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Decision Making and Strategic Planning
This topic emphasizes the need for managers to devise decision making and strategic planning processes.
Review Management and Decision Making; Kay, et al, Chapter 2 (pp. 17-28)
- Functions of management
- Planning, deciding, implementing, controlling
- Restated, the functions of management can be described as planning what to do (e.g., assessing alternatives), deciding what to do, implementing what was decided, and responding to the outcome of the previous plan, decision, and implementation.
- Management is an ongoing process; even though the functions may be described as discrete steps, business managers are inevitably performing each of the functions on an ongoing basis. Likewise, an outcome of the "control" step is to review, refine and update the previous plan, decision and implementation. Thus management is an ongoing process.
In more complex or larger firms, there may be several levels of managers, such as top managers, middle managers, project managers, front-line managers. But rather than think about the levels of managers, it may be helpful to consider levels of management.
What type of questions are addressed at each level of management? What is the role of each level of management? Can a person function in more than one level of management, especially in a relatively small business?
- Top level management -- set the overall business goals, define strategies to achieve the overall goals, monitor and interpret the external environment, have a long-term vision, communicate that vision to others, shape the business' culture, nurture entrepreneurship, help the company respond to change and opportunities.
- Middle management -- implement the strategies and policies defined by top level decisions, facilitate change and respond to shifts in the environment
- Front-line management -- responsible for production processes, achieve efficient production, provide technical assistance, motivate employees, focused on day-to-day goals
- Project management -- responsible for a temporary work project
In a small business, individuals may need to manage at several levels. For example as a sole proprietor, a farmer with several employees may need to perform each level of management, ranging from long-term planning to directing the repair of a piece of equipment.
Characteristics of business management strategies: information-based, flexible, empower colleagues/employees, use information technology, thinks about the global economy, builds on the strength of diversity, and embraces ongoing change.
- Why are these characteristics important?
Managers need to provide leadership, team-building, connectivity or a network, collaborative relationships, a "learning organization" (professional development), and capacity to handle unexpected events.
- During unexpected or adverse events, stay calm, be visible/available/approachable, put people first (short-term strategy to achieve long-term goals), be truthful/honest/open/direct, and know when to shift out of "emergency management"
Do not overlook the role of goals and information in making decisions (for example, steps 1 through 4 of the strategic planning process).
Managers are a source of information (informational), assure communication and teamwork (interpersonal), and identify alternatives and make a choice (decisional).
Developing your management style is one focus of this course. Your management process will not be identical to my management process, so each of us needs to develop our own process.
We are different people and we are involved in different businesses, thus our management style or process will not be identical. However, there are some commonalities that many managers follow or practice. These are the points we will focus on; they will hopefully help each of us develop our own management process.
Decision making Process
- Decision making is a process; it involves steps. For example:
- Identify and define the problem or opportunity;
- Identify alternative solutions;
- Collect data and information;
- Analyze the alternatives and make a decision;
- Implement the decision;
- Monitor and evaluate the results;
- Accept responsibility
- Where do you find information about your business? What type of production and financial records are needed? This question is revisited throughout the course.
- A long-time employee of a major agribusiness firm recently stated that "despite what we want, in many situations
decisions need to be made with incomplete information; managers need to learn how to recognize what is the most important information for a decision and focus on that."
- Where do you find information about the industry? Some information about the industry will be private and some will be public.
- How is the decision making process impacted by whether the information is public or private?
- What are your personal and career goals? And for those who respond "to earn an income," I will ask "how do you intend to use your income," because the answer to that question should begin to describe your REAL goals.
- Example. Recently, a student reluctantly stated that she wants a career as an airline attendant. She went on to indicate that she is interested in traveling. The student then revealed that she used this personal goal to identify a possible career and that career, in turn, was used to identify a course of study. This reserved student should be commended for getting the decision making process in the correct order.
- What are your REAL goals? Own a house? Own a business? Travel? Be able to take time away from work and business?
- What are some common business goals?
- Earn a profit?
- Increase owner equity?
- Pay bills on time?
- Do not assume unreasonable risk?
- Offer workers an enjoyable career?
- Offer workers a safe place to work?
- Offer workers opportunity for professional and personal growth?
- What are the characteristics of a goal? A meaningful goal is
- challenging but realistic,
- time specific, and
- addresses key result areas.
