“A man who does not plan long ahead will find trouble at his door.”

Confucius

Thought for the day:

Get an A

Knowledge

Application & Analysis

Evaluation

A

Grade

Understand

Define, Identify, Complete, Outline, describe, Classify

Compare, Contrast, distinguish, prepare, construct, calculate, explain, comment

Apply, Examine, Analyse, Interpret, Formulate.

To what extent, Evaluate, discuss, justify, advise, recommend.Level 4

Level 3

Level 2

Level 1

Target Learning Objective Who? Keywords

Decision-making (HL)· Fishbone · Scientific versus intuitive decision-making processes · Decision trees Internal/external constraints on decision-making

ALL

Level 1

Apply a formal decision-making framework to a given situation.

Prepare a SWOT analysis for a given situation. Analyse an organization’s position using a SWOT analysis.

MOST

Level 2

Analyse the importance of the information in the business plan to different stakeholders.

SOME

Level 3 & 4

1.6 Organizational planning tools

Business Plan

A business plan is essentially a report that states how a business is going to go out and achieve its aims and objectives.

This is helpful because:- The owner has to plan the marketing, financial, and human resources for the business.- It gives a clear blueprint for the owner to present to potential investors and financiers interested in the company so they can judge the probability for success and return.

Business Plan

A financial backer's view on business plans:- Shows that entrepreneur has comprehensively researched the business opportunity

- Provides insight onto the financial projection, so they can judge whether or not a business will be successful enough to repay its loans.

Investors:- Assess both risks and opportunities in a business.- Also will look for potential problems not outlined in the business plan.

http://www.youtube.com/watch?v=cza0FIZmpp

General Content Found in a Business Plan:

- The BusinessName and address of the proposed business

• The type of business organization• Statement of quantifiable aims

and objectives• Start-up Costs• Owner’s resume and previous

experience

- The ProductDetails of the goods or services offered

• Forecast level of demand now and in the future

• Why customers will pay for the product

• How and where will production take place

• Details of the suppliers and resources

• Cost of production• Pricing strategies to be used

General Content Found in a Business Plan:

- The MarketSize of the market (number of potential customers)

• Nature of the market – • customer profiles and market

segmentation• Recent and future growth rates

of the market• Analysis of the competition

including market share, strengths and weaknesses.

- The FinanceSources of financial backing

• Break-even analysis• Plan for times of poor cash flow• Security that can be offered to

lenders in event of bankruptcy• Cash flow forecasts – how much

money will be coming in from sales and how much will be going out from payments?

General Content Found in a Business Plan:

General Content Found in a Business Plan:

• - The PersonnelSize and structure of the workforce

• Details on the payment system

Example: http://dachpian2b.saschina.wikispaces.net/file/view/Sample%20Business%20Plan%20for%20American%20Management%20Technology.pdf/263470246/Sample%20Business%20Plan%20for%20American%20Management%20Technology.pdf

• - The MarketingDetails of the advertising used to reach customers

• Distribution plan detailing where products will be sold

• Evidence of market research conducted

• Unique sell-point of the business

General Content Found in a Business Plan:

Business Plan

Sit as a group.Discuss•Why do it?•How do you do it?•Key pointsPg 58

Levels of decision making

• Operational Decisions: These are made by junior managers, which dictate the everyday actions and operations of the employees. Usually, these decisions affect the immediate time-span.

– Examples: How long workers break for, which snacks to buy, or dealing with customer complaints and suggestions.

• Tactical Decisions: Regular and short-term decisions normally made by middle management.

– Examples: Decisions about pricing strategy or recruitment.

• Strategic Decisions: The major long-term decisions that point the direction for the company. Senior staff on the entrepreneurship level, such as the executives or VP’s, makes these decisions as they carry risk for the business as a whole.– Examples: Which products are developed, which new markets or countries to expand to,

review and deciding salaries and benefits paid to the staff..

Levels of decision making

The difference between management positions is just the amount of risk associated with the decisions that have to be made at that level.

Skilled managers are always trying to ensure that all the risks associated with making a decision are quantifiable, and not unknown. This way, they can better devise strategies or tactics to deal with these factors.

