Organizational

Planning Tools
Unit 1.7 HL
Organizational Objectives
• Serve to guide a business and give it a
sense of direction

• Will be formed by the various

stakeholders of a business (Unit 1.4)

• Answer the key question:

“Where do we want to be?”
3 Key Functions of
Organizational Objectives
• To Control
• objectives can help control a firm’s plan; they set the
boundaries for business activity

• To Motivate
• objectives can help inspire managers and employees to reach a
common goal

• To Direct
• objectives provide an agreed and clear focus for all individuals and
departments of an organization
Organizational Planning Tools
• Tools that will help businesses plan in
order to achieve their organizational
objectives:
• Fishbone diagram
• Decision tree
• Force field analysis
• Gantt chart
 Fishbone diagram
• Also known as an Ishikawa or cause-and-effect diagram,
is a diagram that attempts to identify the causes of an
event.
• It gets its name from the fact that the diagram resembles
the skeleton of a fish.
• The diagram was created by Kaoru Ishikawa, who
pioneered quality management processes in the
Kawasaki shipyards, and became one of the founding
fathers of Japanese modern management.
• Fishbone analysis provides a structured way to help think
through all possible causes of a problem.
Fishbone diagram using the 4Ms to identify
different categories of the causes:
Unsuitable management Unskilled workers, a lack of
style and miscommunication training and insufficient
with the workforce personnel

Demotivated or
unproductive
employees
Technological failures, Sub-standard (poor
faulty equipment and quality) materials
the use of outdated and delayed
machinery deliveries
• Methods – are the bottles used clean?
• Machines – are there rusty pipes in the
production machines?
• Manpower – is it skilled enough?
• Materials – are the raw materials to blame?
• Measurement – is the calibration incorrect?
• ‘Mother nature’ (the environment) – is the
working environment contaminated?
Another example:
STEPS IN BRIEF
1.Agree on a problem statement (effect). Write it at the
center right of the flipchart or whiteboard. Draw a box
around it and draw a horizontal arrow running to it.

2. Brainstorm the major categories of causes of the

problem. If this is difficult use generic headings:
1. Methods
2. Machines (equipment)
3. Manpower (people)
4. Materials
5. Measurement
6. Mother nature (environment)
 STEPS IN BRIEF
3. Write the categories of causes as branches from the main
arrow.
4. Brainstorm all the possible causes of the problem. Ask: “why
does this happen?” As each idea is given, the facilitator writes it
as a branch from the appropriate category. Causes can be written
in several places if they relate to several categories.
5.Again ask “why does this happen?” about each cause. Write
sub–causes branching off the causes. Continue to ask “Why?”
and generate deeper levels of causes. Layers of branches indicate
causal relationships.

6. When the group runs out of ideas, focus attention to places on

the chart where ideas are few.
Stepped process for using a
fishbone diagram:
1. Identify and agree on the problem
Write down the exact problem
Identify the staff involved, and when
and where the problem occurs
Write the problem on the right-hand
side of the diagram
Draw an arrow across the paper
horizontally to the problem, providing a
framework to develop ideas
 Stepped process for using a
fishbone diagram:
2. Establish the major causal factors involved
Identify the factors that may be root causes of the
problem and merit further investigation
Draw lines off the spine for each of the factors and label
the branches
These may include factors such as the people involved
with the problem, machinery employed, methods used,
and materials used
These factors may be established using a brainstorming
exercise
 Stepped process for using a
fishbone diagram:
3. Identify possible causes
Where a cause is complex, there may be several sub-
cause
For each root cause identified, ask: why is this cause
happening?
Establish possible related sub-causes; these are then
shown as smaller lines coming off the “bones” of the fish
The 5 whys techniques would be useful here (to establish
the root causes of a problem we keep asking the
question “Why?” until the cause is exposed)
Stepped process for using a
fishbone diagram:
4. Analyze the diagram
 Investigate the most likely causes
identified on the diagram, which may
involve further, more extensive and
detailed research

 This should help clarify whether the

causes are correct
 Fishbone Diagram
• Advantages:
• Easy to use and understand
• Allows decision makers to brainstorm ideas in a
systematic, holistic and logical way
• It facilitates a visual diagnosis of a problem or issue