- How does a manager "evaluate the results?"
Is there any relationship between the step of "evaluating the results" and the manager's goals?
- Is there another step after "monitor and evaluate" other than "accept responsibility?" If yes, what is it and what role does it have in the overall decision making process?
- HINT -- it has already been suggested that the functions of management are "planning, deciding, implementing, controlling;" how does controlling relate to "monitor and evaluate?"
- What does it mean to "accept responsibility?" Why is this step important in the decision making process? Does this step relate to risk?
Another description of Management; Daft Chapter 1 (pp. 4-32)
- Management is "[a]ttaining the organization's goals through an effective and efficient manner through planning, organizing, leading and controlling" (This statement contains seven concepts, can you define or explain each of the seven concepts?)
- goals -- the decision criterion?
- effective -- the goal is accomplished
- efficient -- the goal is accomplished with as few resources as possible
- planning -- developing a vision for what the manager wants to accomplish and how it will be accomplished
- organizing -- identifying, acquiring, and using the resources needed to accomplish the vision
- leading -- motivating others to work towards the same goals
- controlling -- measuring the results, assessing whether the appropriate progress is being made, and making appropriate changes
Types of decisions
- The type of decision that needs to be made can impact how the manager makes the decision.
- Importance -- Some decisions are more important than others. Important decisions may warrant taking additional time to gather information and to analyze alternatives. Important decisions are less likely to be delegated to a subordinate.
- How would you define an "important" decision? What distinguishes an important decision from a less important decision?
- Frequency -- Some decisions are made frequently or repeatedly. In this situation, a pattern of how to analyze the situation each time, what factors need to be considered, and what decision should be made based on the observed factors may become routine. With proper explanation, such decisions probably can be delegated. An infrequent decision, on the other hand, may take more time and consideration because the manager has less experience thinking about "what are the most important factors in making this infrequent decision, and how do I locate and analyze the appropriate information."
- Imminence (decision is needed NOW) -- Some decisions require an immediate response; there is no time for extensive study and discussion. In this situation, whoever has the information probably needs to make the decision. A decision that does not need to be made immediately offers the opportunity to gather and analyze more information. It also offers an opportunity to consider who is in the best position to make the decision.
- Revocability -- A decision that can be easily reversed probably will be made with less gathering and analysis of information, and probably can be made by the person who is directly involved. A decision that is difficult to reverse should likely be analyzed more fully before it is made.
- Number of alternatives -- A decision with numerous alternatives will likely take more time and analysis than a decision where there are few alternatives. There may be an occasional situation that requires a decision but there appears to be no alternative, thus there really is no decision in such a situation other than perhaps "do we proceed now or later."
- What about decisions concerning production, finance, marketing, labor, risk, etc? How are these decisions made? What factors does the manager need to consider in making these decisions? What analytical tools does economic theory describe, e.g., marginal cost and marginal revenue? What other analytical tools could managers use? What do producers need to know (what information does a manager need) to apply or use these analytical tools?
A decision making process -- again
- Briefly describe or consider the current situation.
- Review long-term or overall business/career/professional and personal goals; for example, consider how personal interests and desired level of risk exposure influence goals.
- Assess whether the current situation is "on track" to achieve long-term goals. If yes, there may be no need for a change at this time. If no, this may be an appropriate time to consider alternatives.
- Identify or summarize why the current situation appears to be "not on track" to meet long-term goals; that is, why the current situation will not achieve the goals. How does reviewing the current situation that is considered "not on track" relate to the concept of "effective," as introduced earlier?
- Also, recognize that the current situation could be "on track" to achieve the long term goals, but an alternative could achieve those goals in less time or with fewer resources. How does this relate to the concept of "efficient," as introduced earlier?
- State reasons why change may be needed at this time; e.g., goals have been changed/revised; conditions or circumstances have changed or are expected to change; an alternative could achieve the goals more efficiently.
- Specifying reasons for wanting to review an alternative should/will help clarify the thought process throughout the review process. That is, if thoughts become confused while reviewing alternatives, refer to the reasons why the review is needed.
- If change appears necessary: identify alternatives; determine why these are legitimate alternatives; specify what the alternatives are to accomplish, that is, state goals for the alternatives. Consider how the goals for the alternatives align with long-term or overall goals.
