ISL114U-BUSINESS MANAGEMENT

Chapter 4: Managerial Planning and Decision Making

results that people intend to achieve. Managerial planning

Basics of Planning involves determining
Planning is the process of determining where to go by
doing what. Planning is intertwined with effectiveness, (a) organizational goals, and
which is defined as the achievement of organizational (b) the action plans to reach those goals.
goals. An important concept that planning serves is
Organizational goals should be measurable, results-
efficiency, being defined as how good the organization is
oriented, realistic, challenging, and have a clear time
in its use of resources.
frame. In setting the organizational goals one should
If a business organization just aims to survive, then it follow the hierarchy of objectives. This means that one
should try to be as well prepared as possible for the future. should start from the longer term goals and continue with
In our times where business organizations try to survive in shorter term objectives that would enhance the fulfillment
highly competitive markets, the typical thing that happens of the long-term ones. In setting organizational goals,
is the rival firms’ launching innovative products or managers start from the long-term objectives, then these
services. If an organization has not planned for this, it is long-term objectives serve as guides for shorter term
more likely to panic and lose its position in the market objectives.
because it takes time to do the very same thing. However, Many organizations use management by objectives13
if it planned for this, then probably it can react correctly in (MBO) instead of this traditional perspective. MBO is a
a quicker manner because there would be some new
process by which managers and employees at all levels set
products or services being developed or ready in the
mutually agreedupon goals. Those participatively set goals
pipeline. are used for motivating employees14 as well as for
Levels of Planning evaluating performance.
Being the primary function of management, planning Determining Action Plans
should be done by all managers. However, the nature of The third step in the managerial planning process is
planning changes with the level of management. High- determining the action plans. At this stage, concrete and
level managers deal with long-term planning, whereas detailed plans, specifically, statements of action steps (put
low-level managers plan for the short term. However, this in a chronological order) should be developed. In other
does not necessarily mean that middle-level managers do words, tasks associated with the accomplishment of each
not deal with long- or short-term planning, or low-level goal should be identified. The clashing of action plans can
managers do not deal with medium-term planning. only be solved by getting priorities (organizational values)
By looking at the present through the collection of hourly, straight.
daily, monthly data, short-term planning shapes the near Implementing Plans and Identifying Adjustments
future of the organization. This planning addresses short-
term concerns like the condition of machinery and Plans alone do not bring results. In order to realize results,
equipment used in production. plans have to be implemented (fourth step of the planning
process). For the implementation to become successful the
In order to be more effective and efficient in their active participation or cooperation of people is highly
operations, managers need to make sure that day-to-day important. In order for this to happen, plans must be
problems do not recur or are solved in a much better way. communicated and explained so that people can get a clear
Therefore, in the medium term, more permanent solutions picture of what is to be done.
to short-term problems are sought out.
Planning is a cycle: plan – execute – review – replan –
The planning that high-level managers do is also called execute. The managerial planning process involves an
strategic planning, because strategies are developed to assessment of the organization with its resources and
guide the organization in reaching its vision. By setting environment, and encompasses the setting of objectives.
the long-term plans and directions for the entire planning should not be seen as something to be done by
organization, high-level management sets the context for managers occasionally and at scheduled times. It is an
lower levels of management to work on useful short-term ongoing process, done continuously through evaluation
and medium-term plans. Long-term planning is high-level and revision of plans and objectives.
managers’ responsibility whereas middle-level managers
are mainly responsible for medium-term planning and Types of Plans
lower level managers are mainly responsible for planning The most often used classification of organizational plans
for the short term. is strategic, tactical and operational plans (Table 4.2). 15
Strategic plans focus on the broad future and identify the
Managerial Planning Process long-term direction the organization will take as a whole.
Managerial planning is the process whereby managers These plans ideally set forth the goals and objectives
assess an organization’s goals and create a plan of action needed to accomplish the organization’s vision. In
for meeting those goals. Goals are the desired outcomes or focusing on the long-run, as pointed out earlier,

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 ISL114U-BUSINESS MANAGEMENT
Chapter 4: Managerial Planning and Decision Making