Managers use various planning tools to achieve this, which is also covered in this module.

Levels of decision making

Decision-Making Frameworks • All businesses make decisions on a daily basis in order to achieve their

organizational objectives. • Typical questions include the who, what and how production should take

place.•

A decision-making framework is a step-by-step process of dealing with a business problem, issue or concern to make the best decision.

Decision-Making Frameworks •

A stripped down framework uses these seven steps. Ask yourself these questions along the process.

1. Identify the business problem, concern or issue. What is it you are addressing?2. Gather sufficient data and information in order to make rational decisions. What information

can I use to gain a better understanding of what is at hand?3. Analyze data and information to produce a list of possible options. From this information,

what conclusions can we draw?4. Assess the consequences – costs and benefits - of each alternative. Which advantages and

disadvantages are most important to this decision?5. Select the best option, considering the costs and benefits and what is realistically achievable.

Why is this decision better than the others?6. Communicate this decision to the staff and take action. Have you addressed how the staff

should go about executing the decision?7. Review and evaluate the outcome. Did it achieve the goals? What did we learn from this

experience?

Decision-Making Frameworks

Remember this by the acronym IDEAL:

Identify the problemDefine the problemExplore possible solutionsAction taken as per decisionLook back and review the success (or failure) and experience gained.

Decision-Making Frameworks

Example Decision-Making FrameworksTechniques to aid decision-making include: SWOT analysis (1.6) stakeholder mapping (1.4) PEST analysis (1.5) Ansoff matrix (1.7) Ratio Analysis (3.6) Five Forces analysis (4.2) and Break-Even analysis (5.3).

Decision-Making Frameworks

… here are some frameworks explained:

Cost-benefit Analysis (CBA):

• Examines the financial costs and benefits of a decision.Used when these qualities are quantifiable (can be put into numbers)

• Examples include: break-even analysis and investment appraisal

• Disadvantage: ignores non-financial aspects of decision-making. Workforce and ethical problems are not addressed.

Six Thinking Hats: • Devised by psychologist

Edward De Bono. Looks at an issue from six different perspectives (or colored hats). Encourages out-of-the-box thinking and to understand the complexities of any decision.

• White Hat: Factual Information• Red Hat: Emotions and feelings• Black Hat: Considering only the negatives of a

decision• Yellow Hat: Considering only the positives of a

decision• Green Hat: Creative solutions to the issue• Blue Hat: Neutral “chair” figure to ensure equal

representation

Six Thinking Hats:

Force Field Analysis: • Examines the forces for and

against a decision. Devised by Professor Kurt Lewin. Decision-makers can streng2then driving forces and reduce restraining forces by weighing each by importance.

• Driving forces are the advantages• Restraining forces are the

disadvantages

The 5 Why’s:

• A simple technique that requires one to ask “Why?” five times to an issue.Sakichi Toyoda, a Japanese industrialist, devised this method to get to the root cause so it cou ld be addressed.

• The actual number of “Why’s?” do not matter, as long as the root cause is found.

SWOT

• Go to the following link:• http://ezinearticles.com/?What-is-a-SWOT-An

alysis,-and-Why-is-it-Important?&id=2420795

SWOT Analysis

•This is a simple yet effective approach to making decisions. It can be used to assess the current situation of many aspects of a business, and considers both internal and external factors.

Internal

Strengths: Internal factors that are positive compared to a competitor.i.e more skilled workers, higher quality product, good corporate image.•Help the business better achieve its organizational objectives•Important to protect and develop strengthsWeaknesses: Internal factors that are negative compared to a competitor.Likely to prevent the business from achieving its organizational objectives•Must be reduced and removed in order to compete in the market

External

• Opportunities: External possibilities and prospects for future development.i.e India and China providing cheap labor to produce goods.

• Should be used to help a business formulate corporate strategy•

- Threats: External factors that hinder the prospects for future development.i.e. – SARS outbreak drastically reducing the amount of people traveling on airlines.

• Should be analyzed and counters to the threat should be developed

What can a SWOT analysis be used in?

• Evaluating business proposals or ideas• Assessing opportunities• Strategic planning• Competitor analysis• Reviewing strategy• Risk assessment

• Play

As with any tool, there are advantages and limitations of the SWAT analysis in guiding decision-making.

