THE COPPERBELT UNIVERSITY

School of Business

Planning and decision making

BSP150: Principles of Management
Lecturer: Dr S Sikombe
Planning
 Definition of Planning
Planning is the process used by managers to identify and
select goals and courses of action for the organisation.
• The organisational plan that results from the planning process
details the goals to be attained.
• The pattern of decisions managers take to reach these goals is
the organisation’s strategy.
• It includes definition of objectives and to the determination of
appropriate courses of action to achieve those objectives.
• Planning involves the selection of objectives, evaluation and
selection of strategies to attainment objectives
The Importance of Planning
• To offset uncertainty and change – future uncertainty make
planning a necessity.
• To focus attention on objectives – because all planning is
directed toward achieving an organisation’s objectives
• To gain economical operation – planning minimizes costs
because of the emphasis on efficient operation and
consistency.
• To facilitate coordination: Plans provide all parts of the firm
with understanding about how their systems fit with the whole.
• To facilitate control – managers cannot check on their
subordinate’s accomplishments without having goals and
programs against which to measure.
Types of Plans
• Plans may be classified as standing plans or single-use
plans.
• A standing plan is one which is repeatedly used and it
involves policies, procedures and rules
• A single-use plan is designed for the attainment of specific
objectives within a relatively short time span.
• A single-use plan is exemplified by the programme and the
budget
Types of Plans
1. Policies are written statements that reflect the basic
objectives of the plan and provide guidelines for selecting
actions to achieve the objectives.
Effective policies must be:
• Flexible,
• Comprehensive,
• Coordinated,
• Ethical and Clear
 Types of Plans
2. Procedures-detailed instructions necessary for the
successful carrying out of an activity.
-A procure is by its nature, much narrower and more specific
than a policy
3. Rules-are state specific action for particular situations.
4-Programmes are single-use plans requiring complex
patterns of co-ordination.
5. Budgets – are statements in quantified terms, of future
expenditures and revenues reflecting resources allocated to
specified activities within a stated period of time
 Nine Steps in Planning
1. Being aware of opportunity-environmental scanning (STEEPLE
factors and SWOT analysis)
2. Establishing objectives –SMART objectives
3. Premising (assumptions)-changes in key personnel, budgets,
prices, ICT, politics, legislation, competition, crises, climate change
4. Determining alternative courses
5. Evaluating alternative courses-weighing alternatives
6. Selecting a course of action
7. Formulating derivative plans-small plans to support the overall
8. Numbering plans by budgeting-every plan must have a budget
9. Implementing the plan-also conduct Monitoring and Evaluation
Planning involves an Open-System Approach
• Planning involves an Open-System Approach (consider the
relevant STEEPLE factors)

• Environmental Forecasting –consider controllable and non-controllable factors.

Non-controllable elements include population growth, future price levels, political environment,
tax rates and policies and business cycles

• Economic Forecasting-include employment, productivity, national

income, and gross national product that have been available to planners for a number
of years.
• Technological Forecasting-technology changes, AI, Social media, new
designs, etc.

• Social and Political Forecasting-social and political environments in

which social pressures and government’s rules and regulations affect organizations
 Why People Fail in Planning
• Lack of commitment to planning
• Psychological difficulties-lack of confidence by managers
• Lack of clear (SMART) objectives or goals
• Tendency to underestimate the importance of planning premises
• Failure to see the scope of plans
• Failure to see planning as a rational process
• Excessive reliance on experience
• Technical problems-a manager who lacks technical skills
• Lack of top management support
• Resistance to change
 Limitations to Planning
• Planning is not an easy task
• Cost

• Complexity of the planning process

• Problem of rapid change e.g. technology
• Political climate-Government regulations must be taken into account in planning.
• Labour organization-the existence of strong unions
• Current crises-COVID-19, Cholera, floods, draughts, etc
• Capital Investment-investment requirements and cost
Establishing a Climate
• It is critical that every manager establish a climate for planning.
• Planning must forced-every manager should remove obstacles to planning
• Planning should start at the top (also bottom-up sometimes)
• Planning must be organized-a good structure
• Planning must be defined- goals must be clearly be defined.
• Goals, premises, strategies and policies must be communicated
• Training-training in planning techniques, solving managerial problems and the analysis of
alternative courses of action.

