UNIT II – PLANNING

Nature and purpose of planning – planning process – types of planning – objectives –

setting objectives – policies – Planning premises – Strategic Management – Planning Tools
and Techniques – Decision making steps and process.

I-NATURE AND PURPOSE OF PLANNING:

 Planning is the most basic form of all management functions
 Everyone used to plan in our day to day activities
 We plan to execute our official work, improvise career, plan our investment, etc.,

Definitions:
 Planning involves defining the organizations' goals, establishing strategies for
achieving those goals and developing plans to integrate and coordinate work
activities
 Planning is deciding in advance what to do, how to do it, when to do it, and who is
to do it
 Planning bridges the gap from where we are to where we want to go
 In formal planning, specific goals covering a specific period of time are defined
 Shared among all the members of an organization to reduce uncertainty and
create common understanding about what need to be done

(i) NATURE Of PLANNING:

1. Pervasiveness:
 Occurs irrespective of level of management
 Every manager has a planning function to perform
2. Primary in nature:
 Precedes other functions of an organization
 Without planning other functions of an organization becomes meaningless
3. Continuous in nature:
 Never ending activity
4. Flexible in nature:
 Future is unpredictable, thus planning must provide enough room to cope with
the changes in global market
5. Goal oriented:
 Carried out to attain the objective of an organization.
 Provides guidelines for attaining goals.
6. Integrated process:
 Integrates the plans and actions of a manager.
7. Forward looking:
 Without planning, business becomes random in nature.
8. Intellectual process:
 Involves brain activity.
9. Factual process:
 Process is based on some predictions and past experiences.
10. Effective and efficient process:

1
(ii) PURPOSE OF PLANNING:
Provides direction, Reduces uncertainty, Minimizes waste and redundancy,
Set standards for controlling, Provides basis for team work, Adaption to change in
work environment, Improves morale, Facilitates decision making.
Goals:
 Goals are also called as objectives
 Goals are desired outcomes or targets
 They guide management decisions and form the criteria against which the work
results are measured
Types of goals:
 Financial goal
 Strategic goal
 Stated goals
 Real goals

PLANNING PROCESS:
 Planning process differs from organization to organization and from objective
to objective
 With some minor modifications, process is applied for all types of plans

1. Situation Analysis:
 Manager should collate all the information relevant to a given activity for which
planning is to be made. Should analyze past experience, current trends and future
scope
 Helps to bring the issues and problems related to activity to light
2. Identification of Opportunities:
 The exact planning starts
 Identify the opportunity and carry out SWOT analysis
 If the organization gets positive result, it would pass on to next stage; else the
opportunity would be dropped

2
3. Objective Setting:
 Represents the destination of an organization
 Objectives of an organization and various departments are fixed
 Timeline to finish the objectives are also fixed during this stage
4. Planning Premises:
 Denotes the circumstances under which the planning will be undertaken
 It represents the assumptions that are to be considered
5. Determining alternative course of actions:
 Requires imagination, foresight and ingenuity
 E.g. To improve productivity and organization can focus on increasing wages or
incentives or technology investment, etc.,
6. Evaluation of alternatives:
 Analyzing various aspects and results of all the alternatives
 Involves micro analysis of all the alternatives
7. Selection of best alternatives:
 After micro analysis, the best methodology is preferred for to accomplish the goal
of an organization
8. Derivative plans:
 Organization has to think about secondary or sub plans to accomplish.
 E.g. If an organization prefers to provide transport facility instead of outsourcing,
then it have to think about financial burden, etc.,
9. Implementation of plans:
 Communicating plan to all employees and providing instructions.
 Deploying facilities like raw materials, man power, machinery, etc.,
 Linking implementation with reward system and ensuring execution
10. Follow up:
 Monitoring the consequences of implementation, so that necessary corrective
actions can be to fine tune the plan.

