business planning and decision making

Planning And Decision Making: Characteristics, Importance, Elements, Limitations

In everyday life, all of us make and execute certain plans to achieve our goals. For example, before going on a trip, we make a plan i.e. where and when to go, how to reach the destination, the duration of the trip, where to stay and luggage to carry, etc. All these tasks require creating an effective plan which consists of certain activities for the successful execution of a trip. Process of making such plans to achieve some goal or objective is called “Planning . “ In other terms, in order to execute activities in future, prior forethought is necessary and this forethought comes under the concept of “planning.”

From an organizational point of view, planning is defined as “process by which an organization identifies its short-term and long-term goals, design, and implement strategies to achieve them.” One of the important aspects of planning is to allocate resources and manpower in an organization.

The planning function was put forth by Henri Fayol, known for his Management Theories i.e. 14 principles of management and 5 basic functions of management.

Planning is one of the six management functions/processes of Henri and the management process starts with planning function in any organization.

For example, manpower planning or human resource planning is a crucial planning process which ensures the right kind of people at the right place, and at the right time to fulfil the right type of jobs in the organizations. This process includes different activities in the planning process to meet organizational goals.

The Purpose Of Planning

1. achievement of goals, 2. cost-effective decision-making, 3. forecasting, 4. productive utilisation of available resources, 5. facilitate other management functions, 6. risk-management, characteristics/nature of planning, 1. basic and important management function.

Planning is not only the base for the rest of the management functions i.e. staffing, directing, organizing, and controlling, but it is also one of the most crucial processes for any organization to meet goals. All the above management functions involve effective planning as without proper planning no function can be performed well. Therefore, the results might be ambiguous.

2. Goal-Oriented

Planning is focused on defining organizational goals or objectives, identifying different action plans, deciding and implementing the best action plan to achieve goals.

3. Omnipresent

Planning is involved at all the levels i.e. top, middle, and bottom. The effective functioning of different departments of organizations like sales, purchase, IT, HR, finance among others depends on planning their systems, optimum use of resources, etc. The scope may vary in different functions.

4. Continuous Process

Planning is a continuous process in an organization which involves making plans for a particular time period i.e. monthly or quarterly, half-yearly, yearly, etc. New plans are initiated after the previous plans lapse to fulfil organizational goals.

5. Demands Strong Analytical Skills

Planning requires robust analytical abilities i.e. analyzing information, problem-solving, decision-making, critical thinking, etc. at each level and function.

6. Forecast

Planning process demands forecasting future needs, i.e. analyzing and detecting future requirements, challenges in accomplishing organizational goals, etc.

Importance Of Planning

1. increase in efficiency.

Planning helps in increasing efficiency by aiming at cost-reduction and generating maximum output. It controls the wastage of available resources and their duplicity.

2. Minimize Risks

Risk-management is an important aspect of any organization, especially in forecasting. Planning predicts various risks related to business and further helps in generating action plans to control and reduce these risks. So, with effective planning, organizations prepare themselves for any future uncertainty.

3. Smooth Coordination

Planning ensures effective coordination at different levels, between various departments or functions. Plans are formulated at each level i.e. top, middle, and bottom as well as in different departments. Effective execution of these plans requires proper coordination which is possible through effective planning. Similarly, different plans like short-, mid-, and long-term plans require coordination to achieve organizational goals where planning plays an important role.

4. Optimum Utilization Of Available Resources

An organization needs different resources like funds, manpower, physical assets to disburse activities of different departments. These resources are limited. So, it’s necessary to utilize and organize them efficiently to produce maximum output. Planning helps in organizing these resources carefully.

5. Smooth Supervision And Direction

Planning paves a path for supervising subordinates, providing right instructions, and rendering top-notch guidance. It aims to provide help, direction for performing various tasks, and methods for carrying out different activities.

6. Facilitates Control

Performance of staff can be controlled or improved by devising plans for improvement in performance according to the variance in performance plans and actual performance at work. Without planning, this process of control could not be smooth.

7. Staff Motivation

Attractive monetary and non-monetary benefits can be designed through proper planning which is helpful in boosting the morale of the staff. This leads to high motivation among staff and reduces turnovers of quality staff.

8. Trouble-Free Decision-Making

Making effective and right decisions in an organization is essential to achieve goals. A supervisor has to make different plans and strategies for the smooth functioning of the department and to decide the most appropriate plan. So, planning helps in smooth decision-making in an organization.

9. Goal-Oriented

Proper planning ensures that the best strategies and decisions are made to fulfil organizational goals. Different plans made at different levels are aimed at achieving individual, departmental, and organizational goals.

10. Encouraging Creativity And Innovative Ideas

Planning demands thinking and implementing the best ideas or strategies for organizational success. Both supervisors and subordinates are encouraged to exploit their creative skills and present their innovative plans.

Elements/Components Of Planning

The planning process revolves around different aspects as shown in the diagram below:

Mission or purpose is the base of planning in any organization. The mission of an organization specifies its reason for existence, customers, products or services, service locations, etc. and mostly in written form. It acts as a direction towards achieving organizational goals. Mission also includes an organization’s values and belief system. It also clears the organization’s viewpoint on staff. Organizational goals are defined based on the mission statement of an organization.