• Explaining the objectives of planning

• Planning participation- participation of subordinates with superiors is a key element in
making planning a success
 Planning Levels
• Corporate-level: decisions by top managers.
• Considers on which businesses or markets to be in.
• Provides a framework for all other planning.
• Business-level: details divisional long-term goals and structure.
• Identifies how this business meets corporate goals.
• Shows how the business will compete in market.
• Functional-level: actions taken by managers in departments of
manufacturing, marketing, etc.
• These plans state exactly how business-level strategies are
accomplished.
 Planning Period
• Planning can be short-range, medium-range or long-range
• Planning range from days to weeks, months or even years
• A company should not plan for a longer period than is
economically justifiable but is also risky to plan for a shorter
period.
• It is important to integrate short-range and long-range plans.
• Short-run plans should not be made unless they contribute to
the achievement of the relevant long-range plan.
 Planning Period
• Time horizon: refers to how far in the future the plan applies.
• Long-term plans are usually 5 years or more; strategic plans
• Medium-term plans are 1 to 5 years.
• Corporate and business level plans specify long and
intermediate term. Tactical plans to support long term plans
• Short-term plans are less than 1 year.
• Functional plans focus on short to intermediate term.

• Most firms have a rolling planning cycle to amend plans

constantly.
 Who Plans?
• Corporate level planning is done by top managers.
• Also approve business and functional level plans.
• Top managers should seek input on corporate level issues
from all management levels.
• Business and functional planning is done by divisional and
functional managers.
• Both management levels should also seek information from
other levels.
• Responsibility for specific planning may lie at a given level,
but all managers should be involved.
Planning is Key to Business Success
Decision making

• Decision-making is the selection from among alternatives

for a course of action.
• It is at the core of planning.
• A plan cannot be said to exist unless a decision on the
commitment of resources, direction, or reputation is made.
 Decision making
• Decision making: the process by which managers respond to
opportunities and threats by analysing options and making
decisions about goals and courses of action.
• Decisions in response to opportunities: managers respond to
ways to improve organisational performance.
• Decisions in response to threats: These occur when adverse
events in the organisation impact managers.
 Types of Problems and Decisions
Structured Problems
• Involve clear goals.
• Are familiar (have occurred before).
• Are easily and completely defined—information about the
problem is available and complete.
Programmed Decision
• A repetitive decision that a routine approach can handle.
Types of Programmed Decisions
• Policy
➢A general guideline for deciding a structured problem.
• Procedure
➢A series of interrelated steps a manager can use to
respond (applying a policy) to a structured problem.
• Rule
➢An explicit statement that limits what a manager or
employee can or cannot do.
 Policy, Procedure, and Rule Examples
• Policy
➢Accept all customer-returned merchandise.
• Procedure
➢Follow all steps for completing merchandise return
documentation.
• Rules
➢Managers must approve all refunds over K50,000.
➢No credit purchases are refunded for cash.
Problems and Decisions (cont’d
• Unstructured Problems
➢Problems that are new or unusual and for which
information is ambiguous or incomplete.
➢Problems that will require custom-made solutions.
• Nonprogrammed Decisions
➢Decisions that are unique and nonrecurring.
➢Decisions that generate unique responses.
Programmed versus Nonprogrammed
Decisions
 The Classical/Rational Model
• Effective decision making requires a rational selection of a course of
action.
• A rational decision permits the maximum achievement of an
objective within the limitations to which the decision is subject.
• Rationality implies:
• Attempting to reach some goal that could not be attained without positive
action.
• Having a clear understanding of alternative courses by which a goal could be
reached under existing circumstances and limitations.
• Having the information and the ability to analyze and evaluate alternatives in
the light of the goal sought.
• Having a desire to come to the best solution by selecting the alternative that
best satisfies goal achievement.
 The Classical/Rational Model
• Rational model of decision making: a prescriptive model
that tells how the decision should be made.
• Assumes managers have access to all the information
needed to reach a decision.
• Managers can then make the optimum decision by easily
ranking their own preferences among alternatives.
The Rational Model
List alternatives Assumes all information
& consequences is available to the manager

Assumes manager can

Rank each alternative process information
from low to high

Assumes manager knows

the best future course of
Select best
the organisation
alternative
Rational Decision Making Steps
Define and diagnose the problem

Set objectives
Follow Up and Control

Search for Alternative Solutions

Compare and Evaluate

Alternative Solutions

Choose among Alternative

Solutions

Implement the Solution Selected

 Decision-Making Steps
1. Define and diagnose the problem: Managers must first realise that a
decision must be made.
• Notice-events such as environmental changes.

