UNIT 2 –PLANNING & DECISION MAKING

- PLANNING: A plan is a forecast for accomplishment. It is a predetermined course of

action. It is today’s projection for tomorrow’s activity. In other words, to plan is to produce a
scheme for future action, to bring about specified results at a specified cost, in a specified
period of time.
Management thinkers have defined the term, basically, in two ways:
1. Based on futurity: “Planning is a trap laid down to capture the future” (Allen). “Planning is
deciding in advance what is to be done in future” (Koontz). “Planning is informed
anticipation of future” (Haimann). “Planning is ‘anticipatory’ decision-making” (R.L.
Ackoff).
2. As a thinking function: “Planning is a thinking process, an organised foresight, a vision
based on fact and experience that is required for intelligent action” (Alford and Beatty)
“Planning is deciding in advance what to do, how to do it, when to do it and who is to do it.”
– Koontz and O’Donnell
Planning can be defined as “thinking in advance what is to be done, when it is to be done,
how it is to be done and by whom it should be done”. In simple words we can say, planning
bridges the gap between where we are standing today and where we want to reach.
Planning involves setting objectives and deciding in advance the appropriate course of action
to achieve these objectives so we can also define planning as setting up of objectives and
targets and formulating an action plan to achieve them.
Another important ingredient of planning is time. Plans are always developed for a fixed time
period as no business can go on planning endlessly.
- IMPORTANCE:

Importance/Significance of Planning:
1. Planning provides Direction:

Planning is concerned with predetermined course of action. It provides the directions to the

efforts of employees. Planning makes clear what employees have to do, how to do, etc. By

stating in advance how work has to be done, planning provides direction for action.

Employees know in advance in which direction they have to work. This leads to Unity of

Direction also. If there were no planning, employees would be working in different directions

and organisation would not be able to achieve its desired goal.

2. Planning Reduces the risk of uncertainties:

Organisations have to face many uncertainties and unexpected situations every day. Planning

helps the manager to face the uncertainty because planners try to foresee the future by
making some assumptions regarding future keeping in mind their past experiences and

scanning of business environments. The plans are made to overcome such uncertainties. The

plans also include unexpected risks such as fire or some other calamities in the organisation.

The resources are kept aside in the plan to meet such uncertainties.

3. Planning reduces over lapping and wasteful activities:

The organisational plans are made keeping in mind the requirements of all the departments.

The departmental plans are derived from main organisational plan. As a result there will be

co-ordination in different departments. On the other hand, if the managers, non-managers and

all the employees are following course of action according to plan then there will be

integration in the activities. Plans ensure clarity of thoughts and action and work can be

carried out smoothly.

4. Planning Promotes innovative ideas:

Planning requires high thinking and it is an intellectual process. So, there is a great scope of

finding better ideas, better methods and procedures to perform a particular job. Planning

process forces managers to think differently and assume the future conditions. So, it makes

the managers innovative and creative.

5. Planning Facilitates Decision Making:

Planning helps the managers to take various decisions. As in planning goals are set in

advance and predictions are made for future. These predictions and goals help the manager to

take fast decisions.

6. Planning establishes standard for controlling:

Controlling means comparison between planned and actual output and if there is variation

between both then find out the reasons for such deviations and taking measures to match the

actual output with the planned. But in case there is no planned output then controlling

manager will have no base to compare whether the actual output is adequate or not.

-LIMITATIONS OF PLANNING:
1. Planning leads to rigidity:

Once plans are made to decide the future course of action the manager may not be in a

position to change them. Following predefined plan when circumstances are changed may not

bring positive results for organisation. This kind of rigidity in plan may create difficulty.

2. Planning may not work in dynamic environment:

Business environment is very dynamic as there are continuously changes taking place in

economic, political and legal environment. It becomes very difficult to forecast these future

changes. Plans may fail if the changes are very frequent.

The environment consists of number of segments and it becomes very difficult for a manager

to assess future changes in the environment. For example there may be change in economic

policy, change in fashion and trend or change in competitor’s policy. A manager cannot

foresee these changes accurately and plan may fail if many such changes take place in

environment.

3. It reduces creativity:

With the planning the managers of the organisation start working rigidly and they become the

blind followers of the plan only. The managers do not take any initiative to make changes in

the plan according to the changes prevailing in the business environment. They stop giving

suggestions and new ideas to bring improvement in working because the guidelines for

working are given in planning only.

4. Planning involves huge Cost:

Planning process involves lot of cost because it is an intellectual process and companies need

to hire the professional experts to carry on this process. Along with the salary of these experts

the company has to spend lot of time and money to collect accurate facts and figures. So, it is

a cost-consuming process. If the benefits of planning are not more than its cost then it should

not be carried on.

5. It is a time consuming process:

Planning process is a time-consuming process because it takes long time to evaluate the

alternatives and select the best one. Lot of time is needed in developing planning premises.