The ultimate aim of the functioning of each department in an organization is to achieve organizational goals and objectives. Planning also requires setting of goals to make a plan further. Goals can be individual or team based. For example:

• Individual goal of Hiring Manager in the HR department: To recruit top talent in the organization in given time-frame.
• Team goal of Human Resource Department: To ensure the development of employees by fulfilling an individual’s personal, professional needs and by meeting organizational goals.

Goals are specific, measurable, achievable, realistic, and time-bound. Short-term goals can be for less than a year and long-term goals are defined for a time-period of more than a year.

3. Policies

Planning is also based on defined policies of an organization. Policies are a set of guidelines to accomplish any task effectively and also includes procedure and actions. These are defined as a set of plans to handle different situations. Different policies like an insurance policy, travel policy, HR policies are designed to facilitate smooth functioning in any organization. Similarly, if an organization policy says that the minimum annual salary increment of staff will be 10% of the salary then increment can’t be less than 10%. So, policies act as a decision-making element as well.

Planning is connected to a process, and it is an important element of planning. A process defines guidelines to execute different activities, i.e. action plan. In any planning activity, the process is practical. A process like planning is aimed at achieving something. These are step-by-step inter-related activities to be performed and require different resources like money, manpower, machinery, etc. to produce the desired output. For example, in a manufacturing company, different processes are present like production process, quality control and quality assurance process, maintenance process etc.

Plans that are made for estimating income and expenses for a specific period are defined as “budget.” Budget is a set of financial plans which are made for a specific period and reviewed at regular intervals. Whether it is an organization or a family or an individual; all make budget plans to utilize their financial resources efficiently. For example, in an organization business budget is present that includes fixed and variable costs, expected sales, profits, etc.

A well-designed budget also helps in planning during a financial crisis.

6. Projects

Project in an organization refers to the set of inter-related activities which are planned to fulfil certain goals in a specific time period at a given cost using limited resources. Project planning includes defining goals, project schedule, resources, budget, project quality, manpower, and risk management. So, this element of planning consists of other planning elements as well. For example, software companies work on different projects for their clients.

7. Strategies

Strategies are a set of plans and actions that are defined to meet certain results. Proper planning and implementation of strategies are essential for organizational success and to meet certain goals.

Types Of Planning

Planning is mainly of four types i.e. Operational, Strategic, Tactical, and Contingency.

a) Operational Planning

Operational plan or work plan refers to the planning process aimed at achieving departmental and organizational goals. It is related to the day-to-day functioning of organizations. These plans clear planned activities of departments for the near future in detail. The operational plan provides answers of: -What goals have to be achieved and what strategies to use?

-Who will be responsible for different activities?

-What is the time limit to complete activities?-

-How much budget in terms of financial resources is required and available to complete activities?

For example, the goal of the marketing team of an engineering college is to increase the number of students by increasing marketing promotional activities. Marketing operational plan is explained in the diagram below:

Operational planning is of two types i.e. single use plans or ongoing plans. Single-use plans are developed for one-time activities or tasks like sales or marketing event or seminar. Ongoing plans have a defined set of policies, rules, and procedures to achieve goals and are continued for the future as well, like a performance management system for employees.

b) Strategic Planning

Strategic planning is defined as the strategies made by management to achieve its objectives. It also includes defining directions and allocating resources for execution. Strategic planning is meant for long-term business decisions. A strategic plan starts with the vision and the mission statement of an organization.

The process of strategic planning includes vision clarity, collecting and analyzing information, strategy formulation, and implementation of strategy, evaluating, and controlling. For example, the strategic plan of an organization which aims to reduce the current turnover rate is explained in the below diagram:

Models of Strategic Planning

There are five models of strategic planning which represents its designs or blueprints. Selection of the right model depends on an organization’s goals, mission, and vision. These models are:

1. The basic model of strategic planning

These are used by new organizations having less experience in using strategic business planning. It is mainly useful for small-scale organizations and business. This planning includes defining mission, goals, identifying strategies, creating action plans, evaluation etc.

2. Goal-oriented model

This one is an extended version of the basic strategic planning model and is used by established organizations which aim at introducing an improved strategic process. The process of this model includes a SWOT analysis (strength, weakness, opportunity and threat), identifying goals and mission, making strategies, action plans, operational plans, budget allocation, and evaluation on yearly basis.

3. Scenario-based model

This model is more of a technical model. It is used by organizations to face different challenges or scenarios which arise due to external factors or environmental change. Change can be demographic or in the form of rules and regulations. The process includes identifying problem areas in business and different scenarios- both best and worst, designing suggestions for an action plan of business in different scenarios, selecting common strategies to handle changes, and identifying common issues through which business is being affected or will be affected in the near future.

4. Alignment model

This model is useful in making a balance between an organization’s mission and available resources as well as aligning resources to the mission. It helps in identifying any gaps in planning i.e. gap between actual results and expected results. Organizations facing huge efficiencies prefer this strategic planning model to rectify issues.

The process includes identifying an organization’s mission, resources, process, etc, inspecting which areas are working in the right direction and which areas need improvement. It also requires finding ways of improvement and incorporating these improvements in the form of strategies in the plan.

