trying to accomplish and keep them on a specific path. The second step - Gather data. This will help decision makers have actual evidence to help them come up with a solution.
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The third step - Brainstorm to develop alternatives. Coming up with more than one solution ables you to see which one can actually work. The fourth step - List pros and cons of each alternative. With the list of pros and cons, you can eliminate the solutions that have more cons than pros, making your decision easier. The fifth step - Make the decision. Once you analyze each solution, you should pick the one that has many pros (or the pros that are most significant), and is a solution that everyone can agree with. The sixth step - Immediately take action. Once the decision is picked, you should implement it right away. The seventh step - Learn from, and reflect on the decision making. This step allows you to see what you did right and wrong when coming up, and putting the decision to use.

Cognitive and personal biases

Biases can creep into our decision making processes. Many different people have made a decision about the same question (e.g. "Should I have a doctor look at this troubling breast cancer symptom I've discovered?" "Why did I ignore the evidence that the project was going over budget?") and then craft potential cognitive interventions aimed at improving decision making outcomes. Below is a list of some of the more commonly debated cognitive biases.

Selective search for evidence (a.k.a. Confirmation bias in psychology) (Scott Plous, 1993) We tend to be willing to gather facts that support certain conclusions but disregard other facts that support different conclusions. Individuals who are highly defensive in this manner show significantly greater
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left prefrontal cortex activity as measured by EEG than do less defensive individuals.

Premature termination of search for evidence We tend to accept the first alternative that looks like it might work. Inertia Unwillingness to change thought patterns that we have used in the past in the face of new circumstances. Selective perception We actively screen-out information that we do not think is important. (See prejudice.) In one demonstration of this effect, discounting of arguments with which one disagrees (by judging them as untrue or irrelevant) was decreased by selective activation of right prefrontal cortex.[6]

Wishful thinking or optimism bias We tend to want to see things in a positive light and this can distort our perception and thinking.[7]

Choice-supportive bias occurs when we distort our memories of chosen and rejected options to make the chosen options seem more attractive. Recency We tend to place more attention on more recent information and either ignore or forget more distant information. (See semantic priming.) The opposite effect in the first set of data or other information is termed Primacy effect (Plous, 1993).

Repetition bias A willingness to believe what we have been told most often and by the greatest number of different sources. Anchoring and adjustment Decisions are unduly influenced by initial information that shapes our view of subsequent information. Group think Peer pressure to conform to the opinions held by the group. Source credibility bias We reject something if we have a bias against the person, organization, or group to which the person belongs: We are inclined to accept a statement by someone we like. (See prejudice.)

Incremental decision making and escalating commitment We look at a decision as a small step in a process and this tends to perpetuate a series of similar decisions. This can be contrasted with zero-based decision making. (See slippery slope.)
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Attribution asymmetry We tend to attribute our success to our abilities and talents, but we attribute our failures to bad luck and external factors. We attribute other's success to good luck, and their failures to their mistakes.

Role fulfillment (Self Fulfilling Prophecy) We conform to the decision making expectations that others have of someone in our position. Underestimating uncertainty and the illusion of control We tend to underestimate future uncertainty because we tend to believe we have more control over events than we really do. We believe we have control to minimize potential problems in our decisions.

Cognitive styles

Influence of Briggs Myers type According to behavior list Isabel Briggs Myers, a person's decision making process depends to a significant degree on their cognitive style. Myers developed a set of four bi-polar dimensions, called the Myers-Briggs Type Indicator (MBTI). The terminal points on these dimensions are: thinking and feeling; extroversion and introversion; judgment and perception; and sensing and intuition. She claimed that a person's decision making style correlates well with how they score on these four dimensions. For example, someone who scored near the thinking, extroversion, sensing, and judgment ends of the dimensions would tend to have a logical, analytical, objective, critical, and empirical decision making style. However, some psychologists say that the MBTI lacks reliability and validity and is poorly constructed. Other studies suggest that these national or cross-cultural differences exist across entire societies. For example, Maris Martinsons has found that American, Japanese and Chinese business leaders each exhibit a distinctive national style of decision making.

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Optimizing vs. satisfying Herbert Simon coined the phrase "bounded rationality" to express the idea that human decision-making is limited by available information, available time, and the informationprocessing ability of the mind. Simon also defined two cognitive styles: maximizers try to make an optimal decision, whereas satisficers simply try to find a solution that is "good enough". Maximizers tend to take longer making decisions due to the need to maximize performance across all variables and make tradeoffs carefully; they also tend to more often regret their decisions. Combinatorial vs. positional Styles and methods of decision making were elaborated by the founder of Pre dis-positioning Theory, Aron Katsenelinboigen. In his analysis on styles and methods Katsenelinboigen referred to the game of chess, saying that chess does disclose various methods of operation, notably the creation of predispositionmethods which may be applicable to other, more complex systems. In his book Katsenelinboigen states that apart from the methods (reactive and selective) and sub-methods (randomization, pre dis-positioning, programming), there are two major styles positional and combinational. Both styles are utilized in the game of chess. According to Katsenelinboigen, the two styles reflect two basic approaches to the uncertainty: deterministic (combinational style) and in deterministic (positional style). Katsenelinboigens definition of the two styles are the following.