3
II-TYPES OF PLANNING:

1. Breadth: Based on the range of area.

1a) Strategic Plans:
 Apply to the entire organization
 Establish the organization’s overall goals
 Seek to position the organization in terms of its environment
 Cover extended periods of time
1b) Operational Plans:
 Plans that encompasses a particular operational area of the organization
 Specify the details of how the overall goals are to be achieved
 Cover short time period
2. Time frame: Based on duration for achieving the goal
2a) Long term goals:
 Plans with time frames extending beyond three years. (e.g.: Buying a car)
2b) Short term goals:
 Plans with time frames on one year or less.(e.g.: Getting driving license)
 Any plans between these time duration are called as intermediate plans
3. Specificity: Based on range of defining.
3a) Specific Plans:
 Plans that are clearly defined and leave no room for interpretation
 They have clearly defined objectives
 No ambiguity or misunderstanding
3b) Directional Plans:
 Flexible plans that set out general guidelines, provide focus, yet allow freedom in
implementation
 Directional plans are used when uncertainty is high
 They provide focus but do not lock managers into specific goals or courses of
action
4. Frequency of use: Based on usage of planning.
4a) Single-Use Plan:
 A one-time plan specifically designed to meet the need of a unique situation
4b) Standing Plans
 Ongoing plans that provide guidance for activities performed repeatedly

4
III-SINGLE USE PLANS VS STANDING PLANS:
Standard/Repeated Use
Single Use Plans
Plans
Programmes Objectives
Budgets Policies
Projects Procedures
Rules
Strategies
(i) Single Use Plans:
a) Programmes
 A specific plan devised to meet a particular situation
 Action based, result-oriented
b) Budget
 A financial or quantitative statement prepared prior to a definite period of time
c) Project
 Part of general programme
 A complex of policies, procedures, rules, to carry out a course of action

(ii) Standing Use Plans:

a) Objectives
 Specific goals or targets to be accomplished
 Realistic, flexible
b) Policies
 Guiding principles established by the company to govern actions usually under
repetitive conditions
c) Procedures
 Prescribe the manner or method by which the work is to be performed
d) Rules
 A decision made by the management regarding what is to be done and what is
not to be done in a given situation
e) Strategy
 A special kind of plan formulated in order to meet the challenge of the policies of
competitors
TACTICAL PLANNING:
 Deals with the low level units of an organization
 Concerned with shorter time frames and narrower scopes
CONTINGENCY PLANNING:
 Plans that are devised for specific situation
ADVANTAGES OF PLANNING:
 Helps in achieving objectives
 Better utilization of resources
 Economy in operation
 Reduces uncertainty and risk
 Effective control
 Improves coordination
 Guides in decision making
 Improves output of an organization
 Encourages motivation
 Provides decentralization
5
 DISADVANTAGES OF PLANNING:
 Lack of accuracy
 Time and cost
 Inflexibility
 Delay during emergency period
 False sense of security

IV-OBJECTIVES:
DEFINITIONS:
 Objectives are those ends which the organizations seeks to achieve by its
existence and operations
 Objective is a specific commitment to achieve a measurable result within a
specified time

CHARACTERISTICS OF ORGANIZATIONAL OBJECTIVES:

1. Multiplicity:
 Multiplicity of objectives triggers the problem of fixing priorities and harmonizing
them
2. Hierarchy: (Top – down and bottom – up approaches)
 Objectives are framed across different levels of an organization
 Eg. 1. Achieving Profit, Improving Shares – Top Level Management
2. Cost Reduction, Waste Management – Middle Level Management
3. Reducing Absenteeism, Maintenance – Low Level Management
3. Networking:
 Objectives are intertwined and networked with one other
 Eg. Marketing, HR and Production
4. Time dimension:
 Objectives are time bound
 Eg. short term, long term, intermediate term
5. Quantifiable and non – quantifiable:
 Objectives based on numbers are called quantifiable
 Objectives based on quality are called as non – quantifiable
 Eg. 1. Improving productivity, increasing profit to certain number
2. Improving job satisfaction, enhancing quality of products
6. Social sanction:
 Objectives will confirm to general needs of the society