5. Organic model

This strategic model is the self-organizing model which is based more on the value system and less on the process. The process includes clearing values and vision to stakeholders in a meeting; an action plan is established by each person as per values and vision, everyone clears results of actions and update values, vision accordingly.

c) Tactical Planning

This type of planning is for short duration i.e. plans and actions by functions for short-term and aims at contributing to the strategic plan of an organization. Tactical planning is based on today’s need and is a bit more detailed. This planning needs to be flexible to meet unexpected issues which are not predefined. It answers what to do to achieve the strategic objective rather than how-to-do as in case of operational plans. Below is an example of tactic planning by HR Hiring Manager to achieve the goal of hiring twenty sales representatives in the first quarter:

d) Contingency Planning

These type of plans are need-based and are formulated when the need for change arises or during the occurrence of any unexpected circumstance. It is also called alternate plans as it comes under picture once other plans fail to produce desired results. The process includes formulating policy, identifying critical factors of a business, risk analysis, preventive control measures, developing recovery strategies, and testing, training, monitoring plan.

An example of contingency planning can be seen in the diagram below which is a crisis situation of organization i.e. what-if HR Head, who is taking care of all HR gamut of organization, left suddenly. To handle such unexpected situations, contingency plans are made. Like in the below diagram, an organization has formulated a plan i.e. performance development program to train the rest of the HR staff to work at the capacity of HR Head in such crisis situations.

Planning Process

The planning process is defined as the steps to define goals and making the best action plans to achieve it.

Steps In Planning Process

1. Defining goal or objective

Goal setting is the first and important step in the planning process. Goals are defined at the organizational, department, and individual level and are meant to be achieved in future in a specific time period. A goal can be short-term, mid-term or long-term. Plans are devised which are aimed at achieving these predefined goals. Goals specify what to achieve by defined rules, policies, process, resources, strategies, etc.

2. Collecting information

Gathering information like facts and figures required to achieve goals is a necessary part of planning. Target audience, circumstances, market information, competitor’s strategy, etc. are required to make a right and effective plan.

3. Analyzing information

The next step in the planning process is interpreting information as per goals. Analyzing information includes organizing collected information as per importance, identifying accuracy and relevancy of information from different sources, its unique features, sources and reliability for the organization.

4. Making a plan

Once relevant information is collected and analyzed, the next step is to formulate a plan to achieve defined goals; the plan includes identifying different activities, required resources, timelines, etc. to implement a plan.

5. Implement the plan

Implementing a plan refers to allocate defined activities, resources, time guidelines to individuals. In this step, strategies and plans are converted into actions to achieve goals. Implementation of plans also requires allocation of responsibility in the team which is responsible for accomplishing the plan.

6. Monitor the plan

Once a plan is implemented, it’s necessary to evaluate and monitor its effectiveness and impact according to desired goals.

The planning process can be understood further in below example of an organization plan to formulate competitive compensation and benefits structure or plan for employees.

Planning Limitations

Although planning has lots of advantages for any organization aiming to achieve its goals; it also has certain constraints or limitations. Few of them are:

1. Costly process

Planning requires much investment as lots of aspects, i.e. funds, resources, manpower etc, are included in the process of planning. Due to limited capital or funds in small and medium organizations, it is quite challenging to have comprehensive plans. It is hard to allocate funds for information gathering, predicting future needs, developing strategies, and hiring specialists. If a plan is more detailed, then the cost is high too.

2. Time-consuming task

The planning process is a bit time-consuming and, sometimes, there is a delay in decision-making especially in immediate decisions. Due to this, the planning process can’t be detailed in some organizations.

3. Fewer employee initiatives

Planning demands work under predefined policies and rigid processes. This, in turn, marks an impact on initiatives and innovative ideas from the employees. Complexity arises in managerial work as well.

4. Change resistance

The planning process is backed by a change in methods, policies, rules, etc. Employees resist this change due to insecurity, the uncertainty of new plans’ success, and getting used to the current plan. This fails the new plan.

5. Budget constraints

The planning process requires an appropriate or fixed financial budget for future actions. An investment in purchasing fixed assets by organizations puts a constraint on the budget required for implementing the planning process.

6. Scope of inaccuracy

Planning cannot be 100% accurate and reliable as it is based on forecasting and the future is uncertain, data and information used in making plans may not be accurate, vague decisions made by incompetent planner etc. There is no surety of risks in future.

Apart from these, there are few other external factors like change in government policies i.e. tax policy, import-export policy etc. The trade-unions may also hinder a smooth planning process.

Decision-Making

Decision-making is defined as the process by which different possible solutions or alternatives are identified and the most feasible solution or course of action is finalized. It is an integral part of planning. Decision-making results in selecting the right action among different available options.

It is also one of the important management functions and effective decision-making leads to fulfilling expected goals by sorting out different problems related to such decisions. Decision-making is also a time-bound process and eliminates confusions to reach a conclusion. It has a minimum of two or more alternatives or solutions to a problem so that the best can be decided. If only one alternative is available, then there is no requirement of decision-making.