So, because of this, the action gets delayed. And whenever there is a need for prompt and

immediate decision then we have to avoid planning.

6. Planning does not guarantee success:

Sometimes managers have false sense of security that plans have worked successfully in past

so these will be working in future also. There is a tendency in managers to rely on pretested

plans.

It is not true that if a plan has worked successfully in past, it will bring success in future also

as there are so many unknown factors which may lead to failure of plan in future. Planning

only provides a base for analysing future. It is not a solution for future course of action.

7. Lack of accuracy:

In planning we are always thinking in advance and planning is concerned with future only

and future is always uncertain. In planning many assumptions are made to decide about

future course of action. But these assumptions are not 100% accurate and if these

assumptions do not hold true in present situation or in future condition then whole planning

will fail.

For example, if in the plan it is assumed that there will be 5% inflation rate and in future

condition the inflation rate becomes 10% then the whole plan will fail and many adjustments

will be required to be made.

-ESSENTIALS OF A SOUND PLAN

Plans are formulated with a view to achieve organizational goals. A good plan will be one
that enables the management to achieve its goals.

A good plan should have the following essentials:

1. It should be simple and clear.

2. It should be easily understandable to the followers.

3. It should be prepared on the basis of clearly defined objectives.

4. It should cover all aspects that are needed for the fulfillment of the objectives.

5. It should be flexible to changing situations.

6. It should be as economical as possible.

7. It should be adaptable.

8. It should provide standards for the evaluation of actual performance.

9. It should provide a basis for decentralization of its various activities.

10. It should guide decision-making.

-TYPES OF PLANNING

Strategic Plans

Strategic plans define the framework of the organization’s vision and how the organization
intends to make its vision a reality.
 It is the determination of the long-term objectives of an enterprise, the action plan to
be adopted and the resources to be mobilized to achieve these goals.
 Since it is planning the direction of the company’s progress, it is done by the top
management of an organization.
 It essentially focuses on planning for the coming years to take the organization from
where it stands today to where it intends to be.
 The strategic plan must be forward looking, effective and flexible, with a focus on
accommodating future growth.
 These plans provide the framework and direction for lower level planning.

Tactical Plans

Tactical plans describe the tactics that the managers plan to adopt to achieve the objectives
set in the strategic plan.
 Tactical plans span a short time frame (usually less than 3 years) and are usually
developed by middle level managers.
 It details specific means or action plans to implement the strategic plan by units within
each division.
 Tactical plans entail detailing resource and work allocation among the subunits within
each division.

Operational Plans

Operational plans are short-term (less than a year) plans developed to create specific action
steps that support the strategic and tactical plans.
 They are usually developed by the manager to fulfill his or her job responsibilities.
 They are developed by supervisors, team leaders, and facilitators to support tactical
plans.
  They govern the day-to-day operations of an organization.
 Operational plans can be −
o Standing plans − Drawn to cover issues that managers face repeatedly, e.g.
policies, procedures, rules.
o Ongoing plans − Prepared for single or exceptional situations or problems and
are normally discarded or replaced after one use, e.g. programs, projects, and
budgets.

-PLANNING PROCESS
As planning is an activity, there are certain reasonable measures for every manager to follow:
(1) Setting Objectives

 This is the primary step in the process of planning which specifies the objective of an
organisation, i.e. what an organisation wants to achieve.
 The planning process begins with the setting of objectives.
 Objectives are end results which the management wants to achieve by its operations.
 Objectives are specific and are measurable in terms of units.
 Objectives are set for the organisation as a whole for all departments, and then
departments set their own objectives within the framework of organisational
objectives.
Example:
A mobile phone company sets the objective to sell 2,00,000 units next year, which is double
the current sales.
(2) Developing Planning Premises

 Planning is essentially focused on the future, and there are certain events which are
expected to affect the policy formation.
 Such events are external in nature and affect the planning adversely if ignored.
 Their understanding and fair assessment are necessary for effective planning.
 Such events are the assumptions on the basis of which plans are drawn and are known
as planning premises.
Example:
The mobile phone company has set the objective of 2,00,000 units sale on the basis of
forecast done on the premises of favourable Government policies towards digitisation of
transactions.
(3) Identifying Alternative Courses of Action

 Once objectives are set, assumptions are made.