Advantages Include: •Simple and Quick to do•Can be used in a variety of situations•Determines the organization’s position in the marketplace•Aids the formulation of corporate strategy for the long-term aims•Encourages foresight and proactive thinking, rather than emotion-based decisions.•Reduces the risks of decision-making by requiring logical and objective thinking.

Disadvantages Include:•Too simplistic for detailed analysis of any particular field or problem•Is a static decision-making model; the business place is always changing, so the analysis made is not always applicable later down the road.•Only useful if the decision-makers are willing to recognize weakness and threats, and have the initiative to tackle them.•Usually not used individually, but in tandem with other tools, i.e PEST analysis.

SWOT

• A SWOT analysis is a tool for companies to assess the industry and to develop strategies to remain competitive.

• This is a simple way to focus aspects of the company and business sector and to organize the findings to evaluate the current status of the business, future prospects and the economic climate.

• A SWOT analysis promotes critical and specific thinking to enhance strategic plans and objectives.

• The SWOT analysis has been used as a business concept since the 1960s and has shown its value when applied to organizations, management structure and marketing.

S W

SWOT

O T

McDonald’s SWOT… example

Strenghts• McDonalds invests more than $1 billion annually in training its staff, and every year more

than 250,000 employees graduate from McDonald's training facility, Hamburger University. • ranked number one in Fortune Magazine's 2008 list of most admired food service companies. • One of the world's most recognizable logos (the Golden Arches) and spokes character

(Ronald McDonald the clown). • McDonalds is an ethical, socially responsible company. (Ronald McDonald houses)• They are a global company operating more than 23,500 restaurants in 109 countries. By

being spread out in different regions, this gives them the ability to weather economic fluctuations which are localized by country.

• They successfully and easily adapt their global restaurants to appeal to the cultural differences.

• Entrepreneur's number-one franchise in 1997. Approximately 85% of McDonald's restaurant businesses world-wide are owned and operated by franchisees.

• McDonald's uses only 100% pure USDA inspected beef, no fillers or additives. Additionally the produce is farm fresh. McDonald's serves 100% farm raised chicken no fillers or additives and only grade-A eggs. McDonald's foods are purchased from only certified and inspected suppliers. McDonalds works closely with ranchers, growers and suppliers to ensure food quality and freshness.

• McDonald's was the first restaurant of its type to provide consumers with nutrition information.

Weaknesses• Their test marketing for pizza failed to yield a substantial

product. Leaving them much less able to compete with fast food pizza chains.

• High employee turnover in their restaurants leads to more money being spent on training.

• They have to capitalize on the trend towards organic foods. • McDonald's have problems with fluctuations in operating and

net profits which ultimately impact investor relations. Operating profit was $3,984 million (2005) $4,433 million (2006) and $3,879 million (2007). Net profits were $2,602 million (2005), $3,544 million (2006) and $2,395 million (2007).

Opportunities• In today's health conscious societies the introduction of a healthy

hamburger is a great opportunity. They would be the first QSR (Quick Service Restaurant) to have FDA approval on marketing a low fat low calorie hamburger with low calorie combo alternatives.

• They have industrial restaurant settings; they could provide more upscale restaurant settings, to appeal to a more upscale target market.

• Provide optional allergen free food items, such as gluten free and peanut free.

• In 2008 the business directed efforts at the breakfast, chicken, beverage and convenience categories. For example, hot specialist coffees not only secure sales, but also mean that restaurants get increasing numbers of customer visits. In 2009 McDonald's saw the full benefits of a venture into beverages.

Threats• They are a benchmark for creating "cradle to grave" marketing. Children

grow up eating and enjoying McDonalds and then continue. They have been criticized by many parent advocate groups for their marketing practices towards children which are seen as marginally ethical.

• They have been sued multiple times for having "unhealthy" food, with addictive additives, contributing to the obesity epidemic in America. In 2004, Michael Spulock filmed the documentary Super Size Me, where he went on an all McDonalds diet for 30 days and wound up getting cirrhosis of the liver. This documentary was a direct attack on the QSR industry as a whole and blamed them for America's obesity epidemic.