Relation Between Planning And Decision-Making

Both planning and decision-making are connected to each other. These are the most important aspects of management functions. Planning requires a series of decisions to be incorporated in advance. The foundation of planning is decision-making. The role of a planner demands good decision-making abilities also as the planner has to take a lot of decisions simultaneously. So, decision-making is an important task in planning. Simultaneous and a number of decisions make a plan. In the absence of decision-making, it’s not possible to answer what, how, when, and who is planning. To execute planned activities, decision-making is compulsory.

So, planning has an important role to play in decision-making.

Characteristics of Decision-Making

Different characteristics of decision-making are mentioned below:

1. Process-oriented

Decision-making consists of a process to choose the best solution to a problem among available alternatives. The process includes identifying and analyzing problems, collecting different facts and figures, finding different solutions, and, finally, narrowing down and implementing the best one to meet organizational goals.

2. Demands creativity and Intellectual mind

Decision-making process requires creativity and logical thinking. It demands a lot of mental exercise and other components, i.e. education, experience level, intelligence, etc.

3. Demonstrates commitment

Decision-making process ensures better results based on the decisions made. So, it indicates the commitment of desired results. It requires joint efforts of the team.

4. Ensures the best solution

Decision-making also provides the best solution to any problem as the best solution is decided after evaluating different available alternatives.

5. Impacts of decision-making

Decision-making can be either positive or negative. A positive or right decision can bring positive results and negative or wrong decisions can bring negative results.

6. Decision-making is a final process

After disbursing different activities and tasks, decision-making takes place to get the results of the work done. It is the end result of discussions, comparisons, etc.

7. An ongoing and changing process

Organizations take decisions on a regular basis; so, decision-making is a continuous process. Every decision consists of separate situations that make decision-making a changing process.

Decision-Making Process

There are different steps in effective decision-making process;

a. Situation analysis and information gathering

The first step of the decision-making process is analyzing any situation, defining a problem, collecting relevant information, and identifying goals. This step includes collecting data and information to identify a real issue or problem. Problem identification is necessary for furthering the decision-making process. Once the problem is identified, an effective solution is determined. Problems are solved as per priority. After the solution is improvised, an action plan is designed to achieve the solution.

b. Plan and make alternatives

After collecting information, the next step is to develop different action plans or an alternative course of action. It requires imagination skills of a decision maker. Sometimes, additional information is also required to define better alternatives.

c. Evaluating and selecting the best alternative

This step in the decision-making process not only includes the analysis of different alternatives available or solutions but also an examination of each one of them based on results they are going to produce. The actual results of these solutions are not known as it’s based on performance in the future. So, it comes with uncertainty. It also includes choosing the best solution to achieve objectives. Different alternatives or solutions are judged based on different criteria, i.e. risk involvement, the least effort, the least timing based on the urgency of the situation, limited resources etc.

d. Implementing and evaluating decisions

After deciding the best solution to address a problem, the next step is to make and implement plans. This requires getting and allocating resources, budgets, time frame, etc. Once made, decisions are evaluated to know the progress by preparing progress reports.

Evaluating and monitoring decisions will clear different aspects, i.e. if everything is going as per the plan, different internal and external factors influencing decisions, the performance of subordinates as expected etc.

Example of the decision-making process is shown in the below visual presentation to solve the problem of high employee turnover in an organization;

Factors Affecting Decision-Making

1. timelines.

The quality of decisions depends on how much time has been devoted to making decisions. Most of the time decision-makers have to take decisions in a limited time frame as instructed by the management. Due to the time limit, decision-makers are not able to collect all the necessary information that influences decisions and are, also, not able to look for more alternatives.

2. Value and beliefs of decision-makers

In addition, the quality of decisions also depends upon the value and belief system of the decision-makers. Anyone’s reaction to a particular situation is more likely to depend on the individual’s values, likes and dislikes, thoughts, and beliefs. It is also a behavioural aspect of the decision-makers and reflects in their decisions related to goals, strategy-making activities. So, value-based decisions help in prioritizing tasks and making goals, identifying different solutions to problems, and finalizing the best solution or alternative.

3. Policies of organization

Decisions are affected by the policies of an organization. Decisions taken have to be in the boundary or within the limits of these policies. Decisions which violate policies are not considered for implementation. Though there is a scope to make changes in policies as per decision, most of the time decisions should be at par with the policy guidelines. However, a change in policy is a time-consuming task and requires lots of things to be considered before any change. Comparatively, a change in proposed decisions is much easier.

4. Other factors like budget, manpower, values of management also influence decision-making .

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.

Importance of Decision-Making

1. optimum utilization of resources.

With the help of decision-making, all resources of organizations i.e. money, men, material, machine, market and method are used carefully and as per requirement.

2. Problem-solving approach

By decision-making, organizations can determine and face different problems in working. It not only helps in identifying problems but also solving them by making correct and fast decisions.

3. Contributes to organizational growth

As decision-making ensures optimum utilization of resources, making the right decisions to solve problems or issues helps in achieving organizational goals and overall growth.

4. Encourage initiatives and innovations

Decision-making task is performed at all levels of organization i.e. top, middle and bottom. This motivates the staff members to contribute to decisions through brainstorming or alternatives to solve the problem. Thus, it encourages innovative thoughts and ideas which, in turn, help the organization to be at a competitive place in the market.