IMPORTANCE AND ROLE OF OBJECTIVES:

1. Legitimacy:
 They describe the purpose of an organization. They provide the identity to an
organization
2. Sense of direction:
 Provides the guide way towards the target
 Every employee must have clear idea about what he/she is supposed to do in
his/her job
3. Motivational aid:
 Apart from incentives and rewards, objective of an organization will be the driving
force to attain a goal

6
4. Control mechanism:
 Being a driving force, objectives restricts employees from deviation
5. Co – ordination:
 Objectives serve as unifying force for an organization
 e.g. executives coordinates the efforts of their subordinates
6. Uniqueness:
 They are core force to planning
 They serve as reference points for the formulation of policies, strategies, procedures,
etc.,

V-SETTING OBJECTIVES:
Setting objective must meet following criteria:
1. Should be consistent with the values of management.
2. Should pin point strength of an organization.
3. Should satisfy external environment factors.

OBJECTIVE SETTING GUIDELINES:

 Objectives should be clear and specific
 Should be expressed in measurable terms
 Objectives should be attainable and realistic
 Objectives should be time bound
 Should be whole heartedly accepted by employees
 Objectives should be challenging
 Objectives should have sub-goals and linked to rewards
 Objectives should be inter – connected and mutually supportive
 Objectives should be flexible and adaptable
 It should be set down in all key – result areas

BENEFITS OF OBJECTIVES FORMULATION:

 Sets specific target
 Provides direction for employee
 Increases staff motivation
 Helps to focus on specific task
 Builds relationship
 Helps to measure the performance of employee
 Helps to prioritize
 Enables the success to be measured

LIMITATIONS IN OBJECTIVES FORMULATION:

 Immeasurability
 Inadequate resource allocation
 Stress on employee
 Neglecting ground reality
 Avoiding consultation
 Time constraint
 Rigid and unclear objectives

7
VI-MANAGEMENT BY OBJECTIVES:
 MBO was conceptualized by Peter F. Drucker and was made into practice by
Harold Smiddy
 Harold Smiddy was a long time Vice President of GEC

DEFINITION:
 Management by Objectives is a process of setting mutually agreed upon goals and
using those goals to evaluate employee performance
 Specific performance goals are jointly determined by employees and managers
 Progress towards accomplishing goals is periodically reviewed
 Rewards are allocated on the basis of progress towards the goals

KEY ELEMENTS OF MBO:

 Goal specificity
 Participative decision making
 An explicit performance/evaluation period
 Feedback

STEPS IN MBO:
 Step 1: Overall objectives and strategies are formulated.
 Step 2: Major objectives are allocated among divisional and departmental units.
 Step 3: Unit managers collaboratively set specific objectives for their units with
their managers.
 Step 4: Specific objectives are collaboratively set with all department members.
 Step 5: Action plans, defining how objectives are to be achieved, are specified and
agreed upon by managers and employees.
 Step 6: The action plans are implemented.
 Step 7: Progress toward objectives is periodically reviewed and feedback is
provided.
 Step 8: Successful achievement of objectives is reinforced by performance-based
rewards.

CHARACTERISTICS OF WELL WRITTEN GOALS:

 Written in terms of outcomes, not actions
 Measurable and quantifiable
 Clear as to time frame
 Challenging yet attainable
 Written down
 Communicated to all necessary organizational members

STEPS IN GOAL SETTING:

1. Review the organization’s mission statement.
2. Evaluate available resources.
3. Determine goals individually or with others.
4. Write down the goals and communicate them.
5. Review results and whether goals are being met.

