Topic 2: Planning and Decision-Making

LEARNING OUTCOMES

1. Define the nature and purpose of planning

2. Classify the types of goals organizations might have and the plans they use
3. Compare and contrast approaches to goal-setting and planning

2.1 Definition of planning

2.1.1 Plan

A method of doing something, consisting of goal and courses of action

2.1.2 Planning

The process of setting goals and ways/strategies to achieve those goals.

2.1.3 Elements of planning

• Goals (also Objectives)

– Desired outcomes for individuals, groups, or entire organizations
– Provide direction and evaluation performance criteria

• Plans
– Documents that outline how goals are to be accomplished
– Describe how resources are to be allocated and establish activity schedules
Goals are the outcomes you intend to achieve, whereas objectives are the specific actions
and measurable steps that you need to take to achieve a goal.

2.2 Importance of planning

1. Plans help in better utilization of resources:

The resources with a firm are limited and can be spent on a number of purposes. Plans ensure
that best outputs are attained with the given input by putting the resources at the proper place.
Without proper plans resources may be diverted in the non-priority areas.

For example, a firm can use its money either to train its existing manpower or to recruit new
people. In the absence of planning decision will be arbitrary and can lead to using money in
the area with low returns.

2. Planning provides focus to firm’s activities:

A firm may have a large number of options to exercise. Plans decide the priority so that right
work is performed at right time.

For example, if a firm decides to use its internal production capacities to meet its requirements
as well as to outsource the same supplies, only plans give proper direction for when to
outsource and when not.
3. Planning helps in coordination and control of activities:
A properly framed plan takes care to integrate different functions of an organization so that
benefits of unified actions can be reaped. Besides plans act as standards against which
performance is measured to provide feedback and control.

For example, a firm may decide that all its decisions and activities will be customer oriented.
If there is any difference among various departments of company to launch new products then
this yardstick of customer orientation can be used to sort differences and to arrive at a decision
that gets the cooperation of everybody in the organization.

4. Planning facilitates decision-making:

Planning means deciding, which further implies determining in advance, the actions and
resources (human and physical) required to reach a goal. It facilitates decision-making by
selecting the most feasible course of action and resources that could lead a business achieve
their final goals.

5. Planning increases organisational effectiveness:

Organisational effectiveness is related to the extent to which a business has been able to
accomplish its objectives by efficiently allocating all resources. Planning can increase
organisational effectiveness by determining suitable resources required for achieving
organisational goals.

Source:
https://www.businessmanagementideas.com/planning/importance-of-planning/importance-
of-planning-in-management/19286
2.3 Types of goals and plans

2.3.1 Types of goals

2.3.1.1 Financial goals

Financial goals can be related to the expected internal financial performance of the
organization.

Example
• Paying off debt.
• Saving for retirement.
• Building an emergency fund.
• Buying a home.
• Saving for a vacation.
• Starting a business.
• Feeling financially secure.

2.3.1.2 Strategic goals

Strategic Goals can be related to the performance of the firm relative to factors in its internal
and external environment.

Example (internal)
• Vendor performance.
• Restructure organization example introduce research & development department
• Implement software project.
• Grow through acquisition.

Example (external)
• Competitors
• Increase web traffic (website)
2.3.2 Types of plans

2.3.2.1 Breadth

• Strategic Plans
– Establish the organization’s overall goals
– Seek to position the organization in terms of its environment
– Cover extended periods of time

• Operational Plans
– Specify the details of how the overall goals are to be achieved
– Cover a short time period

2.3.2.2 Time Frame

• Long-Term Plans
– Time frames extending beyond three years.
– Example: Establish three new customer service methods to achieve a 99%
customer satisfaction rate within the next seven years. *

• Short-Term Plans
– Time frames of one year or less.
– Example:
1) Establish an email customer service department for one year.
2) Develop customer service option via Facebook messenger for one year.
2.3.2.3 Specificity

• Directional Plans
– Flexible plans that set out general guidelines and provide focus, yet allow
discretion in implementation.
– Example: A directional plan might aim at improving corporate profits between
6 and 12 percent during the next six months.

• Specific Plans
– Plans that are clearly defined and leave no room for interpretation.
– Example: A specific plan might aim to cut cost by 10 percent and increase
revenues by 8 percent in the next six months

2.3.2.4 Frequency of Use

• Single-Use Plan
– A one-time plan specifically designed to meet the need of a unique situation.
– Example: Guillaume carefully planned his budget for graduate school because
he would need to borrow the money. Tuition was $30,000, and he would need
living expenses for 16 months in Orlando, Florida.