Business Decision Mapping

Business Decision Mapping (BDM) is a technique for making decisions, particularly the kind of decisions that often need to be made in business. It involves using diagrams to help articulate and work through the decision problem, from initial recognition of the need through to communication of the decision and the thinking behind it.
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BDM is designed for use in making deliberative decisions - those made based on canvassing and weighing up the arguments. It is also qualitative - although numbers may be involved, the main considerations are qualitatively specified and there is no calculation-based route to the right decision. In these two key elements, BDM is similar to the natural or typical way of making decisions. However, it differs from typical, informal decision making by providing a structured, semiformal framework, and using visual language, taking advantage of our ability to grasp and make sense of information faster and more easily when it is graphically presented. BDM is centered on the creation of a decision map - a single diagram that brings together in one organized structure all the fundamental elements of a decision, and that functions as a focus of collaboration. BDM aims to support the decision process, making it easier, more reliable and more accountable. It addresses some major problems that can afflict business decision making the way it is generally done, including stress, anxiety, time pressure, lost thinking and inefficiency. By mapping the decision problem, the options, the arguments and all relevant evidence visually using BDM, the decision maker can avoid holding a large amount of information in his or her head, is able to make a more complete and transparent analysis and can generate a record of the thinking behind the final decision.

Related methodologies

Business Decision Mapping is related to:

Dialogue mapping, a method for building shared understanding through a structured representation of group communication, developed by Jeff Conklin of the CogNexus Institute. Dialogue mapping and Business Decision Mapping use the 'grammar' of IBIS, a well-established methodology developed by Horst Rittel for tackling wicked problems.

Argument mapping, the graphical representation of the structure of an argument, often used in the teaching of reasoning and critical thinking. Mind mapping, in which a diagram is used to structure and classify ideas by linking them radially around a central key word or idea. There are no formal restrictions on the type of links used.
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Minto Pyramid Principle, a process for organizing ideas in order to write compelling business documents, developed by Barbara Minto.

Types of Decision Making

Are different types of decision making needed for different types of decisions? We think so.

Although this may seem obvious it's not always understood. And even when it is, decision types may not be fully considered when decisions are being made. Improve your decision making by considering some important variables. In this article we introduce our series on types of decision making. From here you can link to pages which explain how decisions are affected by such variables as:

Decision levels - An Initial Decision Making Technique Decision styles - Decision Making Styles Decision processes (rational) - Rational Decision Making Model Decision processes (intuitive) - Intuition and Decision Making

According to Ohio State University management professor, Paul C. Nutt, we only get about 50% of our decisions in the workplace right! Half the time they are wrong, so there is clearly plenty of scope to improve on our decision making processes. Hopefully this series of articles will help you to imrove those odds. Perhaps the obvious place to start is to ensure a decision really needs to be made. If you haven't done so already, you might like to read our article: Decision Making Lesson 1: Do

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You Need to Make One! Once you've done this, and you're sure a decision needs to be made, the next thing to think about is the level of decision that needs to be made. The first of our types of decision making variables is the level of the decision. When faced with a decision, try asking yourself questions such as: How complex is the decision? How important is the decision? How strategic is the decision?

Our article: An Initial Decision Making Technique addresses these questions and more. Use it to help you make an intial assessment of the level of decision you're about to make. For example, the level of engagement you may need from others or the level of risk possibly associated with making the decision. It will help you to filter decision making variables before adopting an appropriate decision making process.

Rational Decision Making

A rational decision making model provides a structured and sequenced approach to decision making. Using such an approach can help to ensure discipline and consistency is built into your decision making process. As the word rational suggests, this approach brings logic and order to decision making. Our rational decision making model consists of a series of steps, beginning with problem/opportunity identification, and ending with actions to be taken on decisions made.

According to Ohio State University management professor, Paul C. Nutt, we only get about 50% of our decisions in the workplace right! Half the time they are wrong, so there is clearly plenty of scope to improve on our decision making processes. Based on his research into over 300 decisions, made in a range of organizations, he discovered that "some tactics with a good track record are commonly known, but uncommonly practiced."
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Why? Well one reason that emerged from his research is that: "too often, managers make bad tactical selections ..... because they believe that following recommended decision-making practices would take too much time and demand excessive cash outlays." Nutt argues that using good decision making practices actually costs very little. Models such as our rational decision making model are essential tools to help you improve the way you make decisions.