ADVANTAGES OF MBO:
 Employee feel motivated when working in the organization because of clear goals
 Improvement of managing through result oriented planning

8
  Classification of organization roles and structures as well as delegation of
authority according to the results expected of the people occupying the roles
 Encouragement of commitment to personal and organizational goals
 Development of effective controls that measure results and lead to corrective
action
 Autonomy in implementation of plan

DRAWBACKS OF MBO:
 MBO is not the best approach for organization functioning in dynamic
environment
 Overemphasis on individual accomplishment may create problems with
teamwork
 Difficulty in implementation
 Difficulty of setting verifiable goals with right degree of flexibility
 Overuse of quantitative goals and the attempt to use numbers in areas where
they are not applicable

MBO AT MICROSOFT BY BILL GATES:

 Eliminate politics, by giving everybody the same message
 Keep a flat organization in which all issues are discussed openly
 Insist on clear and direct communication
 Prevent competing missions or objectives
 Eliminate rivalry between different parts of the organization
 Empower teams to do their own things

VII-POLICIES:
DEFINITION:
 Policy is a general guideline for decision making
 According to Koontz and Weihrich, ―Policies are general statements of
understandings which guides or channelize thinking in decision making or
subordinates
 Policies deal with ‘How to do’ but it do not dictate terms to subordinates
 Policy is only a framework within which decisions must be made

NATURE OF POLICY:
1. Relationship to organization’s objectives:
 Policies are based on the objectives and they contribute towards the attainment of
objectives
2. Clarity of policy:
 Policies are clear, definite and explicit leaving no room for interpretation
3. Guideline towards decision making:
 Prescribes the criteria for current and future actions
4. Policies are written:
 Policies are stared with precise covering of all anticipated conditions
5. Consistency:
 Provides steadiness in various operations of an organization
6. Balance of policy:
 Should maintain balance between stability and flexibility.

9
NEEDS FOR POLICY:
 Operationalize objectives
 Save time and effort
 Facilitate delegation of authority
 Speedup decision making
 Control administration

POLICY FORMULATION PROCESS:

1. Definition of policy
2. Creation of policy alternatives
3. Evaluation of policy alternatives
4. Choice of policy
5. Communication of policy
6. Implementation of policy
7. Review of policy

TYPES OF POLICIES:
1. CLASSIFICATION ON THE BASIS OF SOURCES:
1a. Originated or Formulated policies:
 Originated by top level managers, flows down the level of the management
 Acts as guidelines for lower level units to formulate their own unit policies
1b. Appealed policies:
 Policies formulated on the request or appeal of lower level managers
1c. Implied policies:
 Sometimes policies are not clearly stated and the actions of top level managers
provide guidelines for actions at the lower levels
1d. Externally imposed policies:
 Policies that are imposed by some external forces such as unions, government,
association, etc.,

2. CLASSIFICATION ON THE BASIS OF FUNCTIONS:

a) Production policy
b) Sales policy
c) Financial policy
d) Personnel policy

3. CLASSIFICATION ON THE BASIS OF ORGANIZATION LEVELS:

a) Company policy
b) Department policy
c) Derivative policy

ADVANTAGES:
 Ensures uniformity in actions
 Speeds up decision at lower levels
 Delegation of Authority or work becomes easier
 Gives practical shape to the objectives by elaborating and directing the way in
which the predetermined objectives are to be attained

10
VIII-PLANNING PREMISES:
 Usually plans are prepared for future, which are uncertain. Thus the management
makes certain assumptions about the future

DEFINITION:
 According to Koontz and Weihrich, Planning premises are the anticipated
environment in which plans are expected to operate
 According to Dr.G.R.Terry, Planning premises are the assumptions providing a
background against which the estimated events affecting the planning will take
place

IMPORTANCE:
 Well organized planning can be done
 Risk of uncertainty reduces
 Risk of flexibility reduces
 Co-ordination becomes effective
 Increases in profitability

CLASSIFICATION:
1. Internal and External:
 Internal are assumptions considered within an organization
Eg.: Man power, Resource availability, Capacity of a plant
 External are assumptions considered outside an organization
Eg.: Business environment, Demand in market, Technological advancement
2. Tangible and Intangible premises:
 Tangible are the assumptions that deal with numbers.
Eg.: Working hour, monetary unit.
 Intangible are the assumptions that can’t be measured.
Eg.: Employee welfare, Motivation.
3. Controllable and uncontrollable:
 Assumptions that are completely under control or realm.
Eg.: Procedures, Organization structure.
 Assumptions that can’t be controlled by an organization.
Eg.: Population growth, Taxation policy of government.