 Then the next step is to act upon them.
 There may be many ways to act and achieve objectives.
 All the alternative courses of action should be identified.
Example:
The mobile company has many alternatives like reducing price, increasing advertising and
promotion, after sale service etc.
(4) Evaluating Alternative Course of Action

 In this step, the positive and negative aspects of each alternative need to be evaluated
in the light of objectives to be achieved.
 Every alternative is evaluated in terms of lower cost, lower risks, and higher returns,
within the planning premises and within the availability of capital.
Example:
The mobile phone company will evaluate all the alternatives and check its pros and cons.
(5) Selecting One Best Alternative

 The best plan, which is the most profitable plan and with minimum negative effects, is
adopted and implemented.
 In such cases, the manager’s experience and judgement play an important role in
selecting the best alternative.
Example:
Mobile phone company selects more T.V advertisements and online marketing with great
after sales service.
(6) Implementing the Plan

 This is the step where other managerial functions come into the picture.
 This step is concerned with “DOING WHAT IS REQUIRED”.
 In this step, managers communicate the plan to the employees clearly to help convert
the plans into action.
 This step involves allocating the resources, organising for labour and purchase of
machinery.
Example:
Mobile phone company hires salesmen on a large scale, creates T.V advertisement, starts
online marketing activities and sets up service workshops.
(7) Follow Up Action

 Monitoring the plan constantly and taking feedback at regular intervals is called
follow-up.
 Monitoring of plans is very important to ensure that the plans are being implemented
according to the schedule.
 Regular checks and comparisons of the results with set standards are done to ensure
that objectives are achieved.
Example:
A proper feedback mechanism was developed by the mobile phone company throughout its
branches so that the actual customer response, revenue collection, employee response, etc.
could be known.
-COMPONENTS OF PLANNING

The entire process of planning consists of many aspects. These basically include Missions,
objectives, policies, procedures, programmes, budgets and strategies.

Mission: This is one of the first components of planning. The mission of an organization
basically dictates its fundamental purposes. It describes what exactly it wants to achieve. The
mission may be either written or implicit from the organization’s functioning. A
mission statement describes who the products and customers of a business are. It shows
the direction in which the business intends to move and what it aims to achieve. Even the basic
values and beliefs of the organization are a part of this. One can also understand its attitude
towards its employees from the mission statement. Many stakeholders of a business use its
mission statement. Managers use it to evaluate their success and set goals. On the other hand,
employees use it to foster a sense of unity and purpose. Even customers and investors use it to
understand how the business intends to work in the future.

Objectives: Objectives represent the end results which an organization aims to reach. We can
also refer to it as goals or targets. Not just planning but all factions of business management
begin with the setting of objectives.

In terms of the types of objectives, they may be either individualistic or collective. They can
even be long-term and short-term depending on their duration. They can also be general or
specific in terms of their scope.

Managers of a business should lay down their objectives clearly and precisely. They must
consider their mission and values before setting their goals. Furthermore, they must ensure that
their objects for each activity are in consonance with each other.

Policies: Policies are basically statements of understanding or course of action. They guide the
decision-making process for all activities of the organization. Consequently, they impose limits
on the scope of decisions.

For example, a company might have a policy of always paying a minimum dividend of 5% of
profits. So, when it decides to pay a dividend, the amount cannot be below 5%.

Just like the mission statement, even policies of an organization may be expressly written or
implied. Managers make policies for all activities of a business, including sales,
production, human resource, etc.

Policies should never be too rigid because that excessively limits functioning. Policy-makers
must also ensure they explain policies to employees clearly. This will prevent any ambiguities
that may arise. Policies must also change with time to suit new challenges and circumstances.
Procedures: Procedures are some of the most important components of planning. They describe
the exact manner in which something has to be done. They basically guide actions for activities
that managers and employees perform.

Procedures also include step-by-step methods. Even rules regulating actions come within the
ambit of procedures. The planning process must ensure that procedures are always practical.
They should not be rigid and difficult to implement.

Budget: Budgets are plans that express expected results in numerical terms. Whenever an
organization expects to do something, it can make a budget to decide on its target. Most
activities, targets, and decisions require budgeting. For example, an income budget shows
expected financial results and profits.

Programme: A programme is nothing but the outline of a broad objective. It contains a series of
methods, procedures, and policies that the organization needs to implement. In other words, it
includes many other components of planning.

For example, a business may have a diversification programme. Consequently, it will make
budgets and policies accordingly for this purpose. Planners and managers can implement
programmes like these at various levels.

Strategies: A strategy in simple words refers to minute plans of action that aim to achieve
specific requirements. Proper implementation of strategies leads to the achievement of the
requisite goals. The nature of an organization’s values and missions will determine how it will
strategize.

-DECISION MAKING: Decision-making is an important job of a manager. Every day he

has to decide about doing or not doing a particular thing. A decision is the selection from
among alternatives. “It is a solution selected after examining several alternatives chosen
because the decider foresees that the course of action he selects will be more than the others
to further his goals and will be accompanied by the fewest possible objectionable
consequences. It is the selection of one course of action from two or more alternative courses
of action. In the words of Mac Farland, “A decision is an act of choice wherein an executive
forms a conclusion about what must be done in a given situation.

A decision represents a course of behaviour chosen from a number of possible alternatives.”

The way an executive acts or decides the course of action from among various alternatives is
an act of decision-making. George Terry says, “Decision-making is the selection based on
some criteria from two or more possible alternatives.” Though there are many alternatives
available for a manager but he has to choose the best out of them.

