the main document

Presentation prepared by

Lucy Miller

Macquarie University

MGT100

Organisations & Management

WEEK 6Session 1, 2014

Laura Andreoli van Schijndel

John Wiley and Sons Australia

Todays Agenda

Lecture 6

Decision Making & Planning (Chapters 6 and 7)

Tutorial 6

Class Activities

Guidance to Assignment 2 (Research & Analysis)


Lucy Miller


Lecture 6

Decision Making

(Chapter 6)


WEEK 6 Pre-Class Activity

We have now concluded the examination of general organisational topics and in our next class we will address the activity that managers engage in the most: decision making. We will also start addressing the four management functions, examining the planningfunction, by many considered the most fundamental part of the management process.

To start becoming familiar with next weeks topics, please watch the following short videos:

The steps of decision making

http://education-portal.com/academy/lesson/the-seven-steps-of-decision-making.html#lesson

Strengths and weaknesses of group decision making

http://education-portal.com/academy/lesson/strengths-and-weaknesses-of-group-decision-making.html#lesson

Planning as a function of management

http://education-portal.com/academy/lesson/planning-as-a-function-of-management.html#lesson

Types of planning

http://education-portal.com/academy/lesson/types-of-planning-strategic-tactical-operational-contingency-planning.html#lesson


Decision Making

Learning Objectives:

How is information is used for decision making ?

How do managers make decisions ?


Information and decision making

Decision-making (sometimes called problem solving) is the process of identifying a discrepancy between an actual and desired state of affairs, and taking action to resolve the deficiency or take advantage of the opportunity.

Information systems help managers gather data, turn them into useful information, and use that information to build knowledge in order to make problem-solving decisions.


How Do Managers Make Decisions?

Problem

A discrepancy between an existing and a desired state of

affairs

Decision-Making Process

A set of steps that includes identifying a problem, selecting

a solution, and evaluating the effectiveness of the solution

Decision

Choice between alternative courses of action


Decision making

in the management process

l Decision making is the essence of a managers job and decision maker is almost synonymous with manager.

l Decision making is part of all four management functions (POLC):

o Planningo Organisingo Leadingo Controlling.


2 types of problems

Structured Problem

A straightforward, familiar, and easily defined

problem

Unstructured Problem

A problem that is new or unusual for which

information is ambiguous or incomplete.


Programmed and

Non-programmed Decisions

Programmed Decisions

A repetitive decision that can be handled using a

routine approach


A unique and nonrecurring decision that requires a

custom-made solution.


Types of problems, types of decisions,

and levels in the organisation


Programmed and


.


Programmed Decision-Making Aids

Rule

An explicit statement that tells managers what they ought or

ought not to do (limits on procedural actions).

Policy

A general guide that establishes parameters and guidelines for

making decisions about recurring problems.

Procedure

A series of interrelated sequential steps that can be used to

respond to a well-structured problem (policy implementation).


Rules, Policies & Procedures -EXAMPLES

Rules

Managers must approve all refunds over $200.00. No credit purchases are refunded for cash.

Policy

Make sure that all customers complaints are resolved in a manner which leaves the customer happy.

Procedure

Follow all steps for completing merchandise return documentation.


Decision-making conditions

Decision-making conditionsDecision-making conditions

CertaintySituation where

outcomes are known

RiskCondition in which decision maker is

able to estimate

likelihood of

outcomes

UncertaintySituation without certainty or ability

to estimate

probable outcomes


3 views on how

managers make decisions

RationalityBounded

rationality

Intuition


The rational decision maker

Managerial decision making is assumed to be

rational (but often it isnt).

Rational describes choices that are consistent and

value-maximising.


Assumptions of

(perfect) rationality


Bounded rationality

Bounded rationality is behaviour that is rational

within the parameters of a simplified decision-

making process which is limited (or bounded) by

an individuals ability to process information.

Satisficing is acceptance of solutions that are

good enough.


What is intuition?


The decision making process


Steps in decision making

Step 1. Find and define the problem.

This is a stage of information gathering, information

processing and deliberation.

Three common mistakes are:

1. Defining the problem too broadly or narrowly

2. Focusing on the symptoms instead of causes

3. Choosing the wrong problem to deal with (i.e. not

addressing problems in the most appropriate order

of priority).



Step 2. Generate and evaluate possible solutions.More information is gathered, data are analysed, and the pros and cons of possible alternative courses of action are identified.

The involvement of other people is vital here in order to maximise information and build commitment.