This article is part of our series on decision making. Our first article, making outlines a range of decision making approaches. Rational decision making forms part of what we have termed types of decision, categorized by process. In this category we have put two contrasting approaches, that of rational decision making and that of judgment or intuitive decision making. A General Rational Decision Making Model Rational decision making processes consist of a sequence of steps designed to rationally develop a desired solution.

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Fig 2.1 typically these steps involve: Identifying a problem or opportunity The first step is to recognize a problem or to see opportunities that may be worthwhile. A rational decision making model is best employed where relatively complex decisions have to be made. The first decision making lesson should be to ask yourself if you really have a

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problem to solve or a decision to make. Then read this article for more specific advice: Problem Solving Skill: Finding the Right Problem to Solve. Gathering information What is relevant and what is not relevant to the decision? What do you need to know before you can make a decision, or that will help you make the right one? Analyzing the situation What alternative courses of action may be available to you? What different interpretations of the data may be possible? Our Problem Solving Activity uses a set of structured questions to encourage both broad and deep analysis of your situation or problem. Developing options Generate several possible options. Be creative and positive. Read The Power of Positive Thinking for our five questions that create possibilities. Evaluating alternatives What criteria should you use to evaluate? Evaluate for feasibility, acceptability and desirability. Which alternative will best achieve your objectives? Selecting a preferred alternative Explore the provisional preferred alternative for future possible adverse consequences. What problems might it create? What are the risks of making this decision? Acting on the decision Put a plan in place to implement the decision. Have you allocated resources to implement? Is the decision accepted and supported by colleagues? Are they committed to making the decision work?.
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Strengths and Weaknesses of the Rational Decision Making Model The main strength of a rational decision making model is that it provides structure and discipline to the decision making process. It helps ensure we consider the full range of factors relating to a decision, in a logical and comprehensive manner. However, we should always remember that whilst the model indicates what needs to be done, it's often how things are done that characterizes effective decision making. Paul C. Nutt's research illustrates that bad decisions were usually bad because two things were missing: 1. Adequate participation of stakeholders in the decision making process. 2. Sufficient time spent generating a range of possible solutions. Too often those who should have been involved weren't, and solutions were proposed and acted upon too quickly. Often with disastrous effects! A second weakness arises if we attempt to use the model in isolation. This is particularly important where complex or important decisions are involved. The principle assumption of the rational decision making process is that human beings make rational decisions. However, there are numerous factors which determine our decisions, many of which are not rational. In many situations decisions have to be made with incomplete and insufficient information. Judgment, intuition, experience and knowledge all come together when making decisions. This critical aspect is further explored in our article: Intuition and Decision Making.

Regardless of any perceived weaknesses these models are essential tools. A rational decision making model can help us to make better decisions - and thus help us to be better managers.

Multi-scale Decision Making

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Multi-scale decision making, also referred to as Multi-scale decision theory (MSDT), is a recently developed approach in operations research that fuses game theory, agent influence diagrams, in particular dependency graphs, and Markov decision processes to solve multiscale challenges[1] across organizational hierarchies, time, space (e.g., topology and geography), states (e.g., queues), and size (e.g., number of nodes, users). Multi-scale decision theory is a fusion between decision theory and multi-scale

mathematics. Multi-scale decision theory can model and analyze hierarchical decisionmaking networks which exhibit multi-scale phenomena. The theory's results can be used by mechanism designers and decision-makers in organizations and complex systems to

improve system performance and individual payoffs. Multi-scale decision theory has been systems[4]. successfully Current research applied focuses on

to manufacturing enterprises[2][3] and service

identifying multi-level incentives to improve value in healthcare systems. Furthermore, researchers are applying multi-scale decision theory to improve performance and reliability of power networks (electricity distribution), the Internet, homeland security and defense

(military) systems. Multi-scale decision theory is related to:

Multi-scale modeling Decision analysis Cooperative distributed problem solving Decentralized decision making

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Chapter 3 Case Study

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Scenario Based Planning & Decision Making Case Study

Case 1 (1995) - National Specialty Retailer In 1995 this specialty retailer had about 40 stores spread across the United States. They were exceptionally well managed and had generated double digit annual growth rates in both revenues and profits for several decades. Annual revenues were about $500 million. The CEO wanted to expose his management team to a new planning method for one year that was different from their well honed, rolling five-year plan that served them so well. The clear expectation was that at the end of the year, the company would revert to their existing planning methodology. In essence, he wanted them to take a step off the treadmill for a year. The question developed (with considerable difficulty) at the two-day kickoff retreat was "How do we position ourselves to be a $5 billion company in our industry by 2013?" We worked together for six months - the CEO, his senior team of a dozen folks, and the Board - to develop three scenarios. One scenario was built around technology, another around life style, and the last around competition. The CEO stated there were creative strategies that came out of each of the scenario teams that probably would not have arisen through their traditional planning. But one strategy stood out. The Web was just starting to rear its head in 1995, and a few retailers were beginning to put their catalogs on-line. This didn't seem to fit the culture or business model of this company, yet it was clear that something was needed. The technology scenario painted a rich, pervasive technology infrastructure that would facilitate all kinds of interaction worldwide, both business and personal.