-NATURE:

Following are the nature of decision-making:

1. Decision-making is based on rational thinking. The manager tries to foresee various

possible effects of a decision before deciding a particular one.

2. It is a process of selecting the best from among alternatives available.

3. It involves the evaluation of various alternatives available. The selection of best alternative

will be made only when pros and cons of all of them are discussed and evaluated.

4. Decision-making is the end product because it is preceded by discussions and

deliberations.

5. Decision-making is aimed to achieve organizational goals.

6. It also involves certain commitment. Management is committed to every decision it takes.

-ROLE OF DECISION MAKING

1. Better Utilisation of Resources: Decision making helps to utilise the available resources for

achieving the objectives of the organisation. The available resources are the 6 Ms, i.e. Men,

Money, Materials, Machines, Methods and Markets. The manager has to make correct

decisions for all the 6 Ms’ This will result in better utilisation of these resources.

2. Facing Problems and Challenges: Decision making helps the organisation to face and

tackle new problems and challenges. Quick and correct decisions help to solve problems and

to accept new challenges.

3. Business Growth: Quick and correct decision making results in better utilisation of the

resources. It helps the organisation to face new problems and challenges. It also helps to

achieve its objectives. All this results in quick business growth. However, wrong, slow or no

decisions can result in losses and industrial sickness.

4. Achieving Objectives: Rational decisions help the organisation to achieve all its objectives

quickly. This is because rational decisions are made after analysing and evaluating all the

alternatives.

5. Increases Efficiency: Rational decisions help to increase efficiency. Efficiency is the

relation between returns and cost. If the returns are high and the cost is low, then there is

efficiency and vice versa. Rational decisions result in higher returns at low cost.

-RELATION BETWEEN PLANNING AND DECISION-MAKING: Planning and

decision-making are the most important managerial functions, and there are many relations

between them. Planning is thinking of doing. Decision-making is a part of planning. Planning

is the process of selecting a future course of action, where Decision-making means selecting

a course of action.

Planning and decision-making, organizing, leading and controlling are all interrelated.

Planning and decision making is the most important step of all managerial functions.

There are many relationships between decision-making and planning.

-TYPES OF DECISIONS

Decisions can be of different types depending upon their nature and influence:

1. Programmed and non-programmed decisions

Programmed decisions are meant for daily routine issues and for those problems that repeat

frequently. A Set of tasks are defined to handle such problems or issues and are mostly

initiated by the entry-level decision-makers.

For example, HR department issues like handling grievances related to leaves or attendance

of employees require programmed decisions. Non-programmed decisions are made for tough

situations where defining different alternatives is a challenging task. These types of decisions

strategically affect organizations.

For example, decisions related to expanding the operation of an organization to other

countries, launching a new product, introducing performance management system for the first

time to the employees are non-programmed decisions where decision-making is a challenging

task and these decisions are mostly taken by management or at the top-level.

2. Routine and strategy-oriented decisions

Routine decisions are a regular activity in an organization once identified. These are quick

decisions and don’t require deep thinking or analysis. These decisions are generally taken by

the bottom-management staff. Different alternatives are not required in these as everyone is

aware of what action to take on a daily basis.

Examples of such decisions include what reports to generate from the biometric system of

attendance by the HR staff.

Decisions, in which involvement of organizational goals, resources, and policies is required,

are termed as strategic decisions. Strategy-based decisions are future-related and executed by

the top management. These are for the long term and are centrally focused. A large amount of

investment is required to execute strategic decisions. Different alternatives or course of

actions are considered and evaluated to finalize such decisions.

For example, developing a performance management system (PMS) strategy for employees

demands strategic decisions. Steps involved in strategic decision-making for formulating

PMS strategy starts with identifying goal which might be retaining and motivating the quality

staff. Further steps involved are: developing a process for monitoring performance and

formulating a comprehensive PMS plan.

3. Policy-related and operational decisions

Decisions related to policy issues are policy-related or tactical decisions. These decisions

come under the preview of the top management and leave a long-term impact. For example,

changing leave structure or office timings are policy-related decisions.

Operating decisions are for operational functioning and on a daily basis. Middle- and bottom-

level management is responsible for such decisions. Different departments or functions of an

organization like sales, IT, production, purchase, accounts, or HR take operations decisions.

For example, Diwali bonus payment to employees is a policy matter and calculation of such

bonus to handover to employees is considered an operational decision.

4. Organization-based and personal decisions

Decisions, taken by an individual as office staff, are organizational decisions. For example,

conducting a campus interview decision by hiring executives is an organizational decision.

Wherein, personal decisions are related to an individual’s decision to meet personal

commitments. These are also known as life decisions. Buying a house is a personal decision.

5. Major and minor decisions

Major decisions are those which require much time, effort, and thinking to finalize and have a

long-term impact. For example, a decision regarding higher studies whether to continue in

own country or to go abroad is a major decision.

Minor decisions are routine decisions and don’t require much time and deep thinking. Like

purchasing stationery for different departments is a minor decision.