Costbenefit analysis involves comparing the costs and benefits of each potential course of action.



Step 3. Choose a solution.

The classical decision model describes decision making

with complete information. An optimising decision chooses

the alternative giving the absolute best solution to a

problem.

The behavioural decision model describes decision making

with limited information and bounded rationality.

Satisficing decisions choose the first satisfactory

alternative that comes to your attention.



Step 4. Implement the solution. This is the stage at which directions are finally set and problem-solving actions are initiated. At this stage, managers need the ability and willingness to implement their decisions.

Step 5. Evaluate results. The decision-making process is not complete until results are evaluated. If the desired results are not achieved, the process must be renewed to allow for corrective actions.


Errors and biases in decision-making


CASE EXAMPLE

The decision making process

involved in buying a car

.


Criteria and Weights

in a car-buying decision


Assessment of possible alternatives:

car-buying


Evaluation of Car Alternatives


Advantages

Group decisions provide

more complete information

Diversity of experiences and

perspectives are higher

Groups generate more

alternatives

Group decisions increase

acceptance of a solution

Group decision making

increases legitimacy

Group Decision Making

Disadvantages Group decisions are time

consuming Responsibility is

ambiguous Subject to pressure to

conform (Groupthink)


GROUPTHINK

Group think is a psychological phenomena that can occur within groups of people.

Group members try to minimise conflict and reach a consensus decision without critical evaluation of alternative ideas or viewpoints, displaying a high level of conformity.

It is the result of such factors as group cohesiveness and specific situational contexts (example when the group is not culturally diverse).

Groupthink can occur anytime in an organisation a group is to take a collective decision and it can be extremely detrimental to the quality of the group decision making.


.

.

Watch video:

Groupthink symptoms and remedieshttp://www.youtube.com/watch?v=0zRybSPiEoE

The risk of conforming in groups and teams:

GROUPTHINK


.

.

To reduce the likelihood of groupthink, the team leader should:Increase diversity of the team membersKeep the discussion open to all opinionsInvite to the discussion persons who are expert on the specific topic area being discussedConsciously adopt an impartial stanceAppoint a team member to play the role of the devils advocate

How can GROUPTHINK be reduced ?


Lucy Miller


Lecture 6

Planning

(Chapter 7)


Planning

Learning Objectives:

How do managers plan ?

What types of plans do managers use ?

What are the useful planning tools, techniques and

processes ?


What is Planning?

Planning is often called the primary management function

because it establishes the basis for all the other things

managers do

Its concerned with ends (what is to be done) as well as

with means (how it is to be done)


What is Planning?

Planning

A primary functional managerial activity that involves:

Defining the organisations goals

Establishing an overall strategy for achieving those

goals

Developing a comprehensive set of plans to integrate

and coordinate organisational work.


Managers set GOALS and PLANS

Goals (also Objectives) Desired outcomes for individuals, groups, or entire

organisations

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


Setting goals

Traditional Goal Setting

Goals set by top managers flow down through the

organisation and become sub-goals for each organisational area

(top-down approach)

It is a means-end chain, i.e. an integrated network of goals in

which higher level goals are linked to lower-level goals, which

serve as the means for their accomplishment


Goals must be SMART !


Types of plans


Strategic Plans VERSUS Operational Plans

Strategic plans Apply to the entire organisation.

Establish the organisations overall goals.

Cover extended periods of time.

Operational plans Specify the details of how the overall goals are to be

achieved.

Normally apply to a part of the organisation (for example a Department, i.e. Marketing Plan)

Cover short time period.


Planning in the hierarchy of organisations


The Planning Process(Strategic Management Process)

STEP 1: Define your objectives (vision, mission, strategic objectives)

STEP 2: Determine where you stand in relation to objectives (internal environment analysis)

STEP 3: Develop premises regarding future conditions (external environment analysis / forecasting)

STEP 4: Analyse and choose among action alternatives(strategy formulation)

STEP 5: Implement the plan and evaluate results (strategy implementation and evaluation)


Strategic management process


A hierarchy of goals


Vision vs Mission Statement

.

.A vision concerns a firmsfuture business path.

It answers the questions:where are we going?what do we want to become?

A companys mission statement typically focuses on its present business purpose.

It answers the questions:who are we ?what do we do ?Incorporates the concept of Stakeholder Management


External Analysis

EXTERNAL ANALYSIS:An analysis of an organisations General Environment and Specific Environment

(see Chapter 3)

General Environment (Macro-Environment) PESTEL = Political, Economic, Socio-Cultural, Technological, Environmental

and Legal conditions in which an organisation operates.