PREMISES ABOUT RAW MATERIALS:

 What type of material and quantity?
 What will be the price of raw material?
 Availability of raw material resource and transportation cost.
 Is there any possibility to prepare required raw material in the company?
 If raw material is going to be purchased, should it be imported or indigenously
acquired?

PREMISES ABOUT PERSONNEL:

 How much skilled, unskilled, male, female are needed for implementation of a plan?
 How much training should be imparted in the context of new technological
development?
 To make an estimate regarding present and future employees

11
PREMISES ABOUT ORGANIZATION:
 What will be the structure of the organization?
 Coordination among departments
 Whether to centralize or decentralize the authority?

PREMISES ABOUT BASIC POLICIES:

 Whether to give importance to quality or low price?
 Premises about automation of office
 Premises for capital
 The methods of directing to be followed
 Policies and rules of employment

IX-STRATEGIC MANAGEMENT:
DEFINITION:
 The decisions and actions that determine the long-run performance of an
organization
 What the managers do to develop an organization’s strategy
 It involves all the management functions
 They are the plans for how the organization will do whatever it is in business to
do
 Helps an organization to attract and satisfy its customers in order to achieve its
goals

BUSINESS MODEL:
 Design which defines how a company is going to make money
 Business model focuses on two factors:
1. Whether customer will value what the company is providing?
2. Whether the company can make any money doing that?

IMPORTANCE OF STRATEGIC MANAGEMENT:

 Can make a difference in how well an organization can perform?
 Managers face continually changes in situations
 Organizations are complex and diverse

STRATEGIC MANAGEMENT PROCESSES:

12
Step 1: Identifying the organization’s current mission, goals and strategies
 Mission is the reason for a firm’s being
 Provides clues to what the organizations see as their purpose
Step 2: Doing an external analysis
 Analyzing environment is the critical step in strategic management process.
 Find out the opportunities (smart phones) and threats
 Opportunities are the positive trends and threats are the negative trends

Step 3: Doing an internal analysis

 Gives information about organization’s specific resources and capabilities
 Gives information about organization’s specific resources and capabilities
 Here strengths and weakness are analyzed
Step 4: Formulating strategies
 After analyzing all the factors the strategies will be formulated
 Three types of strategies are: corporate, business and functional
Step 5: Implementing strategies
Step 6: Evaluating results

CORPORATE STRATEGY:
 Specifies what businesses a company is in or wants to be in?
 Top management’s overall plan for the entire organization and its strategic
business units
 Corporate strategies are classified into three types:
1. Growth
2. Stability
3. Renewal

1. GROWTH STRATEGIES:
 With growth strategy, an organization expands the number of markets served or
products offered
 Expands in current businesses or new businesses
1.1 Concentration
1.2 Vertical Integration
13
 1.3 Horizontal Integration
1.4 Diversification
1.1 Concentration:
 Focuses only on primary line of business and increases the number of products
offered
Eg.: CRI Pumps, Coimbatore.
1.2 Vertical Integration:
1.2.1 Backward vertical integration.
Eg.: eBay online payment mode
1.2.2 Forward vertical integration.
Eg.: Bata showrooms
1.3 Horizontal Integration:
 Company grows by combining with competitors.
Eg.: RNAIPL
1.4 Diversification:
1.4.1 Related diversification (variety of business in same field)
Eg.: Godrej
1.4.2 Unrelated diversification (different field)
Eg.: Tata Group of India
2. STABILITY STRATEGIES:
 Organization continues to do what is currently doing.
 Serves the clients by offering same product.
Eg.: Iruttu Kadai