5. Employee motivation

Good decisions help in increasing the productivity of organizations that result in more profits. Surplus profits help in increasing compensation benefits to employees which ultimately boosts their morale and keeps them motivated.

To conclude, planning is a systematic process that supports organizations to carry out all its present and future activities to achieve desired objectives. Planning, being a continuous function, works well in adverse situations too. Plans can be modified and restructured as per requirement and available information.

Decision making is also an important activity that supports the organization by reducing risks in projects with quick and better decisions.

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Excellent notes on planning and decision making i have ever seen, thank you keep posting on Management based topice with real example of companies how it is working.

thank you for good notes on planning and decision making

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The Definitive Guide to Business Decision-Making

By Kate Eby | August 24, 2018

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Making decisions — both large and small — is critical to the success of a business. Decisions come from the need to solve a problem or the need for a potential opportunity. Gathering the right amount of information and input from key stakeholders is essential for making informed decisions. Following one of the few accepted processes to collect intel and objectively weigh the pros and cons of the data can help steer you away from making unsound decisions. In this article, you’ll learn about popular decision-making processes and how to apply them to your own business.

What Is the Decision-Making Process?

The decision-making process involves identifying a goal, getting the relevant and necessary information, and weighing the alternatives in order to make a decision. The concept sounds simple, yet many people overlook some of the critical stages and risks that occur when making decisions. Wherever possible, it’s important to make the best decisions under the circumstances.

There are at least four strong benefits to making good decisions:

1. Good decisions last longer. You will rarely need to revisit a decision that was made using a well thought out process, and it can sometimes last the entire lifespan of an organization.

2. Good decisions weigh internal and external factors. A decision-maker should consider a company holistically. A sound decision won’t have one part of the business succeed at the expense of another. Both internal and external factors can affect the decision and the company's road map.

3. Good decisions eliminate conflicts of interest. With transparency and stakeholder buy-in during the decision-making process, questions or concerns after the fact become far less likely. The benefits of this process keep the organization on track and focused, and reduce churn.

4. Good decisions actually work better overall. Good decisions actually get the decision-maker, department, and company closer to their goal, and solve the initial problem.

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What Is the Decision Making Process Model?

Following a formal process with specific steps can help businesses make more informed decisions (see more benefits to using a formal process ) and propel it forward. In fact, using a decision-making process tailored to the business world reaps enormous benefits that include the following:

• Less Second-Guessing: If you follow a formal business decision-making process, you can demonstrate you've already considered various other options.
• Translatable and Sharable Decisions and Progress: You can share the processes and steps upward to top management and the C suite, as well as downward into the ranks of those who'll be involved in executing the decision.
• Guide or Roadmap: Capturing the decision-making process in writing can be useful to show stakeholders an explanation of the steps and strategy behind it, as well as provide backup details.

The late Harvard business professor and author J. Richard Hackman wrote many books about effective business leadership, teamwork, and decision-making, including Leading Teams: Setting the Stage for Great Performances . Empowering teams to make their own decisions and following the processes that work for them, Hackman explains in his book, results in cohesion and strength. But in making strong decisions, he adds, “Teams taking in too much data to make decisions can result in an overload trap , which can result in a team metaphorically drowning in data.” Therefore, it’s critical to be strategic at every step of the process.

What Is the First Step in Any Decision-Making Process?

The most important first step in any process is to clearly define that a decision needs to be made. It may sound obvious, but many organizations focused on moving fast may actually overlook this step. Outline this goal decision as specifically as possible. Include why this decision is critical for your business goals or for internal objectives. You need to be able to support why you initially selected the goal necessitating a decision.

A decision or goal can't be made in a vacuum. In fact, it’s a waste of time and resources unless it aligns to a business need. Therefore, the first step in any decision-making progress is to ensure that your decision truly needs to be made in the first place and that it reflects a larger goal of the company.

How to Improve the Decision-Making Process

It’s critical to build evaluation into the process. Ensure that at least one of the steps includes evaluation and revisiting the process and its outcome, especially for future use. Additionally, get sign-off from all stakeholders in advance (even for the steps in the process) and keep them in the loop. Capture metrics along the way that show successes, failures, the comparative benefits of options you’ve considered, and research into what competitors have done, to help support your responses and keep the process moving smoothly.

Types of Traditional Processes in Business Decision-Making

Before we examine the various stepped plans in decision-making, we will explore a few specific types of decision-making. There are also several different actual processes that can be used in decision-making that involve a number of steps. The most popular and well-used processes have five, six, seven, or eight steps.

The number of steps will vary, of course, if you break down tasks that could be contained in a single step into additional steps. Regardless of the process you choose, evaluation is the last step, and smart companies will take the time to do this. Over time, organizations using this evaluation step can gain critical efficiencies in time and focus. It also helps ensure institutional learning for the overall health and strength of the company. All of the processes described in the following sections are in use today.

What Is the Five-Step Process in Decision-Making?