organizations analyze their external (especially the service, product or department. In this budgeting, costs
competitive environment) and internal (organizational can be assigned to activity and product level (e.g.
resources) environments to gather information and assembly-line setup, inspections), rather than being
determine the scope of business. Strategic plans cover the averaged out across a number of products or services.
major aspects of business such as products, services,
technology, finance and human resources with a time Decision Making Process
horizon of three to five years. Decision making is the process of finding or identifying
problems/opportunities in order to resolve them. This
Tactical plans translate strategic plans into specific goals involves making a choice from available options.
for specific parts of the organization. They specify how
the organization’s resources can be used to put strategies The decision-making process starts with identifying a
into action. Tactical plans in business often take the form problem or opportunity. In order to initiate the decision-
of functional plans that indicate how different operations making process, one should feel the need to decide. The
within the organization will contribute to the overall need to decide can be external or internal.
strategy. Once a problem or opportunity is identified, the decision
Even though tactical plans should complement the overall maker needs to determine the criteria for selecting among
strategic plan, they are often somewhat independent of alternative solutions. One simple way of doing it is to
other tactical plans. perform a cost-benefit analysis. Cost-benefit analysis
compares the expected cost of an alternative to its
Operational plans translate tactical plans into specific expected benefits. In other words, it is simply guessing the
goals and actions for small units of the organization and downside and upside of choosing an alternative and
focus on the near term (12 months or less). weighing one side against the other. If a more refined and
Standing plans are ongoing plans that provide guidance detailed approach is needed, one can think of three more
for activities performed repeatedly, like policies and criteria: ethicality, acceptability and timeliness.
procedures. A policy is a standing plan that communicates Upon determining and assigning weights to the criteria,
broad guidelines for making decisions and taking action in the decision maker needs to develop alternative courses of
specific circumstances. action that have the potential to bring the desired results.
Procedures describe specific rules for what actions are to In solving a particular problem or capturing an
be taken in various situations. They are stated in employee opportunity mostly the first thing that people resort to is
handbooks and often called SOPs—standard operating considering an old solution if they find the problem or
procedures. Whereas a policy sets a broad guideline, opportunity to be the same or similar.
procedures define precise actions to be taken In evaluating alternatives, the decision maker might do
As the other type of operational plans, a single-use plan is preliminary screening and eliminate some alternatives that
a one-time plan specifically designed to meet the needs of do not seem to bring minimally acceptable results and/or
a unique situation, like an advertising campaign for a new to reduce the number of alternatives to a manageable
product launch. amount. Then, the alternatives thought to be worth giving
serious consideration have to be examined.
Budgets and Budgeting
A budget is a plan that commits resources to projects or The alternative with the highest expected future value is
activities for a specific time period. In some organizations chosen to be the decision. In our hiring example, when we
managers may spend a fair amount of time bargaining calculate and compare the total scores, we can see that
with higher levels to get adequate budgets to support the candidate B is better. Nevertheless, the chosen alternative
can have a feasibility problem
needs of their work units or teams. Most organizations
have a two-phase process in making budgets. In the first Making a decision does not necessarily guarantee its
phase, managers form a proposed budget. This provides a implementation. The main reason for that is resistance.
plan of the amount of money needed and is submitted to a Resistance to implement a decision can stem from the fact
superior or budget review committee. Then, by the end of that the implementer of the decision did not take or was
the second phase, the manager receives an approved not given any part in making the decision.
budget. This budget shows the total amount of money the
manager is authorized to spend together with how much Therefore, in order to counteract such resistances before or
on which budget item. after it surfaces, the managers should (a) show extra care
in bringing the voice of the implementers into the
In zero-based budgeting the budget for any activity at the decision-making process (more participative decision
beginning of each period is set at zero and all proposals – making) or (b) sell the decision to the potential
old and new – must be justified on a cost/ benefit basis. implementers by pointing out the expected benefits to
convince them about the merits of the decision or (c) look
Activity-based budgeting emphasizes the expected cost of
the planned activities that will be consumed for a process,

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Chapter 4: Managerial Planning and Decision Making

for individuals who seem more motivated and competent

to carry out the decision.
The decision-making process does not necessarily end
with putting the decision into effect. The decision maker
has to follow it up in order to check whether it is
producing the expected benefits and generating some
unexpected costs. At this stage, the decision maker or the
implementer needs to collect information in order to see
whether things are going in the right direction. In
determining whether things are on track, one needs to
know that implementation does not usually bring
immediate results. In that case, the person who is making
the decision should have a good enough idea about how
long to wait before starting to collect and analyze the
results.
Decision Models
The decision-making process discussed above is also
known as the rational model of decision making, but this
classical model is not the only model put forward to
explain managerial decision making. There is the bounded
rationality model which challenges the rational model for
not being realistic enough and a third model, namely,
intuitive decision making.
The rational decision-making model is a step-by-step
process for making logically sound decisions. This model
assumes that the decision maker has full or perfect
information.
Bounded rationality is the idea that in decision making,
rationality is limited by (a) the information at hand, (b) the
cognitive limitations of the human mind, and (c) the finite
amount of time to make a decision.
When compared with the rational model, another realistic
model or approach would be intuitive decision making.
Intuition is knowing or understanding something
instinctively or subconsciously without reasoning or proof.
intuitive decision making does not necessarily mean that
the quality or correctness of the decision will suffer. In
fact, it has been argued that this approach can complement
both rational and bounded rational models and should be
included in management education.