Specific Environment (Industry Environment or Competitive Environment)

The organisations, groups and individuals (stakeholders) with whom an organisation interacts as it conducts its business.


Internal Analysis

INTERNAL ANALYSIS:

An analysis of an organisations Resources and Capabilities

(Competencies)

Resources

What an organisation has, i.e. factory, machinery, staff, capital,

etc.

Capabilities (Competencies)

What an organisation can do, i.e. the skills and abilities it

possesses in doing the work activities needed in its business


SWOT Analysis

S W O T Analysis stands for:

S trengths (internal environment)

W eaknesses (internal environment)

O pportunities (external environment)

T hreats (external environment)


Strategy formulation

Organisations formulate

strategies that:

Build on their strengths

Remedy their weaknesses or

work around them

Take advantage of the

opportunities presented by

the environment

Protect the organisation from

threats


Long-Term Plans VERSUS Short-Term Plans

Long-term plans Plans with time frames extending beyond three years

Short-term plans Plans with time frames on one year or less

Top management is most likely to be involved in setting long-range plans and directions for the organisation as a whole.

Middle and lower management levels focus more on intermediate (one to three years) and short-range plans that serve the long-term objectives.


Planning tools, techniques and processes:

Forecasting

Forecasting

The process of making assumptions about what will happen in the future.

All good plans involve forecasts.

The PESTEL model is used to identify emerging trends that may have an impact on the organisation in the future. (see slides Week 3)


Scenario Planning

Scenarios are detailed and plausible views of how the environment of an organisation might develop in the future based on key drivers of change about which there is a high level of uncertainty.


Scenario PLANNING

SCENARIO PLANNING: Building on PESTEL analysis . Does not offer a single forecast of how the environment will change. An organisation should develop a few alternative scenarios (4-6) to analyse possible future strategic options.Watch video:Introduction to Scenario Planninghttp://www.youtube.com/watch?v=yVgxZnRT54E


Scenario PLANNING at shell

The power of scenario planning for business was originally established by Royal Dutch/Shell, which has used scenarios since the early 1970s as part of a process for generating and evaluating its strategic options. Shell has been consistently better in its oil forecasts than other major oil companies,

http://www.shell.com/global/future-energy/scenarios.html

Watch video:Shell Scenarios - Imagining the futurehttp://www.shell.com/global/future-energy/scenarios/new-lens-scenarios.html


Carrying out scenario analysis (1) Identify the most relevant scope of the study

the relevant product/market and time span. Identify key drivers of change PESTEL factors

that have the most impact in the future but have uncertain outcomes.

For each key driver select opposing outcomes where each leads to very different consequences.


Carrying out scenario analysis (2) Develop scenario stories - That is, coherent

and plausible descriptions of the environment that result from opposing outcomes

Identify the impact of each scenario on the organisation and evaluate future strategies in the light of the anticipated scenarios.

Scenario analysis is used in industries with long planning horizons for example, the oil industry or airlines.


Management By Objectives (MBO)

Management by objectives (MBO)

Structured process of communication in which a

manager/team leader works with staff to jointly set

performance objectives and review results.

MBO creates agreement regarding:

Performance objectives for a given time period

Plans through which they will be accomplished

Standards of measurement

Procedures for reviewing performance results.



Management by objectives (MBO)

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.



MBO key elements:

Goal specificity. Goals are specific, measurable and objective.

Participative decision making. The superior and the subordinate jointly choose the goals and agree on how they will be achieved.

Explicit time period. Each goal has a concise time period to be achieved.

Performance feedback. A key aspect of success is constant feedback providing the subordinate a continuous flow of usable, relevant information in task-specific terms. Formal reviews additionally punctuate the feedback process.


Participation and planning

Participatory planning

means that the process includes people who will be

affected by the resulting plans and/or who will be asked to

help implement them.

Brings the organisation many benefits:

Participation can increase the creativity and

information available for planning.

It can also increase the understanding, acceptance and

commitment of people to final plans.


Lucy Miller


Tutorial 6

Decision Making


True / False Questions

1. All managerial decisions are rational.

2. The last phase in the decision making criteria is the implementation of the chosen alternative.

3. An example of Bounded Rationality is when a manager takes a decision based on his/her own feelings.

4. Programmed decisions are normally taken by top managers.

5. Applying existing organisational rules, policies or procedures is useful when a manager is facing an unstructured problem.