6. Individual and group decisions

Individual decisions are taken by one person i.e. routine decisions; as the decision of making

an excel sheet for attendance management to keep the attendance record is an individual

decision.

Decisions which are taken by a group of people aiming to achieve a common goal are group

decisions. For example, employee engagement activities demand HR staff to work as a group

and take decisions for better employee engagement programs.

7 DECISION-MAKING PROCESS STEPS

Though there are many slight variations of the decision-making framework floating around
on the Internet, in business textbooks, and in leadership presentations, professionals most
commonly use these seven steps.

1. Identify the decision

To make a decision, you must first identify the problem you need to solve or the question you
need to answer. Clearly define your decision. If you misidentify the problem to solve, or if
the problem you’ve chosen is too broad, you’ll knock the decision train off the track before it
even leaves the station.

If you need to achieve a specific goal from your decision, make it measurable and timely.

2. Gather relevant information

Once you have identified your decision, it’s time to gather the information relevant to that
choice. Do an internal assessment, seeing where your organization has succeeded and failed
in areas related to your decision. Also, seek information from external sources, including
studies, market research, and, in some cases, evaluation from paid consultants.

Keep in mind, you can become bogged down by too much information and that might only
complicate the process.

3. Identify the alternatives

With relevant information now at your fingertips, identify possible solutions to your problem.
There is usually more than one option to consider when trying to meet a goal. For example, if
your company is trying to gain more engagement on social media, your alternatives could
include paid social advertisements, a change in your organic social media strategy, or a
combination of the two.

4. Weigh the evidence

Once you have identified multiple alternatives, weigh the evidence for or against said
alternatives. See what companies have done in the past to succeed in these areas, and take a
good look at your organization’s own wins and losses. Identify potential pitfalls for each of
your alternatives, and weigh those against the possible rewards.

5. Choose among alternatives

Here is the part of the decision-making process where you actually make the decision.
Hopefully, you’ve identified and clarified what decision needs to be made, gathered all
relevant information, and developed and considered the potential paths to take. You should
be prepared to choose.

6. Take action

Once you’ve made your decision, act on it! Develop a plan to make your decision tangible
and achievable. Develop a project plan related to your decision, and then assign tasks to your
team.

7. Review your decision

After a predetermined amount of time—which you defined in step one of the decision-
making process—take an honest look back at your decision. Did you solve the problem? Did
you answer the question? Did you meet your goals?

If so, take note of what worked for future reference. If not, learn from your mistakes as you
begin the decision-making process again.

-VROOM-YETTON DECISION MODEL

The Vroom-Yetton decision model is a decision-making process based on situational

leadership. According to this model, there are five decision-making styles guides group-based
decision-making according to the situation at hand and the level of involvement of
subordinates: Autocratic Type 1 (AI), Autocratic Type 2 (AII), Consultative Type 1 (CI),
Consultative Type 2 (CII), Group-based Type 2 (GII).

Leaders use the Vroom–Yetton decision model to determine the best course of decision-
making by identifying whether the decision should be made alone by the leader or by
involving a group. In the latter, the extent to which the group should be involved in decision-
making is also determined.
The model was developed by Victor Vroom and Phillip Yetton in 1973. The Vroom–Yetton
decision model is an industrial and organizational psychology theory. In 1988 the idea was
further modified with contribution by Arthur Jago, after which it was known as the Vroom-
Yetton-Jago model.

Three Factors to Consider Before using the Vroom-Yetton Decision Model

The Vroom–Yetton decision model starts by asking three important questions about decision
quality, subordinate commitment, and time constraints.

Decision Quality

Every leader wants to make good decisions; however, making a good decision requires
committing resources such as time, workforce, money, equipment, etc. Not every decision is
worth committing an excessive amount of resources and can lead to an unnecessary diversion
of resources.

Subordinate / Team Commitment

Some decisions can affect an entire team/subordinates, whereas others can go unnoticed.
When your decision might affect your team, a collaborative process might be the best way to
go. This can help in better decision making and effective implementation of the decision.

Time Constraints

For some decisions time is a luxury the leader can afford, however, this isn’t always the case.
When faced with time critical decisions which don’t allow you to spend a lot of time
researching the variables which might result in a positive or negative outcome, you might
require making the decision on your own instead of involving your team.

Seven Questions on the Decision-Making Process

The Vroom-Yetton decision model formulated seven critical questions to create a decision
tree enabling leaders to make the right choice. These seven questions are associated with
quality, commitment, problem structure, leader’s information, goal congruence, and
subordinate conflict.

When decision-making is happening, it´s essential to have a process that involves adequate
stakeholders, such as creating PowerPoint presentations where the team can understand the
questions.

1. Quality Requirement (QR): This question implies considering if the problem process has
some kind of quality requirement associated with it.

