1. PGDBA 101Strategic Leadership and Management SkillsTOPIC 4: PLANNING AND DECISION-MAKINGDR DOUG NISBET

2. Learning Objectives To understand the process of planning inorganisations and to be able to construct abusiness plan to meet objectives To be able to construct a budget and cash flowstatement for a business plan and itsimplementation To identify the main aspects of decision-making in organisations and to understand thealternative ways of making decisions. 3. Topic ThemesThere are 3 themes in this topic:1. Business Planning2. Supporting Financial Tools3. Decision-making 4. Theme 1: Business Planning Purposes and contents of plans Steps in making a plan Information for planning Setting objectives Identifying steps to meet objectives Implementing and monitoring 5. An overview of planningFigure 6.1 An overview of the chapter 6. Purposes of planningWhy Study Planning? Clarify direction Motivate Use resources efficiently and effectively To measure progress Rationality and justification 7. The content of plansPlans can be Focus - Corporate or business unit Level - Strategic or operational (BPs plan forsurvival) Timescale- Long- or short-term Nature - Specific or directionalA universal activity, at all levels of formality 8. The process of planningFigure 6.3 Seven iterative tasks in making a plan 9. A hierarchical plan at IKEAFigure 6.4 Developing a plan for IKEA (Japan) 10. Monitoring progress to be able to adaptFigure 6.6A programme overview chartSource: Boddy et al. (2009a) 11. Theme 2: Supporting Financial Tools Role of finance in business planning andcontrol Interpreting basic financial reports The difference between profit and cash Evaluating performance Gaining financial control of the business Methods of budgeting 12. Raising capital Ownership shares (equity) Prospectus (purpose of raising capital) Right to share in profits Limited liability Appoint directors (responsibility to shareholders) Debt borrowed funds Bank Marketable debt 13. Cash flow statement Sources from which cash has been receivedduring a period (sales) Uses to which cash put(purchases, administration, marketing) Sources of capital raising to fill the gap orrepayment of capital (financing flows) To survive, business has to generate cash 14. Profit and Loss Statement (P & L) Revenue (usually sales) From which subtracted Cost of goods sold or of service provided Costs of administration and management Cost of marketing and product/service delivery Cost of financing the business (interest on debt) Taxation 15. Measuring performance Compare with competitors Compare with previous periods Budgeting Control against the budget 16. Importance of Finance to the Business Plan All businesses need finance to survive Financial resources have to be carefullycontrolled, their use carefully planned Unless a business generates profit, its life willbe limited as it will not have the funds tosecure new resources 17. Theme 3: Decision-makingWithin this theme we shall examine: Tasks in making decisions Programmed and non-programmed decisions Decision making conditions Four decision making models Biases in making decisions Decision styles 18. (Iterative) stages in making decisionsFigure 7.2 Stages in making decisions 19. Example: deciding on a new mobilephoneFigure 7.3 Illustrating the decision-making tasks a new mobile phone 20. Dependent or independent?Figure 7.5Possible relationships between decisionsSource: Cooke and Slack (1991), p.24 21. Types of decision and organisational levelFigure 7.4 Types of decision, types of problem and level in the organisationSource: ROBBINS, STEPHEN P.; COULTER, MARY, MANAGEMENT, 8th Edition, 2005, p. 144. Reprinted by permission of Pearson Education, Inc. Upper Saddle River, NJ. 22. Degree of uncertaintyand decision-making typeFigure 7.6 Degree of uncertainty and decision-making type 23. Decision-making modelsFigure 7.7 Conditions favouring different decision processesSource: Based on Thompson (1967), p. 134 24. Biases in making decisions Prior hypothesis Representativeness Optimism bias Illusion of control Escalating commitment Emotional attachment Groupthink 25. Vroom and Yettons decision tree7 Characteristics ofProblems5 Leadership Styles: AI - AutocraticAII - Information-seeking CI Consulting CII NegotiatingG - GroupFigure 7.8Vroom and Yettons decision treeSource: Figure 9.1 Decision-Process Flow Chart from Leadership and Decision-Making, and the taxonomy used in the figure is from Table 2.1 Decision Method for Group and IndividualProblems from Leadership and Decision-Making, by Victor H. Vroom and Philip W. Yetton, 1973. Reprinted by permission of the University of Pittsburgh Press 26. An overview of the themesFigure 7.1 Overview of decision making in organisations 27. Conclusion on Theme 3 Processes of making decisions affect the valuethat management adds to resources Many methods do those used best suit thecontext of the organisation? What alternative assumptions and methodsmight suit the context better? What are the limitations of methods used?