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The stroke of genius was the CEO's. He finally asked, "What would our Internet initiative look like if it were a store?" The room fell silent, for everyone around the table knew the company was good at opening stores in new places. Their mindset instantly shifted from an unfamiliar technology to simply another new location. The CEO asked for and got a business plan in hardly more than a week. He approved the initiative and appointed the first employee of the new Internet store - the store manager. The Internet store was not put into the hands of the IT department, but into those of a seasoned store manager who was given full P&L responsibility. Four years later their Internet store stands fifth or sixth in sales revenue amongst its now 50+ stores across the country and has been profitable since its inception. Did this company develop the three scenarios further and set up a tracking and review system to decide when and what actions to take. No, they came out of the half-year scenario process with a particular strategy, a single decision to address an issue that wasn't even the focal point for the scenarios! Case 2 (1999) - Credit Union League This Credit Union League is the (nonprofit) trade association for the 200 or so credit unions in their state. Credit unions are facing enormous changes. The financial services industry is blurring the traditional lines that once separated companies and organizations into welldefined sectors. In the words of the League's CEO, "We are living in an era of hyperchange." The question developed (with relatively quick consensus) at their annual board retreat was "How do we position the League as the premier interstate and international leader in 2010?" In one afternoon - the CEO, a few senior managers, and a small Board - sketched three scenarios. One was built around technology, another around image, and the last around competition. (Technology and competition are hardy perennials as driving forces!) Several

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creative strategies came out of each scenario that the CEO and his team are now considering for implementation. But again one strategy stood out. Credit union leagues are organized for one state alone. The two themes that ran through the three scenario teams' implications and responses were to provide expanded services to credit unions within its own state and to take these beyond its borders. By the end of the afternoon the participants had shifted their mindsets from the posed question which implied they wanted simply (!) to be the best and shifted them towards being a credit union league that spanned several states with a single organization. The major impact, unplanned and unspoken, was to build support for a novel idea the CEO had already been thinking about, but which had not been voiced at the retreat. His senior team (as this is written) is fleshing out a strategy to expand the League to embrace credit unions in several states, in competition with existing leagues perhaps, but more likely through acquisition or consolidation. This is a bold initiative, flying in the face of tradition within the very conservative, stable credit union movement environment. Decision making, not planning. There you have it! Two quite different companies - one for profit, the other nonprofit - and two radically different timeframes - six months versus one afternoon. Neither pursued scenario planning beyond the project. Yet, each found a superb strategy through the scenario process and made the important decision to pursue it, even though neither was a direct answer to the question they posed. The Internet store strategy clearly has been a smashing success. The regional credit union league initiative is still under development. In the real world, most companies use scenarios as aids to decision making, not as an ongoing planning methodology. The value lies not in the scenarios, but in the discipline of thinking creatively about the future. Recognizing this, you should help put this creative tool of sketching scenarios into the toolkit of every manager in your company. It will enrich their thinking and make them more nimble, better decision makers.

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Chapter 4 Summary & Conclusion

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Summary & Conclusion

The ability of organisations to manage change effectively has become more important because of the rapid advances in technology and the increasing uncertainty and risk associated with the business environment. Managing change requires flexibility, good planning, an effective decision making system and an efficient management information system, as well as effective communication systems and channels.

Managers must show leadership, have behavioural knowledge, especially with regards to the management of teams, demonstrate analytical skills in basic economic reasoning, be agents of change, proactive rather than reactive; be able to tolerate ambiguity and uncertainty, and understand why change is so often perceived as threatening.

The possibility of change tends to provoke resistance among the employees that the change will affect. This is due to a very natural fear and mistrust of the unknown. This resistance will manifest itself in different ways, ranging from outright refusal to cooperate through to a covert undermining of proposals. This mistrust can be best overcome by a deliberate policy of keeping people informed about what is being proposed and getting them involved as far as possible in the discussions and decision making.

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REFERENCES

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REFERENCES
1. http://en.wikipedia.org/wiki/Planning 2. http://en.wikipedia.org/wiki/Decision Making
3. http://toolboxes.flexiblelearning.net.au/demosites/series3/316/ip/ip_c15.html 4. http://www.the-happy-manager.com/types-of-decision-making.html

5. Principle of Management J S Chandana

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