1. A problem exists when there is a

difference between __________ and

__________.

a. an actual situation, a potential

situation.

b. an actual situation, and a desired

situation.

c. a past situation, the current

situation.

d. the financial bottom line in one

quarter, the financial bottom line in

the next quarter.

e. goals, objectives.

2. Problem solving and decision

making are dependent on quality

__________ being available to

the right people at the right

time.

a. products

b. services

c. information

d. control

e. goals

Multiple Choice Questions


3. A good example of a

programmed decision is to

a. reorder inventory automatically

when it falls to a certain level.

b. place poor performing students

on probation at a pre-established

minimum grade average.

c. initiate an external audit when

charitable deductions reported on

the tax form exceed a certain limit.

d. All of the above.

e. None of the above.

4. A(n) __________ is made when a

new and unfamiliar problem arises

and a novel solution is crafted to

meet the demands of the unique

situation at hand.

a. programmed decision

b. non-programmed decision

c. structured decision

d. unstructured decision

e. difficult decision



5. Most higher-level managerial

decision situations can be

classified as

a. Non routine and

unstructured.

b. classical and unexpected.

c. routine and administrative.

d. systematic and behavioural.

e. intuitive and functional.

6. The __________ describes

decision making with complete

information, where the manager

faces a clearly defined problem and

knows all possible action

alternatives as well as their

consequences.

a. classical decision model

b. administrative decision model

c. behavioural decision model

d. bounded rationality decision

model

e. political decision model



7. A manager who chooses

the alternative giving the

absolute best solution to a

problem is making a(n)

a. wise decision.

b. optimising decision.

c. managerial decision.

d. rational and limiting

decision.

e. systematic decision.

8. When a manager chooses the

first satisfactory alternative that

comes to his or her attention

during the decision-making

process, ______________ has

occurred.

a. rationalisation

b. intuition

c. satisficing

d. optimisation

e. suboptimisation



9. The tendency to increase

effort and perhaps apply more

resources to pursue a course of

action that is not working is

known as

a. cost-benefit impact.

b. heuristics.

c. escalation of commitment.

d. escalation of cost impact.

e. satisficing.

10. Rules, policies and procedures

are utilised to assist managers in the

approach to:

a. Structured problems.

b. Unstructured problems.

c. Both structured and

unstructured problems.

d. Selective perception.

e. Taking decisions in conditions of

uncertainty.



For a car manufacturer:

Order paint from paint manufacturer

Activity 1:

Programmed or Non-Programmed Decisions ?


For McDonalds:Determine supply of potatoes to be reorderedIdentify location for new franchise

Activity 1:



For a university:

Decide if a potential student meets enrolment requirements

Decide to offer a new academic program in Law

Activity 1:



For ANZ Bank:

Reordering toilet paper

Activity 1:



For Priceline Pharmacy:

Determine the location where to rent premises for a new store in Perth

Activity 1:



For Commonwealth Bank:Determine stationery to be reordered

Activity 1:



For Coles supermarkets:

Determine the quantity of Coke Zero to be reordered

Activity 1:



For AVIS car-hire:Service the vehicles of their fleet

Activity 1:



For Arnotts biscuit:Determine cocoa to be reordered

Activity 1:



For a bank:

An example of Programmed Decision ?

An example of Non-Programmed Decision ?

Activity 1:

Programmed VS Non-Programmed Decisions


For a supermarket:An example of Programmed Decision ?An example of Non-Programmed Decision ?

Activity 1:



For a cheese factory:An example of Programmed Decision ?An example of Non-Programmed Decision ?

Activity 1:



For a hairdressing salon:

An example of Programmed Decision ?

An example of Non-Programmed Decision ?

Activity 1:



DISCUSSION QUESTION:When you made the decision about your University studies, were you:Behaving as a rational decision maker ?Behaving in conditions of bounded rationality ?Which information sources did you use ?Behaving according to intuition ?What were the decision criteria you utilised ?How did you develop a list of alternative ?

Activity 2:

Decision Making Processes


Lucy Miller


Tutorial 6

Planning


True / False Questions

1. Strategic plans are mainly developed by top managers.

2. Policies and procedures are examples of single-use plans.

3. The PESTEL model is a forecasting method widely used in organisations.

4. Scenario Planning involves developing multiple, alternative plans, that will be utilised or not utilised in the future, according to whether what unfolds is or is not in line with the scenarios utilised to develop them.

5. The last phase in the Strategic Management process is the implementation of the strategy.

6. Management By Objectives requires that the superior and his/her subordinate jointly choose the goals and agree on how they will be achieved.