3. RENEWAL STRATEGIES:
 Arises when the organization is in problem.
3.1 Retrenchment Strategy (short run renewal)
3.2 Turnaround Strategy (problems are more serious)

CORPORATE PORTFOLIO ANALYSIS:

 In case of collection of businesses, management uses BCG (Boston Consulting
Group) matrix

14
COMPETITIVE STRATEGIES:
 Strategy focused on how an organization should compete in each of its Strategy
Business Unit (SBU)
ROLE OF COMPETITIVE ADVANTAGE:
1. Quality as a competitive advantage:
 Iruttu Kadai
2. Sustaining competitive advantage:
 MIT

FIVE FORCES MODEL:

NEW ORGANIZATION STRATEGIES:

1. e-Business Strategies: Eg.: Flip kart
2. Customer Service Strategies: Eg.: New Balance Athletic shoes
3. Innovation Strategies: Eg.: Ramraj Velcro dhotis

X-PLANNING TOOLS AND TECHNIQUES:

There are three categories of planning tools and techniques:
1. Techniques for assessing the environment
2. Techniques for allocating resources
3. Contemporary planning

TECHNIQUES FOR ASSESSING THE ENVIRONMENT:

 Many larger accounting firms have setup external analysis departments to study
the wider environment in which they and their clients operate
 Three techniques helps managers to do that:
1. Environmental scanning
2. Forecasting
3. Benchmarking

15
1. Environmental scanning:
Managers used to screen large amount of information to anticipate and interpret
changes in the environment
1.1 Competitive Intelligence:
 Process by which the organizations gather information about their competitors and
get answers to questions Who they are? What they are doing? How will they
affect us?
1.2 Global Scanning:
 World markets are complex and dynamic
 Managers must focus how he should update the business

2. Forecasting:
 Predict the future events effectively.
1. Quantitative forecasting
2. Qualitative forecasting
2.1 Quantitative forecasting:
 Set of mathematical rules to a series of past data to predict outcomes.
 E.g.: Planning commission
 Time series analysis (Duration to complete)
 Regression models (Predicting a variable by assuming another variable)
 Econometric models (Sales change due to taxation)
 Economic indicators (Using a factor to predict. e.g. GDP)
 Substitution effect (DVD vs Pen drive)
2.2 Qualitative forecasting:
 Uses judgment and opinions of knowledgeable individuals to predict outcomes.
 Jury of opinion (Recruiting)
 Sales force composition (Predicting next year sales)
 Customer evaluation (Surveying dealers)

3. Benchmarking:
 The search for the best practices among competitors and non-competitors that
lead to their superior performance

Steps in Benchmarking:

16
TECHNIQUES FOR ALLOCATING RESOURCES:
 Managers must focus on the resource allocation before the execution of a work.
Examples:
 Financial (equity, debts)
 Human (skilled labors)
 Physical (raw materials, equipment)
 Intangible (brand names, reputation)

1. BUDGETING:
 Numerical plans for allocating resources to specific activities.
 Used to improve time, space and use of material resources.
 e.g. revenues, expenses and capital expenditures.

TYPES OF BUDGETS:

Methods to Improve Budgeting:

 Collaborate and communicate.
 Be flexible.
 Goals should drive budgets—budgets should not determine goals.
 Coordinate budgeting throughout the organization.
 Use budgeting/planning software when appropriate.
2. SCHEDULING:
 Plans that allocate resources by detailing what activities have to be done, the
order in which they are to be completed, who is to do each, and when they are to be
completed
2.1 Gantt Charts:

17
 2.2 Load Charts:

2.3 PERT Analysis:

 A flow chart diagram that depicts the sequence of activities needed to complete
a project and the time or costs associated with each activity.
 To understand this one must know the following terms:
1. Events: endpoints for completion.
2. Activities: time required for each activity.
3. Slack time: Time an individual activity can be delayed.
4. Critical path: Most time consuming sequence of events.