• Interpreting-assess the forces they have noticed and determine

which are causing the real problem
• Incorporating –relate the interpretations to the current or desired
objectives
2. Set objectives: managers must develop SMART objectives and
feasible alternative courses of action.
• If good alternatives are missed, the resulting decision is poor.

• It is hard to develop creative alternatives, so managers need to

look for new ideas.
 Decision-Making Steps
3. Search for Alternative Solutions: look for alternative ways to achieving
an objective. This step might involve
• seeking additional information, thinking creatively, consulting experts,
• undertaking research, and similar actions

4: Compare and Evaluate Alternative Solutions-compare and evaluate

these alternatives.
• This step emphasizes expected results, including the relative cost of each alternative.

3. Evaluate alternatives: what are the advantages and disadvantages of

each alternative?
• Managers should specify criteria and then evaluate.
 Decision-Making Steps
5.Choose among Alternative Solutions- Decision making is commonly
associated with having made a final choice.
• Choosing among alternative solutions might appear to be straightforward.
• Problems can be complex problems and ambiguous
• Problems can involves high degrees of risk or uncertainty.

6: Implement the Solution Selected-A well-chosen solution is not

always successful.
• A technically correct decision has to be accepted and supported by those responsible for
implementing it if it is to be an effective one.

7. Follow up and control (Feedback and review)-Environmental forces

affecting decisions change continually.
• Without feedback, managers never learn from experience and make the same mistake
Rational Decision-Making Steps
 The Administrative Model
• Administrative Model of decision making: Challenged the classical
assumptions that managers have and process all the information.
• As a result, decision-making is risky.
✓Bounded rationality: There are many alternatives, and the
information is vast, so managers cannot consider it all.
• Rationality is bounded by the organisation.
• Human mind is limited
• Information is imperfect
• Incomplete information: Most managers do not see all
alternatives and make decisions based on incomplete
information.
Why Information is Incomplete

Uncertainty Ambiguous
& risk Information

Incomplete
Information

Time constraints &

information costs
 Incomplete Information Factors
• Incomplete information exists due to many issues:
• Risk: managers know a given outcome can fail or
succeed and probabilities can be assigned.
• Uncertainty: probabilities cannot be given for
outcomes and the future is unknown.
• Many decision outcomes are not known such as
a new product introduction.
• Ambiguous information: information whose meaning
is not clear.
• Information can be interpreted in different ways.
Incomplete Information Factors
• Time constraints and Information costs: Managers do not have
the time or money to search for all alternatives.
• This leads the manager to decide again based on incomplete
information.
• Satisficing: Managers explore a limited number of options and
choose an acceptable decision rather than the optimum
decision.
• This is the response of managers when dealing with
incomplete information.
• Managers assume that the limited options they examine
represent all options.
 Decision-Making Styles
• Types of Decision Makers
➢Directive
❖Use minimal information and consider few alternatives.
➢Analytic
❖Make careful decisions in unique situations.
➢Conceptual
❖Maintain a broad outlook and consider many alternatives in
making decisions.
➢Behavioral
❖Avoid conflict by working well with others and being
receptive to suggestions.
Decision-Making Matrix
 Group Decision Making
Many decisions are made in a group setting.
• Groups tend to reduce cognitive biases and can call on combined skills
and abilities.
There are some disadvantages with groups:
Group think: biased decision making resulting from group members striving
for agreement.
• Usually, group members rally around a central manager’s idea (CEO)
and become blindly committed without considering alternatives.
• The group tends to convince each member that the idea must go
forward.
• Groupthink biased decision-making (Ministers staying in office)
 Improving Group Decision Making
• Devil’s Advocacy: One member of the group acts as the devil’s
advocate and critiques how the group identifies alternatives.
• Points out problems with the alternative selection.
• Dialectical inquiry: two different groups are assigned to the
problem, and each group evaluates the other group’s
alternatives.
• Top managers then hear each group present their
alternatives, and each group can critique the other.
• Promote diversity: by increasing the diversity in a group, a
wider set of alternatives may be considered.
Devil’s Advocacy v. Dialectic Inquiry