1. __________ refer to the

specific results or desired

outcomes that one intends to

achieve.

a. Guidelines.

b. Objectives.

c. Procedures.

d. Policies.

e. Alternatives.

2. __________ is a statement

of action steps to be taken in

order to accomplish

objectives.

a. A plan

b. A solution

c. A guideline

d. An alternative

e. A goal



3. The __________ and

__________ processes work best

if objectives are well stated in

the first place.

a. planning organising

b. planning control

c. planning leading

d. planning goal-setting

e. planning problem-solving

4. Which level of

management spends more

time with long-range

planning?

a. Lower-level managers.

b. Middle-level managers.

c. Lower-level and middle-

level managers.

d. Top-level managers.

e. All levels of management.



5. __________ plans set

broad, comprehensive, and

longer-term action directions

for the entire organisation.

a. Normal.

b. Single-use.

c. Strategic.

d. Tactical.

e. Operational.

6. Production plans, financial

plans, facilities plans,

marketing plans, and human

resource plans are all

examples of __________

plans.

a. strategic

b. operational

c. contingency

d. standing-use

e. flexible



7. Policies and procedures

that are used repeatedly

are called

a. single-use plans.

b. standing plans.

c. strategic plans.

d. scheduling plans.

e. individual plans.

8. __________

communicate broad

guidelines for making

decisions and taking action

in specific circumstances.

a. Rules

b. Procedures

c. Policies

d. Guidelines

e. Regulations



9. Identifying alternative

future states of affairs that

may occur and then

developing plans to deal with

each case should it actually

occur is known as

a. forecasting.

b. scenario planning.

c. benchmarking.

d. participation.

e. contingency planning.

10. Royal Dutch/Shell uses scenario

planning to explore what the company

would do if and when its oil supplies run

out. For Royal Dutch/Shell, the benefits

of scenario planning include which of

the following?

a. It helps the organisation operate

more flexibly in a dynamic environment.

b. It conditions the company's

executives to think.

c. It enables the company to be better

prepared than competitors for future

shocks.

d. All of the above

e. None of the above



11. __________ is a structured

process of regular communication in

which a supervisor/team leader and

subordinates/team members jointly

set performance objectives and

review results accomplished.

a. Management by goals (MBG)

b. Management by objectives (MBO)

c. Performance management system

(PMS)

d. Objective setting and review (OSR)

e. Performance Planning and

Evaluations (PPE)

12. __________ requires that

the planning process include

people who will be affected by

the resulting plans and/or will be

asked to help implement them.

a. Contingency planning.

b. Scenario planning.

c. Strategic planning.

d. Participatory planning.

e. Benchmarking.



Class Activity 1

Assessing Strategic GOALS

Winning a 20 % market share within 3 years

Introduce a Supplier Code of Conduct and Compliance Monitoring Program

Overtaking key competitors on product performance or quality or customer service within 2 years

Deriving 35 % of revenues from sale of new products introduced in past 5 years

Being the recognized industry leader in product innovation and/or technological know-how

Consistently getting new or improved products to market ahead of rivals

Having stronger national or global sales and distribution capabilities than rivals

Achieve $1 billion in annual revenues with $60 million in profits in the next financial year.

Enter into 5 new markets by 2014.

Open 50 new stores by 2015.


Organisations that fail to plan are planning to fail.

Do you agree with this statement ?Why ? Why not ?

Class Activity 2:

Class Discussion


Characteristics of an

effective one:

Clear and graphic

Directional

Audacious, but feasible

Focused

Inspiring

Engaging

Inspirational

Potential shortcomings:

Vague

Not forward-looking

Too broad

Bland or uninspiring

Not distinctive

Class Activity 3

ASSESSING VISIONS


Class Activity 3

Assessing Visions

.

Our vision is to be the worlds best quick service restaurant.

McDonald's


Class Activity 3

Assessing Visions

.

To organize the worlds information and make it universally accessible and useful.

Google


Class Activity 4

Assessing MISSION STATEMENTS

Be the best employer for our people in each community around the world and deliver

operational excellence to our customers in each of our restaurants.

McDonalds


Class Activity 4

Assessing MISSION STATEMENTS

.


Homework

Study TEXTBOOK Chapters 6 and 7

Study MODULE Decision Making & Planning


Next Class Preview

Lecture 7

Organising(Chapter 9)

Tutorial 7

Class Activities

Guidance for Assignment 2 (Research & Analysis), in progress

Guidance for Assignment 3 (Essay)