Many organizations follow the five-step process when making decisions. As you compare the following processes with the varying numbers of steps, you’ll see that some, like this one, combine activities, while others list them as separate steps. Here are the five steps in this process:

• Identify the end goal.
• Gather all your information needed to inform your decision.
• Evaluate all the risks and consequences.
• Make the decision and execute it.
• Evaluate the decision after the fact.

What Is the Six-Step Process in Decision-Making?

The six-step process focuses more on up-front research and information-gathering. This method front-loads the process with data that can make the rest of the process run smoothly. Here are the six steps in this process:

• Gather all the necessary information, and identify all the alternatives (without selecting one yet).
• Compare all these alternatives against the relevant criteria.
• Make the decision.
• Execute the decision.

What Is the Seven-Step Process in Decision-Making?

The seven-step decision-making process seems to have the most adherents in the current business climate. The following flow chart shows how the process works, how each step leads to the next one, and so on.

Here are the seven steps in this process:

• Identify the end goal, and the need for the decision.
• Gather all the relevant information.
• Identify various viable alternatives. You don’t need to identify absolutely every possible alternative — only the ones that realistically could work for this situation.
• Compare all the evidence of all the alternatives, and list the pros and cons.
• Choose the decision.

Below is a downloadable decision-making checklist that you can use in your business decision-making.

Download Decision Making Checklist

Excel | Word | PDF

What Is the Eight-Step Process in Decision-Making?

The eight-step process involves gathering data, as well as identifying key criteria. There is usually a full brainstorming session in order to cast the net wide when considering options. Here are the eight steps:

• Gather all relevant information.
• Decide what your criteria will be for judging all the alternatives.
• Have a full brainstorming session to assess each option.
• Compare all the alternatives, and list the pros and cons.

What Is the Ethical Decision-Making Process?

The ethical decision-making process is a process that stipulates that any and all decisions must include evaluating and selecting options that are consistent with ethical concerns. This means making the most ethical choices, regardless of the impact to the bottom line. Ethical decision-making also means eliminating any options that are not consistent with ethical values from the beginning.

According to the University of California San Diego , which cites the Josephson Institute of Ethics , ethical decision-making involves the 3 Cs:

• Commitment: Never wavering from choosing or doing the ethical thing, whether it costs more or not.
• Consciousness: Infusing your team and project members with enough awareness to own the ability to act ethically every day with moral certainty.
• Competency: The ongoing process of evaluating information as you go and weighing options that allow you to continually make the right ethical decisions. As conditions in the world change, having a strong competency to evaluate these changes is mission-critical to staying the course in being ethical.

How to Make a Decision Using the Analytic Hierarchy Process

The analytic hierarchy process ensures that you are using specific criteria and rating those criteria, instead of simply comparing alternatives you've used in the past. The process involves creating an actual hierarchy of sub-issues, which you then evaluate and examine. Then, you measure these sub-issues against each other and assign each a relative value on the hierarchy. In short, alternative solutions are examined, and then weighed against each other.

While some businesses use the analytic hierarchy process, it is often used in academic or policy-related scenarios. In this method, a decision is made with the most important issues considered or weighted more heavily, and higher on the hierarchy, than others.

What Is the Rational Decision-Making Process?

As its name implies, rational decision-making relies strictly on data, measurable steps, and calculated values. This process focuses on minimizing costs and maximizing benefits to the organization. To use this process effectively, it’s critical to factor in personal biases of those involved and solve for them. The five-step process is usually used in rational decision-making.

As opposed to ethical decision making, there's no subjective judgement about criteria and steps to reach a decision in rational decision-making. However, it's possible the same decision could be reached using both processes.

What Is the Managerial Decision-Making Process?

The phrase managerial decision-making process is similar to and sometimes used interchangeably with the more general term business decision-making . But in fact, managers may have more decisions per day, including those affecting employees, beyond the typical business decisions that need to be made in an organization. Managerial decision-making often follows the five-step process.

According to the educational group Management Study Guide, there are three main types of managerial decisions:

• Strategic: These kinds of decisions are typically made rarely. Not all levels of an organization are or need to be involved as the decision is being considered and decided. Examples of strategic managerial decisions include resource and investment, expansion or downsizing, mergers or acquisitions, investments, etc. These can take significant amounts of time and should not be rushed.
• Operational: These decisions also take time to be fully explored and made. Higher level ones may involve only the C-suite and/or directors, and can include decisions affecting output, company-wide policies, and culture. Lower-level decisions of this type affect daily operations, so are often handled by upper and middle management.
• Managerial: These are made by managers at every relevant level, from middle managers to the executive suite. They may cover issues like allocation of resources, the decisions to phase out or revise current products, the creation and introduction of new products, and the like. Every manager in an organization needs to be aligned and often involved in decisions at this level.

What Are the Best Practices in Any Business Decision-Making Process?

If you’re using a team to make a decision, it’s important to have the number of people involved. Hackman’s recommendation is to have about five people on a decision-making team. More than seven members, he writes, makes your decision-making group lose effectiveness.

Sometimes individuals need to make the decision, or perhaps just two C-level executives appoint themselves to make a decision. But Hackman’s study shows that overall, teams make 75 percent better decisions than individuals.