2. Commitment Requirement (CR): Team commitment can be a major help or hurdle for
leaders. This is why the second question in the Vroom-Yetton decision model asks if there is
a need for commitment from your team.

3. Leader’s Information (LI): This question is meant for the leader to achieve clarity
regarding the available information and whether it’s sufficient for him/her to make the
decision alone.

4. Problem Structure (ST): This question asks if the problem is well structured. An
unstructured problem, for example, might require looking at the possibility of collaborating
with a team.

5. Commitment Probability (CP): This question is meant to assess whether your team
would provide you with the necessary commitment for the decision if you made it on your
own.

6. Goal Congruence (GC): This question is meant to analyze if the subordinates share the
same goals as the organization to resolve the problem.

7. Subordinate conflict (CO): Decision-making is a tricky business, and subordinate conflict

can often occur due to certain decisions. This question is meant to analyze this equation to
determine if a subordinate conflict is likely over the decision under consideration.
Five Decision-Making Processes

There are five decision-making processes in the Vroom-Yetton model. These processes are
mentioned below, with a few examples from famous leaders.

Autocratic (A1)

This includes using existing information for decision-making without any input from the
team.

Example: Autocratic leadership styles are common among many famous entrepreneurs.
Steve Jobs was often regarded as an authoritarian leader. Some would even argue that he was
more of a dictator than a leader. Jobs was accused of not being a team player and was deemed
very demanding in terms of extracting outputs from his team. He was seen as someone who
liked to have authority over the creative aspects of his products. He believed that people don’t
want what they need until they are shown what they require. This is a typical A1-style
mindset, which for him was quite successful owing to his creative genius. However, this
didn’t make him a very likable individual among his peers.

Autocratic (A2)

Specific information from the team is acquired for consultation and for decision-making. The
final decision, in this case, is taken by the leader, which may or may not be shared with the
team.

Example: Bill Gates is often attributed to being an autocratic leader, although he is

considered to apply more than one style of decision-making. Much of Gates’ success is often
attributed to quick and timely decision-making, which requires some form of authoritarian
style. He was so authoritarian that he even signed the expenses for his second in command,
Steve Ballmer, who later became CEO of Microsoft.

Bill Gates was famous for collecting information from his team and questioning their facts
during meetings. His authoritarian style meant that he would question and interrupt their
assumptions frequently during a meeting. This is a typical example of A2 since the leader
gathers information, strictly analyzes it, and proceeds to decide.

Consultative (C1)

This involves acquiring information from team members individually before the leader makes
a decision. The team members don’t meet, and the members individually discuss, evaluate
and share information regarding the decision.

Example: C1 is a softer form of authoritarian leadership style. Perhaps a good example of C1

is Jim Lentz, chief executive officer of Toyota Motor North America, Inc, a hands-on leader
who works with his team’s challenges and failures.

Consultative (C2)

C2 is a style where the leader gathers a group for discussion but makes the final decision.

Example: The founder of Mary Kay Cosmetics, Mary Kay Ash, was known to put in extra
effort to cater to her employees’ needs. She was famous for having a confident workforce,
which was rewarded periodically with gifts and perks. She made an effort to keep her
employees individually happy and was deemed a C2 style leader.

Collaborative (G2)

G2 requires the group to make a collaborative decision, as the leader supports the team during
the process.

Example: Walt Disney, the founder of one of the world’s most profitable entertainment
companies in his early days as an entrepreneur, has a collaborative leadership style. While in
later years, he adopted various leadership styles, in the formative years of the Disney empire,
he used a G2 style. This was also needed in those days as many people required to collaborate
together when creating animated stories. Such a successful collaboration could not have been
possible without the support of a leader to give his subordinates creative freedom in a
collaborative environment.
Final Words

The Vroom–Yetton decision model provides valuable insight into the different decision-
making types and offers everything from a decision tree to various decision-making styles
that can help make better decisions in real life. These styles can be applied according to the
requirements of an organization but also take away the need to focus on a single type of
decision-making style. For example, an authoritarian style might be the only way forward
when quick and time-critical decisions are required, especially when dealing with a
workforce prone to conflict and politics. On the contrary, Walt Disney could not have made
an entertainment empire without allowing his team to collaborate and design animated
stories, which are now cult classics. An authoritarian style in such a case might have meant
ruin for the business.

Some leaders lift their employees, and make them feel special through consultation, coaching
and a charismatic leadership style. Mary Kay Ash took the time to ensure that she understood
her employees and valued their inputs, making her business one of a kind for working women
back in the day. Her tendency to collaborate allowed her to better understand and reward high
performers, with pink Cadillacs, vacations and jewelry.

The Vroom–Yetton decision model can help you better understand your organization’s needs
as a leader and enable you to make the best possible decisions for effective outcomes. A great
way to share your decision making, if this is your style, with your team is to create a
presentation in PowerPoint or Slides for further group understanding. While one can be
talented and brilliant at their job, making good decisions is arguably half the leadership. Bad
decisions are unlikely to cover weak decision-making deficiencies and can lead to social
turmoil within an organization. It is here that the Vroom–Yetton decision model can help
leaders make effective decisions after carefully considering seven essential questions and by
choosing the right leadership style according to organizational requirements.