Single-use plans
Detailed course of action
that probably will not be
repeated in the same form
in the future (one time
plan).
Program
Major undertaking that takes several years to
complete.
Large in scope; may be associated with several
projects.
Example of program is building a new
headquarters
Project
Smaller in scope and complexity than a program.
Project Projects are short term in nature.
Example of project is renovating the office.

Budgets
- Financial plans that commits resources to projects
or programs.
Example: Financial plan of a project and Balance
Sheet
 • Standing Plans
– Ongoing plans that provide guidance for activities performed repeatedly.
– Examples include policies, procedures, and regulations.

Policy
Standing-use plans that provide broad guideline for
making decisions and taking actions.
It indicates what and what not to be allowed.
Example of policies is Drug-free workplace policy

Standing plans
Serves guidelines to Procedure
managers and designed Series of steps in which activities are to be carried
to be repeatedly. out.
Example of procedure is procedures in using
Bring consistency to the photocopy machine.
operations.

Rule
Specific actions to be taken or not taken with
respect to situation.
Example of rule is to punch in and out your
attendance card.
2.4 Approaches to goal-setting

2.4.1 Traditional goal setting

• Broad goals are set at the top of the organization.

• Goals are then broken into sub-goals for each organizational level.
• Goals are intended to direct and guide

2.4.2 Example of goal setting – Management by Objectives (MBOs)

• Specific performance goals are jointly determined by employees and managers.

• Progress toward accomplishing goals is periodically reviewed.
• Rewards are allocated on the basis of progress towards the goals.
• Key elements of MBO:
• goal specificity
• participative decision making
• an explicit performance/evaluation period (time period)
• feedback
• Reason for MBO Success
• Top management commitment and involvement
 • Potential Problems with MBO Programs
• Are less effective in dynamic environments that require constant resetting of
goals
• Overemphasis on individual accomplishment may create problems with
teamwork

2.4.3 Five (5) steps in goal setting

Step 1: Review the organization’s mission statement.

Do goals reflect the mission?

Step 2: Evaluate available resources.

Are resources sufficient to accomplish the mission?

Step 3: Determine goals individually or with others.

Are goals specific, measurable, and timely?

Example:
• I will obtain a job as a high school math teacher within three months after graduating
with my Bachelor of Science in Education.
– Specific: The goal of becoming a high school math teacher is well-defined
– Measurable: Success can be measured by the number of applications,
interviews and job offers.
– Achievable: The goal setter will have the appropriate degree for the job.
– Relevant: The goal setter is planning to get a job in the education industry after
getting an education degree.
– Time-based: The goal setter has set a deadline to achieve their objective
within the three months following graduation.

Step 4: Write down the goals and communicate them.

Is everybody on the same page?
(Meaning: of two or more people, thinking in the same manner, having the same general
outlook or position)

Step 5: Review results and whether goals are being met.

What changes are needed in mission, resources, or goals?
2.5 Definition of decision and decision making

2.5.1 Definition of decision

Decision can be defined as making a choice from two or more alternatives.

2.5.2 Definition of decision making

Decision making refers to the action or process of making important decisions

2.6 Decision-making process

2.6.1 Step 1: Identifying a problem

2.6.2 Step 2: Identifying decision criteria
2.6.3 Step 3: Allocate weight to the criteria
2.6.4 Step 4: Developing alternatives
2.6.5 Step 5: Analysing alternatives
2.6.6 Step 6: Selecting an alternative
2.6.7 Step 7: Implementing Alternative
2.6.8 Step 8 Evaluating decision effectiveness
2.7 Types of decisions and conditions of decision-making

2.7.1 Types of decision

Programmed decision

Programmed decisions are decisions that have

Types of decision making occurred in the past and the response is routine

Non-programmed decision

Non-programmed decisions are decisions made

in response to situations that is unique

2.7.2 Types of conditions under decision making

Certainty

Able to predict the outcome precisely

Risk

Future conditions are not always known in

Types of condition under
advance but can define nature of the problem,
decision making
possible alternatives, and probability of each
alternative

Uncertainty

Cannot assign subjective probabilities on the

outcome, no information on the nature of the
problem and no intuitive judgment

Ambiguity

When goal or problem to be solved is unclear, alternatives are difficult to define and
information about outcomes is not available.
2.8 Decision-making biases and errors

2.9 Managing biases and errors

1) Understand cultural differences

2) Create standards for good decision making
3) Use an effective decision-making process (refer 2.6)
4) Develop your ability to think clearly

Additional:

https://mitrefinch.com/blog/manage-bias-organization-better-decisions/
https://www.psychologytoday.com/us/blog/in-practice/201508/6-ways-overcome-your-
biases-good