• Any contamination of the food supply.• Major competitors, like Burger King, Starbucks, Taco Bell, Wendy's, KFC.

SWOT analysis scheme

Positives Negatives

Internal

StrengthsStaff trainingbrand/customer loyaltyDominant market positionEthicalGlobal companyGood relationship with stakeholdersUSP

Weaknesses Can’t compete with fast food pizza chainsHigh staff turnoverCapitalize on trends Problems with operating and net profits

External

OpportunitiesHealthy low fat hamburger (society changes)Upscale restaurants for upscale target marketOptional allergen free foodsIntroduction of new and improved services

ThreatsCradle to grave marketingSued for unhealthy foodBlamed for america’s obesity epidemicContamination of foodMajor quick service restaurant competitors

Scientific Vs Intuitive Decision making process.

Effective decision making is key.Making choices can be risky.Range of techniques to do it.

Scientific decision-making is made objectively on the basis of a formal frame work & data anaysis. They are based on facts and evidence, rather than internal emotions.

Intuitive decision-making is based on a person’s beliefs, perceptions, instincts and gut feelings. Entrepreneurs may not have enough time to scientifically research every available option, and have to rely on their intuition.

Skilled mangers may take the higher risks, as decision-making is quicker and less expensive.

Play: http://www.youtube.com/embed/1oEAaNVUk9o

Higher Level

Scientific Vs Intuitive Decision making process.

• Most decisions made by businesses use a mix of the two strategies. The world is dynamic, and the decisions that work today may not work the next.Intuitive decision-making is more common the more experienced a manager is, or the less important a decision is.

• Scientific decision-making is more common among less experienced managers who need to justify their decision-making, or when large-scale decisions that may have far-reaching effects for the business need to be made.

Higher Level

Decision Trees

A decision tree is a quantitative decision-making tool. It is a visual diagram that allows the decision maker to see the expected value of each option so it is easy to identify the best possible option.

Play (warning: naughty word – name of URL)

Pg 61 – 63 of Stimpson & Smith

Higher Level

Decision Trees

Rules Used to Construct and Interpret Decision Trees:•Constructed left to right•Decision nodes, aka decision points are squares. These are used when decisions have to be made.•Chance nodes are shown as circles. They are used when there are more than one possible outcome of a decision. This includes criteria such as ‘improvements or deterioration’ or ‘successes and failures’.•For every chance node there is a route (outcome) for the probability of each. It can be counted as a fraction of the total of amount of possibilities. This must add up to one.•Branches will have the actual values for the outcomes. This has to be pre-determined.•After the decision tree has been made and assessed, two parallel lines are drawn on the branches that are rejected.

Higher Level

Decision Trees

Rules Used to Construct and Interpret Decision Trees:•Constructed left to right•Decision nodes, aka decision points are squares. These are used when decisions have to be made.•Chance nodes are shown as circles. They are used when there are more than one possible outcome of a decision. This includes criteria such as ‘improvements or deterioration’ or ‘successes and failures’.•For every chance node there is a route (outcome) for the probability of each. It can be counted as a fraction of the total of amount of possibilities. This must add up to one.•Branches will have the actual values for the outcomes. This has to be pre-determined.•After the decision tree has been made and assessed, two parallel lines are drawn on the branches that are rejected.

Higher Level

Decision Trees

Rules Used to Construct and Interpret Decision Trees:•Constructed left to right•Decision nodes, aka decision points are squares. These are used when decisions have to be made.•Chance nodes are shown as circles. They are used when there are more than one possible outcome of a decision. This includes criteria such as ‘improvements or deterioration’ or ‘successes and failures’.•For every chance node there is a route (outcome) for the probability of each. It can be counted as a fraction of the total of amount of possibilities. This must add up to one.•Branches will have the actual values for the outcomes. This has to be pre-determined.•After the decision tree has been made and assessed, two parallel lines are drawn on the branches that are rejected.

Higher Level

Decision Trees

Advantages of Decision Trees:•The visual representation gives users a clear path to follow and aid insight into a problem.•All the options are in one place so decisions can be made more quickly.•They will consider the possible negatives to a decision as well.•With the costs represented on the tree, decisions can be more easily defended and justified.