- Concisely state the decision that needs to be made, for example, "will purchasing this new item of equipment increase the business' profit?"
- Specify criteria for deciding whether to implement an alternative, that is, what is the minimum the alternative must be projected to accomplish before it will be implemented
- If none of the alternatives are projected to accomplish their respective minimums, the current situation may be the best possible strategy at this time.
- Long-term goals as well as goals for the alternatives will likely consider objectives other than "maximizing profit."
- Concisely state the decision criterion, for example, "the business will purchase this new item of equipment if the analysis projects that it will increase annual profit by $2,000."
- Identify an appropriate method to analyze the alternative (e.g., enterprise analysis, partial budget, whole-firm); briefly state why this analytical method is appropriate for the analysis.
- Does the analysis include "bouncing the idea" off of confidants? Do we have a network of peers or colleagues to share and discuss ideas without concern that they may use our idea in a way that would harm us?
- Identify data needed to complete the analysis; consider sources for the data; review how the data will be used in the analysis and decision process.
- What assumptions are being made? What is the implication of the assumptions, for example, if the assumptions are changed, would it alter the decision? If yes, the assumptions must be addressing important facts and probably warrant additional effort to gather information to replace or verify the assumption.
- Conduct the analysis, assess the outcome of the analysis; make a decision about implementing the alternative based on the outcome of the analysis and the goals for the alternative (that is, the decision criterion); develop a brief explanation for the decision.
- There is no one correct answer for all situations. Even people in what appears to be similiar situations are likely to arrive at different decisions due to different goals, different information, different assumptions, and different resources.
- Whether the decision is to implement an alternative or continue the current practice, develop a plan of action or implementation; identify the steps needed to implemetn the decision, establish benchmarks by which to measure whether progress is acceptable; recognize how benchmarks relate to goals for the alternative as well as long-term or overall goals.
- Implement the plan (assemble necessary resources, dispose of unnecessary resources)
- Monitor progress (gather data about the performance of the business as the plan is being implemented, compare performance against benchmarks or goals), revise implementation practices; that is, control the business.
- Note the numerous decisions that are embedded throughout this decision process. For example, the decision maker needs to decide in the first step which situation needs to be reviewed at this time, and needs to decide in the second step what personal and professional goals to pursue. Each step in the decision making process could be described as a "mini" decision.
- Where does risk fit into this decision making process? Is assessing risk a component of each step in the decision making process?
- Is there a difference between analysis of risk, assumption of risk, and management of risk?
- What is the difference between capacity/ability to assume risk and willingness to assume risk? How does one's capacity to assume risk change over time and how does one's willingness to assume risk change over time? What is the practical implication of these two trends?
- More on risk in a subsequent section.
What is your decision making process?
Introduction to strategic planning (long-term or business planning)
The discussion in the previous section emphasizes the importance of devising a decision making process. The discussion assumed that the decisions involve a relatively short time period; that is, the length of time between the need to make a decision and when the decision is made, implemented and reviewed is relatively short.
Managers also need to think about the long-run. This section introduces long-term decision making, or what is often called "business planning" or "strategic planning."
Does a strategic plan enhance one's "willingness to assume risk?"
A strategic vision provides a framework for making and implementing short-run decisions. It allows short-run decisions to be made within the context of working towards the manager's or the business' long-term goals.
Without a long-term vision, a series of short-term decisions may not achieve the decision maker's long-term goals. Instead, there is a risk that each short-term decision will be analyzed independent of other decisions, rather than being analyzed within the context of an overall vision. Independent analysis could lead to short-term decisions that conflict with one another. A long-term vision is needed as part of making short-term decisions.
Steps in strategic business planning
- Define the mission of the business; formulate goals for the business; assess the resources of the business; survey the business environment; identify and select strategies to achieve the business goals; implement and refine selected strategies
- General questions a manager will ask: where are we, where do we want to go, and how do we get there.
- Read the following sections of the Business Planning Process.
- Also consider the types of topics managers likely need to consider in developing a long-term vision and the steps involved in developing goals.
Other strategic planning processes
Are you ready to begin developing your long-term planning process?
- Management is decision making
- Goals are the criteria used to make a decision
- Decision making is a process or series of steps
- Long term or strategic planning provides a framework or structure within which to make decisions in an effort to achieve the specified goals.
The next section overviews some managerial skills.
June 16, 2010