Decision making is an essential part of a workplace where managers, leaders, and employees
need to make effective decisions that will cause benefit. It helps in reaching the beneficial
goals of the organizations. Herbert was one of the first theorists who introduced the
importance and benefits of effective decision-making. Herbert A. Simon was a political
scientist from America. He contributed a lot to administrative theory. He was also awarded
the Nobel Prize for economics science in 1978.

Simon argued that the decisions are an integral and critical part of an organization, and if they
are not taken correctly and on time, they may harm the organization’s goals. Decision
Making is a process that includes two steps; the first one is the decision itself and the second
one is its application. Both the phases are equally important.

-THE SIMON DECISION MAKING THEORY

The Simon decision making theory is a descriptive theory that gives a clear picture of the
world in which decisions are significant. Here, decisions will decide the outputs or prices.
Simon says in the theory that the decisions are the choice of selecting an option among the
different possibilities of options. The chosen option can even be action or non-action.

The theory basically predicts the importance of a decision and how to imply it. Based on
Simon’s opinions, there can be multiple actions that can best suit the situation, as there can
always be some missing information to the person who is making the decision. In other
words, it can be said that there can always be a better way to make decisions based on the
available information on the situation.

In the classical aspects of economics, the psychological angle was not considered, while in
this theory, Simon considered the psychological aspects also. The limit of an employee to
solve a complex problem depends on factors like stress and motivation very much. In simple
words, the ability or decision of a person to perform is different when there is a possibility of
risk or uncertainty. The theory deals with a satisficing strategy that considers a satisfactory
and adequate result instead of an optimal result. This strategy gives a result with minimum
risk and maximum profit while ignoring high complexities.

4 Phases of the Decision-Making Process

Simon’s model defines four phases of decision-making process:

 Intelligence Phase
 Design Phase
 Choice Phase
 Implementation Phase
It’s important to note that first Simon’s model contained only three phases – implementation
phase was added later. Also, we could add a fifth phase – monitoring, but that can be viewed
as an input for the intelligence phase.

Intelligence Phase

Firstly, the decision-making process starts with the intelligence phase. In the first phase,
decision makers examine reality and try to identify problems or opportunities correctly. This
phase is not only related to the Simon’s decision-making process, but also to other fields and
other methodologies. For example, we like to practice Lean Startup methodology which
emphasizes the importance of right problem definition before building anything (product or
business).

Additionally, one of the pillars of digital transformation is the data. Organizations need to
become data driven. That means proper usage and implementation of Business Intelligence
(BI) systems. Business Intelligence implementations are considered successful only if you
have clear business needs and see real benefits from it. Business Intelligence is not just about
data. It should be connected with organizational goals and objectives!

Therefore, intelligence phase includes actions like:

 Defining organizational objectives

 Data collection
 Problem identification and classification
 ….
The intelligence phase can last really long. But, since decision-making process starts with this
phase, it should be to be done properly. This is a key ingredient in every business success.

Design Phase

The main goal of the design phase is to define and construct a model which represent a
system, by defining relationships between collected variables. Once we validate the model,
we define the criteria of choice and search for several possible solutions for the defined
problem (opportunity). We wrap up the design phase by predicting the future outcomes for
each alternative.
Choice Phase

In this phase we are actually making decisions. The end product of this phase is a decision.
Decision is made by selecting and evaluating alternatives defined in previous step. If we are
sure that the decision we made can actually be achieved – we are ready for the next phase.

Implementation Phase

All the previous steps we’ve made (intelligence, design, and choice) are now implemented.
Implementation can be either successful or not. Successful implementation results with a
solution to the defined problem. On the other hand, failure brings us back to the earlier phase.
We described Simon’s model which, even today, serves as the basis of most models of
decision-making process. A process is described as a series of events that precede final
decisions. It is important to say that, at any point, the decision maker may choose to return to
the previous step for additional validation. Even Simon’s model was sometimes criticized as
being general, that is why we need to be aware of the importance of decision-making. This
model is a concept, a framework of how organizations and managers make decisions.

Simon’s decision-making theory proposes the concept of bounded rationality, which means
that people can make decisions within certain limitations. The theory focuses on
psychological aspects and helps solve many unaddressed problems. The theory explains the
possessiveness of decision-making and its importance at the personal and professional level.
Organisations always get benefitted from effective decision-making.