Devil’s Advocacy Dialectic Inquiry

Presentation of
Alter. 1 Alter. 2
alternative

Critique of Debate the two

alternative alternatives

Reassess Reassess
alternative alternatives
accept, modify, reject accept 1 or 2, combine
 Decision Making for Today’s World
• Guidelines for making effective decisions:
➢Understand cultural differences.
➢Know when it’s time to call it quits.
➢Use an effective decision-making process.
➢Consider the STEEPLE factors as much as possible
 Characteristics of an Effective Decision-
Making Process
• It focuses on what is important.
• It is logical and consistent.
• It acknowledges both subjective and objective thinking and
blends analytical with intuitive thinking.
• It requires only as much information and analysis as is
necessary to resolve a particular dilemma.
• It encourages and guides the gathering of relevant information
and informed opinion.
• It is straightforward, reliable, easy to use, and flexible
 Decision making tools
Flow Charts:
• Flow charts visually describe the steps in a process or work
activity.
• The sequences of events that make up the process are
shown.
• Generally, flow charts begin with inputs, show the
transformation of these inputs and end with outputs.
 Flow Charts

• The charts help to visualise and understand how things are

currently being done and,
• How they can be done directly to improve the processes.
• Within the charts are decision points where a decision maker
is expected to make a decision.
 How to draw a flowchart
1. Describe the process to be charted, e.g. the purchasing process
2. Start with a 'trigger' event, the objective of the process
3. Note each successive action concisely and clearly
4. Go with the main flow (put extra detail in other charts)
5. Make cross-references to supporting information
6. Follow the process through to a useful conclusion (end at a 'target'
point), e.g. achieve the objective of the purchasing process
Flow chart-assessing the quality of the material
 Fish bone diagrams
• The Fish Bone or Ishikawa diagram is called the “cause and effect” diagram.
• Professor Kaoru Ishikawa proposed it in the 1960s and pioneered quality
management processes.
• The tool helps to identify, sort, and display known or possible causes of the problem.
• It displays the relationship between a given outcome and all the factors influencing it.
• It is a generic tool that can be applied to myriad managerial decisions.
• The effect or result is the head of the fishbone, while the causes are the bones or ribs
growing out of the spine.
• The fishbone chart can be used to see how different causes can lead to a problem.
• Once the causes have been identified and analysed, corrective measures can be
implemented.
Steps in Constructing a FD

• Step 1: Identify and clearly define the outcome or effect

(positive or negative) to be analysed by the model.
• Step 2: Identify the possible root causes, the basic reasons,
for a specific effect, problem, or condition.
• Step 3: Analyse existing problems so that corrective action
can be taken.
• The fishbone diagram only identifies factors that warrant
further investigation.
Identify causes of a defective product
Does it look familiar?
 Pareto charts-ABC Analysis
• Vilfredo Pareto postulated that a small percentage of the
population owns a large share of wealth.
• This basic principle translates well into management problems.
• These charts are based on the Pareto Principle, which states
that 80 per cent of the problems come from 20 per cent of the
causes.
Steps in constructing an ABC chart
1. calculate use by value;
2. sort the list into items by value descending;
3. calculate % that each item contributes to the total value;
4. derive a cumulative % list and
5. draw the Pareto curve.
Example of an ABC Curve
 Decision Trees and Capacity Decision
• A decision tree is a graphic display of the decision process that
indicates decision alternatives, states of nature and their
respective probabilities and payoffs for each combinational
alternative and state of nature.
• Decision trees are most useful for problems with sequential
decisions and states of nature.
• Two symbols are used in decision trees, and these are:
• A square for a decision node, from which one of several
alternatives may be selected.
• A circle for a state of nature node out of which one state of nature
will occur.
 Steps Constructing Decision Trees
1. Define the problem or decision to be made.
2. Draw the decision tree.
3. Assign the probabilities to the states of nature.
4. Estimate payoffs for each possible combination of alternatives
and states of nature.
5. Solve the problem by computing expected monetary values
(EMV) for each state of nature node.
• This is done by working backwards that is by starting at the right hand side
of the tree and working backwards to the decision nodes on the left.
6. For each decision node, we select the one with the highest EMV
(or minimum cost).
• Then those decision alternatives not selected are eliminated from further
consideration.
 Example
A company manufacturing Yako soap is faced with three capacity decision alternatives:
a) To construct a large plant
b) To construct a small plant
c) To do nothing
If they construct a large plant, there is a 50% chance of a favourable market. A favourable
market is expected to yield K200,000 while an unfavourable market will lead to a loss of
K180,000.
Constructing a small plant would yield K100,000 if the market is favourable and a loss of
K20,000 if it is not favourable. There are equal chances of having a favourable or
unfavourable market.
Doing nothing will yield no returns.

What should Yako limited do?

 Test 1
22nd February 2023
Time 1030 hours
Venue-K211, or SB 1, 2
Come with your own paper