Disadvantages of Decision Trees:

•The probabilities for the decision trees are all estimates, not fixed values. They are subject to bias•They are based solely on the quantitative (data and statistics), and do not take into account the qualitative side of issues, raising concerns over issues that cannot be put into numbers.•As with any planning, time may void the effectiveness of the chosen approach, as the business world is never static.•It does not reduce the risk of making a decision, just allows one to see where they lie.

Higher Level

Ishikawa’s Fish Bone Diagram.

Higher Level

Ishikawa’s Fishbone Diagram

A.K.A:• Fishbone Diagram• Cause and Effect Diagram • Fishbone model• Fisikawa

Ishikawa’s Fishbone Model

Also known as the cause-and-effect diagram, it was devised by Professor Kaoru Ishikawa to provide graphical representation of the most likely causes and effects of an important decision.

It is easy to interpret and allows decision-makers to brainstorm ideas logically and holistically, taking account many possible reasons.

However, it is too simple to be used alone in most applications, so other frameworks are often used in conjunction with it, such as the 5 Why’s to fully determine the root causes of an issue.

Play - http://www.youtube.com/watch?v=AT4hdB3UcMk&gl=SG&hl=en-GB

Higher Level

Ishikawa’s Fishbone Model

• The issue goes on the right side or “head” of the fish, which is preceded by a line, or the “spine” of the fishbone model.

•The causes form the ‘bones’ on the sides of the ‘spine’.The “4 M’s of Management” are used – Management, Manpower, Machinery, and Material when determining an issue, although this is flexible depending on the issue at hand.

Higher Level

Uses

• Used as a management tool• Decision making• To identify and give a graphical representation

of the root cause of a problem.• To ultimately target problems for

improvement.

Structure

• Head of the fish (Problem or issue)• Major ‘bone’ (categories of causes)• Smaller bones (cause and effect)

Steps to Constructing a Fishbone Diagram

1. The issue must be clear and agreed on before the diagram is started.

2. The contributors must be direct and to the point on the causes, rather than the symptoms.

3. For each ‘bone’, brainstorm the possible causes and place these on the node, and for each branch, try to determine its root cause.

5. Scrap or combine sparse nodes, and break apart overcrowded nodes.

6. Circle the causes that may be worth investigating, discuss how they are affecting the business, and how to approach them to deal with the root causes.

Strengths and weaknesses of fishbone diagram

Strengths • Easy to use • Easy to understand• Allows for systematic,

logical and holistic brainstorming of problems

• Computer software programmes based on fishbone model can be used to aid decision making.

Weaknesses • Too simplistic for some.• In general used in

conjunction with other decision-making frameworks

Internal and External Constraints.

These must be considered when making a business decision. Using analysis helps expose some of the risks as well as constraints involved when choosing a course of action.

Internal constraints are factors that hinder decision-making but are in the control of the business. These usually are affected by the culture and policies of the business. A SWOT analysis can be helpful to determining these factors.

External Constraints are factors that hinder decision-making in a business, but are outside of their control. Using a PEST analysis is helpful to determining these factors.

Higher Level

Organizational Planning Tools and Business Strategy

• As the business environment is dynamic, the management of a business must be able to adapt and plan for this inevitable change.

• Using organizational planning tools help managers make more rational decisions, as decisions will dictate the success of a business.

Organizational Planning Tools and Business Strategy

• The constraints on planning and decision-making must be taken into account, and some of the most common faced include:

• The Availability of Finance: All decisions require some kind of money or resources to execute. Some choices may be too costly to implement.

•Organizational Culture: When employees say “things aren’t done that way here”, some decisions may be unfavorable. Flexible corporate cultures are adaptable and more likely to accept change.

•The Dynamics of the Workforce: A skilled workforce is prepared for a wider variety of situations and can do more to achieve their goals, even if they are not to “job norms”.

• External Constraints: Government legislation, behavior of rival firms, the state of the economy, and pressure groups may affect a business decision.

Step by Step

Profit

PlenaryLevel achieved_____

What do you now know as a result of today’s lesson?

What are your areas for improvement? What are you going to do about this?