• Disadvantages:
• Tends to be simplistic for some real world problems
• Must use with other decision making frameworks to
establish the root cause(s) of a problem
 When not to use it:
•
The problem is simple or is already known.
• The team size is too small for brainstorming.
• There is a communication problem among the team members.
• There is a time constraint; all or sufficient headcount is not
available for brainstorming.
• The team has experts who can fix any problem without much
difficulty.
Exam Tip!
Many students claim that certain
decisions should not be pursued due
to the risk involved, yet there is an
element of risk associated with
almost every business decision. It is
the role of the skilled managers to
ensure that decision-making carries
as much quantifiable, rather than
unquantifiable, risk as possible.
 Create your own
Fishbone Diagram
Decision Trees
Decision Trees
Context

No technique can eliminate the risk involved in taking decisions,

but managers can help themselves greatly if they adopt a logical
approach to decision-making. One method of considering all the
options available and the chance of them occurring is known as
decision trees.
This device is a diagram that is drawn to represent three main
features of a decision:
 All the options open to a manager.
 The different possible outcomes resulting from these options.
 The chances of these outcomes occurring.
In brief, a decision tree may be defined as a diagram that sets out
the options connected with a decision and the outcomes that
may result from ‘chance’, following these options. The manager
can minimize the risk involved.
Features of a decision tree
1. Decision Point: Points where decisions have to be
made. They are represented by squares.
2. Outcomes: Points where there are different possible
outcomes in a decision tree are represented by circles
called decision nodes.
3. Probability or Chance: The likelihood of possible
outcomes happening is represented by
probabilities.
4. Expected Values: This is the financial outcome of a
decision, which is based on the predicted profit and loss
of an outcome and the probability of that outcome
occurring.
Constructing a Decision Tree
It is constructed from left to right.
Each branch of the tree represents and option
together with a range of consequences of outcomes
and the chances of these occurring.
Decision points are denoted by a square – these are
decision nodes.
A circle shows that a range of outcomes may occur – a
chance node.
Probabilities are shown alongside each of these
possible outcomes. These probabilities measure the
chance of an outcome occurring.
The pay-offs are the expected financial gains of losses
of a particular outcome.
A Simple Decision Tree Expected Values

Outcomes/Chance
Nodes Probability/ Chance

Profit or Loss
Decision
Success
Point $15 Million
0.2

Launch New Campaign

B
Failure
A 0.8
-$2 Million

Success
$7 Million
0.4

Retain old Campaign

C
Failure
-$1 Million
0.6

A simple decision tree based on a decision whether to retain an existing advertising

campaign or begin a new one
Calculating the Expected Value
Expected Value = Probability of an event occurring * Expected Results

Calculating the expected Value of the new campaign

Expected Value = 0.2 * $15m + 0.8 * (-$2m)

(Probability) (Expected Profit)+ (Probability) (Expected Profit)

=$3m - $1.6m
=$ 1.4m

Calculating the expected Value of retaining current campaign

Expected Value = 0.4 * $7m + 0.6* (-$1m)
= $2.28m – 0.6m
= $2.2m
Question

A friend has given you a sum of money for your 18th birthday. Which you
want to invest in shares. A local independent financial advisor suggest
that you ought to consider three companies:

Techy-Co- A high tech manufacturer.

Risky – Co- A new manufacturer, selling a brand new product which is

predicted to be all ranges over the next two or three years.

Large – Co – A multinational conglomerate which sells to a wide range of

industries.
Question Cont’d
Chance of Success Chance of Failure

Techy-Company 0.5 0.5

Risky - Company 0.3 0.7
Large Company 0.8 0.2
Pay-off if Successful Pay-off if Failure

Techy-Company $2,000 -$800

Risky - Company $3,000 -$500
Large Company $1,200 -$900

Required: Calculate the expected value for each of the

three companies and decide on the best investment
 Expected Values
A Simple Decision Tree
Probability/ Chance
Outcomes/Chance
Nodes
Profit or Loss
Success 0.5
Decision $ 2,000
Point

A
Failure 0.5
- $ 800
Success 0.3
$ 3,000
A B
Failure 0.7
- $ 500
Success 0.8
$ 1,200
C
Failure 0.2
- $ 900
A: (.5)(2,000) - (.5)(800) = 1,000 - 400 = $ 600
B: (.3)(3,000) - (.7)(500) = 900 - 350 = $ 550
C: (.8)(1,200) - (.2)(900) = 960 - 180 = $ 780
Mini Case
A business is deciding whether or not to launch a new product. It could
do some market research, costing $12,000 which would mean the
chance of a successful launch would be estimated at 70%. Without
market research the chance of a successful launch would be only 50%.
A successful launch would earn profit of $ 60,000 for the business, but
if it failed, only $20,000 would be earned.