It’s also imperative to identify and fill the correct roles in your decision-making team. Otherwise you are guaranteeing frustration and churn. The Harvard Business Review suggests using the RAPID methodology (recommend, agree, perform, input, and decide). This option provides a high-level way to capture the flow of the step-by-step processes.

As a first step, send your team members out to do research and ask them to answer these questions:

• What are the most important goals for the decision?
• What are the top realistic choices?

Audit and combine the results with the team to collectively agree on the top choices or identify gaps. Be sure to communicate and build in time for feedback and questions all along your process. This ensures buy-in all through the process. Sometimes using a decision-making matrix can also help your team identify and weigh options.

Read “Make Up Your Mind: Free Downloadable Decision Matrix Templates” to earn more about using decision-making matrices.

5 Potential Pitfalls to Avoid when Using a Formal Decision-Making Process

Before embarking on a decision-making process, it’s useful to keep some potential pitfalls in mind. Following a process is important, but avoid following the process “out the window.” Here are five potential issues that could arise when using a formal decision-making process:

• Proceeding without Enough Information, or Relying on a Single Source: If you’re going to follow a formal process, you’ll need data. Document each step and get buy-in from your colleagues. Information is power, and gathering information from relevant but diverse sources is critical to being strategic.
• Gathering Too Much Information: Too much or irrelevant information can be overwhelming and confusing, and can lead decision makers astray from the issue that needs the decision, as well as how best to arrive at it.
• Placing Too Much Confidence in an Option that May Cause Bad Results: Try to identify a valid option or options as you hone in on a process and  decision. Gather enough data throughout the process so you can play out scenarios for each option.
• Solving for the Wrong Problem: Front-loading research can be critical if you don't understand what's causing the issue. For example, if your production output has been slipping, don't assume that you need more staff, or more factory hours, or any one thing, unless and until you can identify the true reason for the slowdown.
• Being Too Rigid with or Wedded to the Process: It’s possible to follow a decision-making process so strictly that the organic nature of a business, staff, and their needs are sidelined or ignored. Even when you are strategically and confidently following a business decision-making process, you and your team need to have the ability to pivot if needed.

Examples of Decision-Making Processes Successes

In a sense, a company’s entire history is a reflection of making decisions. Some of the top companies in the world have turned a failure into a success by focusing on the last crucial step in all decision-making processes: evaluating the decision after the fact.

One example of this is Coca-Cola in 1985. Business and leadership expert John Addison writes that the company decided to address the changing soda marketplace by launching “new Coke.” Unfortunately, the rebrand failed miserably within three months, which forced the company to reintroduce the original Coca-Cola. The big takeaway: Reversing direction isn’t a sign of failure; rather, it’s evidence of a leader’s commitment to keeping the company’s health a top priority. What’s more, it shows how important it is to revisit and evaluate decisions.

Companies often use data to try a pilot or program, and if it doesn’t work, they might revisit the decision and change course. In other cases, large companies are constantly assessing data to find actionable paths. These three companies found success by making decisions based on data and stakeholder reviews:

• According to Harvard Business Review , Google created a people analytics department to help the company make HR decisions using data, including deciding if managers make a difference in their teams’ performance. The department used performance reviews and employee surveys to answer this question. The company learned that a laser focus on performance did not indicate the best or happiest teams; instead, managers with strong people skills had the best-performing groups — as well as employees who were happier and stayed longer at the company.
• When Amazon was still a startup, its data gatherers noticed that customers who bought a certain book or CD or DVD also were more inclined to buy another product. Perhaps these related products were by the same author or artist, or maybe the movies starred the same actors or had similar subject matter. Or, maybe they were just hot titles the customer wanted. Editors at this time had been taking on the role of “trusted adviser,” making recommendations based on purchases through emails and other human-created collateral, but the company thought that an automated tool could augment what the human editors could suggest. Ultimately, Amazon decided to use that data to create its first, rudimentary personalization tool. By presenting customers with products that other customers also bought, the company realized a significant spike in sales.
• Southwest Airlines famously studied its customer data to determine the perks and upgrades that would appeal to its regular flyers. Offering those perks and upgrades resulted in a boost in ridership and fierce loyalty among its customers.

These are examples of successes that relied on strong decision making, but of course, not all decisions succeed. Continually assessing and revisiting decisions is a sign of a mature company; otherwise, decisions could result in public failure. In the next section, we’ll look at some examples of failed decision making.

Examples of Decision-Making Process Failures

The failure of companies to adapt, change, or compete effectively probably can’t be tied to one bad decision or process failure. Still, in not rigorously gathering data, weighing options, and evaluating decisions, organizations can doom themselves. Here are some examples of companies that failed to use, or learn from, their decision-making processes:

• Blockbuster and Borders: Both of these once-successful brick-and-mortar companies   used data to reaffirm their own preconceptions instead of evaluating data objectively. Instead of adapting to the challenges and opportunities of the internet, their web properties and physical locations ultimately failed.
• Kodak: For decades this company was synonymous with photography in all its forms. But it didn’t fearlessly look at the changing landscape of digital photography. Even when it acquired Ofoto, it failed to maximize and monetize the opportunity. The company arrived late and quietly to the online photo gallery space with Kodak Gallery, which was subsequently acquired by Shutterfly.
• Newspapers: It’s hard to see a whole industry collapse because of bad decision-making and denial, but this is what began to happen in the late 1990s to newspapers. While some organizations, like the New York Times and Washington Post, have adapted to digital media, most city newspapers are struggling. Clinging to old business models never helped any business make strong, forward-looking decisions.