STEPS IN PERT ANALYSIS:

1. Identify every significant activity that must be achieved for a project to be
completed.
2. Determine the order in which these events must be completed.
3. Diagram the flow of activities from start to finish
4. Compute a time estimate for completing each activity.
5. Determine a schedule for the start and finish dates of each activity and for he
entire project.

3. BREAK – EVEN ANALYSIS:

 Used to determine the point at which all fixed costs have been recovered and
profitability begins.
Total Fixed Costs
Breakeven :
Unit Price - Unit Variable Costs

18
4. LINEAR PROGRAMMING:
 Helps in selecting which is the most suitable or optimistic method to find the
solution.

CONTEMPORARY PLANNING TECHNIQUES:

 Much suited for dynamic and complex situation

1. Project Management:
 The task of getting a project’s activities done on time, within budget, and
according to specifications
 Project is defined as one-time-only set of activities that has a definite beginning
and ending point time

2. Scenario Planning:
Scenario Planning
 An attempt not tries to predict the future but to reduce uncertainty by playing
out potential situations under different specified conditions.
Scenario
 A consistent view of what the future is likely to be

19
Preparing for unexpected events:
 Identify potential unexpected events
 Determine if any of these events would have early indicators
 Set up an information gathering system to identify early indicators
 Have appropriate responses (plans) in place if these unexpected events occur

XI-DECISION MAKING STEPS AND PROCESS:

DECISION MAKING:
 Managers at all levels and in all areas of organizations make decisions
 Top level managers – Goals, Location of manufacturing facility, new markets etc.,
 Middle level and lower level – production schedules, product quality problems,
pay rises and employee discipline etc.,
 Making a choice from two or more alternatives
 For every action, decision making helps us to choose the best solution

DECISION MAKING STEPS:

Step1: Identifying the problem or fixing to the requirement.
Step2: Consider the factors to resolve problem (Eg.: costs)
Step3: Adding importance/weights to each criterion.
Step4: Identify viable alternatives.
Step5: Analyze the alternatives.
Step6: Choosing all the alternates.
Step7: Implementation of alternatives.
Step8: Evaluation.

BOUNDED RATIONALITY:
 Managers make decisions rationally, but are limited (bounded) by their ability to
process information
 Managers satisfy rather than maximize

ESCALATION OF COMMITMENT:
 Increased commitment to a previous decision despite evidence that it may go wrong

ROLE OF INTUITION:
 Taking a decision on the basis of experience, feelings and accumulated judgment

20
TYPES OF PROBLEMS AND DECISIONS:
1. Structured problems and programmed decisions.
Eg.: for programmed decisions: Policy, procedure, rule.
2. Unstructured problems and non – programmed decisions.
Eg.: for non – programmed decisions: expel / change the employee.

PROGRAMMED VS NON – PROGRAMMED DECISIONS:

TYPES OF DECISION MAKERS:

COMMON DECISION MAKING ERRORS:

21
1. Overconfidence Bias
 Holding unrealistically positive views of one’s self and one’s performance.
2. Immediate Gratification Bias
 Choosing alternatives that offer immediate rewards.
3. Anchoring Effect
 Fixating on initial information and ignoring subsequent information.
4. Selective observation Bias
 Selecting, organizing and interpreting events based on the decision maker’s biased
perceptions.
5. Confirmation Bias
 Seeking out information that reaffirms past choices and discounting contradictory
information.
6. Framing Bias
 Selecting and highlighting certain aspects of a situation while ignoring other
aspects.
7. Availability Bias
 Losing decision-making objectivity by focusing on the most recent events.
8. Representation Bias
 Drawing likeness and seeing identical situations when none exist.
9. Randomness Bias
 Creating unfounded meaning out of random events.
10. Sunk Costs Errors
 Forgetting that current actions cannot influence past events and relate only to
future consequences.
11. Self-Serving Bias
 Taking quick credit for successes and blaming outside factors for failures.
12. Hindsight Bias
 Mistakenly believing that an event could have been predicted once the actual
outcome is known (after-the-fact)

22