This information is summarized below

Forecast pay –off with Without Market

market research Research
Successful Launch $60,000 70% 50%
Failed Launch $20,000 30% 50%

From the information, prepare a diagram of expected

values and discuss the best course of action for the
business.
ANSWER

$60,000
Success 0.7

Launch

Research($12,000) Failure 0.3

$20,000

Do not launch
$0

Success 0.5
$60,000
Launch without research

Success 0.5
$20,000

Expected Values
Node 1:( 60,000*0.7) + (20,000*0.3) =$48,000 - $12,000 = $36,000
Node 2: (60,000*0.5) + (20,000*0.5) = $40,000
Question? Which option do you recommend? Justify your answer.
Problems of using decision trees
 It is purely quantitative technique, which is designed to allow for
probability and pay-off. There is no allowance for external issues which
may be relevant to the decision being made.

 The probabilities are extremely difficult to predict accurately, given

their nature.

 The forecast pay-offs are assumed to be correct, which may not be the
case in reality. If both probability and forecast pay-offs are incorrect
then the decision becomes as good as the information which is issued.

 There are no in-between value for probability, that is, the pay-off can
be one of three options – successful, moderate, poor. All the
probabilities must add up to one, but in reality there is a wider range of
answers, each with an associated probability.
Conclusion
Given the problems and assumptions, what is the
point of using decision trees in the first place?

They provide a starting point in terms of

allocating probabilities and pay-offs to different
decisions.

They allow all potential decisions to be viewed

simultaneously.

They can therefore act as an aid to decision

making and must be used in conjunction with
other factors which affect the decision.
 Homework
Question 1.7.1
Drisner Traders Ltd.
 Homework
Question 1.7.2
Ah-Tieng Beverages
Force Field Analysis

15-34
34
Lewin’s Force Field Analysis Model

 Developed by Kurt Lewin

 Driving forces Restraining
Forces
• Push organizations toward change
• External forces or leader’s vision

 Restraining forces
• Resistance to change -- employee Driving
behaviors that block the change process Forces

FFA is essentially a specialized technique of weighing

up advantages and disadvantages to help decide
whether a proposed change is worth implementing
15-35
Forcefield Analysis

Steps:
1. Identify a specific
Change
2. Identify forces for and
againsty change
3. Prioritise the forces
4. Develop Strategies to
overcome opposing
and reinforce
supporting forces
15-36
 What is a Gantt chart?
A Gantt Chart is a graphic display of
schedule-related information.

Activities are listed down the left side of

the chart

Dates are shown across the top

Activity durations are shown as horizontal

bars.

15-37
Example of a Gantt Chart

Framework

Task Bars

Dependancy links

Milestones

15-38
 Structure of a Gantt Chart

 The framework The framework organizes the tasks,

dependencies, and time scale of the project.
 Task bars Task bars are horizontal bars that show when a
task begins and ends. They are the heart of the Gantt chart.
 Dependency links Dependency links show the relationship
between the start and finish of two tasks.
 Milestones A milestone marks a significant event in the
project, usually the completion of a major deliverable.

15-39
 Benefits of Gantt Charts

 Gantt charts make it easier to manage a complex project than

does a simple schedule.

 Gantt charts make the relative schedules of many tasks clearly

visible.

 Gantt charts let managers test changes to the schedule ahead of

time.

15-40
Exam Tip!
You may be required to construct a
Gantt chart from given information in
the exams. This tool can be very
challenging for a lot of students, so
the only way to improve is by
practicing your techniques. Even if
your Gantt chart is slightly wrong,
marks are awarded for correctly
interpreting and explaining the
diagram.
Gantt charts will be used for the Action
Plan in the IA research proposal.
Review Pages 104-105
Question 1.7.3 & 1.7.4
Read the CUEGIS
Key Terms
 Decision Trees
• Are a quantitative organizational
planning tool that calculates the
probable values of different options,
helping managers to minimize the
risks in decision-making.
 Force Field Analysis
• With the forces for and against
change. Driving forces are the
benefits of change (such as reduced
costs or improved productivity) while
restraining forces are the causes of
resistance to change.
 Fishbone diagram (or
cause and effect model)
• Is an organizational planning tool
based on identifying and dealing with
the root causes of a problem or issue
facing a business.
 Gantt Charts
• Are a visual representation of all the
tasks in a particular project plotted
against the timescale. As a planning
and scheduling tool, it allows project
managers to monitor progress.
 Organizational Planning
Tools
• Are the various methods that
businesses use to aid their decision-
making, e.g. decision trees, fishbone
diagrams, Gantt chars and force field
analysis.