-BIASES IN DECISION MAKING

There are two types of decisions—programmed and non-programmed. A programmed

decision is one that is very routine and, within an organization, likely to be subject to rules
and policies that help decision makers arrive at the same decision when the situation presents
itself. A nonprogrammed decision is one that is more unusual and made less frequently.
These are the types of decisions that are most likely going to be subjected to decision making
heuristics, or biases.
As we become more embroiled in the rational decision making model—or, as we discussed,
the more likely bounded rationality decision making model—some of our attempts to shortcut
the collection of all data and review of all alternatives can lead us a bit astray. Common
distortions in our review of data and alternatives are called biases.
You only need to scroll through social media and look at people arguing politics, climate
change, and other hot topics to see biases in action. They’re everywhere. Here are some of
the more common ones you’re likely to see:
Overconfidence Bias
The overconfidence bias is a pretty simple one to understand—people are overly optimistic
about how right they are. Studies have shown that when people state they’re 65–70% sure
they’re right, those people are only right 50% of the time. Similarly, when they state they’re
100% sure, they’re usually right about 70–85% of the time.
Overconfidence of one’s “correctness” can lead to poor decision making. Interestingly,
studies have also shown that those individuals with the weakest intelligence and interpersonal
skills are the most likely to exhibit overconfidence in their decision making, so managers
should watch for overconfidence as a bias when they’re trying to make decisions or solve
problems outside their areas of expertise.
Anchoring Bias
The anchoring bias is the tendency to fix on the initial information as the starting point for
making a decision, and the failure to adjust for subsequent information as it’s collected. For
example, a manager may be interviewing a candidate for a job, and that candidate asks for a
$100,000 starting salary. As soon as that number is stated, the manager’s ability to ignore that
number is compromised, and subsequent information suggesting the average salary for that
type of job is $80,000 will not hold as much strength.
Similarly, if a manager asks you for an expected starting salary, your answer will likely
anchor the manager’s impending offer. Anchors are a common issue in negotiations and
interviews.
Confirmation Bias
The rational decision making process assumes that we gather information and data
objectively, but confirmation bias represents the gathering of information that supports one’s
initial conclusions.
We seek out information that reaffirms our past choices and tend to put little weight on those
things that challenge our views. For example, two people on social media may be arguing the
existence of climate change. In the instance of confirmation bias, each of those people would
look to find scientific papers and evidence that supports their theories, rather than making a
full examination of the situation.
Hindsight Bias
Hindsight bias is the tendency we have to believe that we’d have accurately predicted a
particular event after the outcome of that event is known. On the Saturday before a Super
Bowl, far fewer people are sure of the outcome of the event, but on the Monday following,
many more are willing to claim they were positive the winning team was indeed going to
emerge the winner.
Because we construct a situation where we fool ourselves into thinking we knew more about
an event before it happened, hindsight bias restricts our ability to learn from the past and
makes us overconfident about future predictions.
Representative Bias
Representative bias is when a decision maker wrongly compares two situations because of a
perceived similarity, or, conversely, when he or she evaluates an event without comparing it
to similar situations. Either way, the problem is not put in the proper context.
In the workplace, employees might assume a bias against white males when they see that
several women and minorities have been hired recently. They may see the last five or six
hires as representative of the company’s policy, without looking at the last five to ten years of
hires.
On the other side of the coin, two high school seniors might have very similar school records,
and it might be assumed that because one of those students got into the college of her choice,
the other is likely to follow. That’s not necessarily the case, but representative bias leads a
decision maker to think because situations are similar, outcomes are likely to be similar as
well.
Availability Bias
Availability bias suggests that decision makers use the information that is most readily
available to them when making a decision.
We hear about terrorism all the time on the news, and in fictional media. It’s blown out of
proportion, making it seem like a bigger threat than it is, so people invest their time and
efforts to combat it. Cancer, however, kills 2,000 times more people. We don’t invest in that,
it doesn’t get enough news coverage, and it’s not as “available” in our mind as information.
Hence, the availability bias.
Commitment Errors
This is an increased commitment to a previous decision in spite of negative information. A
business owner may put some money down on a storefront location to rent DVDs and Blu-
rays, start purchasing stock for his or her shelves and hire a few people to help him or her
watch the cash register. The owner may review some data and stats that indicate people don’t
go out and rent videos too much anymore, but, because he or she is committed to the location,
the stock, the people, the owner is going to continue down that path and open a movie rental
location.
Managers sometimes want to prove their initial decision was correct by letting a bad decision
go on too long, hoping the direction will be corrected. These are often costly mistakes.
Randomness Errors
If you are certain your lucky tie will help you earn a client’s business at a meeting later today,
you’re committing a randomness error. A tie does not bring you luck, even if you once wore
it on a day when you closed a big deal.
Decisions can become impaired when we try to create meaning out of random events.
Consider stock prices. Financial advisors feel they can predict the flow of stock prices based
on past performance, but on any given day, those stock prices are completely random. In
reality, these advisors were able to predict the direction of stock prices about 49 percent of
the time, or about as well as if they’d just guessed.
In the case of the lucky tie, that’s more a superstition. Decision makers who are controlled by
their superstitions can find it difficult or impossible to change routines or objectively process
new information.
HAPPY LEARNING 