Team Building Exercises to Improve Decision-Making

If you’re ready to get your team energized to focus on making its decision, team-building exercises are a great place to start. These exercises help team members get to know and understand each other, which helps them get on the same page more quickly and ultimately improve their decisions. Here are some resources that can help you find the right team-building exercises for your decision-making group:

• Activities recommended by business experts
• More top activities recommended by business leaders
• Top team-building questions
• Top 20 team-building activities

The Decision-Making Processes in Non-Business Fields

In non-business fields, decision-making can involve more or fewer factors, with different kinds of weight assigned to each step. Here is a quick overview of some other types of decision-making processes:

• Consumer Decision-Making Processes: It’s important for marketers to recognize the steps consumers typically use to make a purchase decision. They include the following:
• Identify need. (I need a new winter coat.)
• Gather research and information. (What are the newest styles and warmest types of winter coats?)
• Evaluate the research. (So do I really need a new winter coat, or can I layer up with what I already have? If I need a new one, which one is best for my needs?)
• Buy the item.
• Evaluate the decision. (Was this winter coat a good decision? Am I happy I made it, and would I recommend this coat to other people, or buy it again for myself?)
• Military and Governmental Decision-Making Processes: For those in the military and other types of government roles, decision-making can be a matter of life and death. Therefore, the protocol for making military operations decisions is detailed and strict. 
• Education Decision-Making Processes: Many schools and school districts embrace shared decision-making , a process that involves members of the community, parents, students and former students, teachers, and anyone else invested in the success of a school or district. 

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17.2 The Planning Process

• Outline the planning and controlling processes.

Planning is a process. Ideally it is future oriented, comprehensive, systematic, integrated, and negotiated. 11 It involves an extensive search for alternatives and analyzes relevant information, is systematic in nature, and is commonly participative. 12 The planning model described in this section breaks the managerial function of planning into several steps, as shown in Exhibit 17.3 . Following this step-by-step procedure helps ensure that organizational planning meets these requirements.

Step 1: Developing an Awareness of the Present State

According to management scholars Harold Koontz and Cyril O’Donnell, the first step in the planning process is awareness. 13 It is at this step that managers build the foundation on which they will develop their plans. This foundation specifies an organization’s current status, pinpoints its commitments, recognizes its strengths and weaknesses, and sets forth a vision of the future. Because the past is instrumental in determining where an organization expects to go in the future, managers at this point must understand their organization and its history. It has been said—“The further you look back, the further you can see ahead.” 14

Step 2: Establishing Outcome Statements

The second step in the planning process consists of deciding “where the organization is headed, or is going to end up.” Ideally, this involves establishing goals. Just as your goal in this course might be to get a certain grade, managers at various levels in an organization’s hierarchy set goals. For example, plans established by a university’s marketing department curriculum committee must fit with and support the plans of the department, which contribute to the goals of the business school, whose plans must, in turn, support the goals of the university. Managers therefore develop an elaborate network of organizational plans, such as that shown in Exhibit 17.4 , to achieve the overall goals of their organization.

Goal vs. Domain Planning

Outcome statements can be constructed around specific goals or framed in terms of moving in a particular direction toward a viable set of outcomes. In goal planning , people set specific goals and then create action statements. 15 For example, freshman Kristin Rude decides that she wants a bachelor of science degree in biochemistry (the goal). She then constructs a four-year academic plan that will help her achieve this goal. Kristin is engaging in goal planning. She first identifies a goal and then develops a course of action to realize her goal.

Another approach to planning is domain/directional planning , in which managers develop a course of action that moves an organization toward one identified domain (and therefore away from other domains). 16 Within the chosen domain may lie a number of acceptable and specific goals. For example, high-school senior Neil Marquardt decides that he wants to major in a business-related discipline in college. During the next four years, he will select a variety of courses from the business school curriculum yet never select a major. After selecting courses based on availability and interest, he earns a sufficient number of credits within this chosen domain that enables him to graduate with a major in marketing. Neil never engaged in goal planning, but in the end he will realize one of many acceptable goals within an accepted domain.

The development of the Post-it® product by the 3M Corporation demonstrates how domain planning works. In the research laboratories at 3M, efforts were being made to develop new forms and strengths of cohesive substances. One result was cohesive material with no known value because of its extremely low cohesive level. A 3M division specialist, Arthur L. Fry, frustrated by page markers falling from his hymn book in church, realized that this material, recently developed by Spencer F. Silver, would stick to paper for long periods and could be removed without destroying the paper. Fry experimented with the material as page markers and note pads—out of this came the highly popular and extremely profitable 3M product Scotch Post-it®. Geoff Nicholson, the driving force behind the Post-it® product, comments that rather than get bogged down in the planning process, innovations must be fast-tracked and decisions made whether to continue or move on early during the product development process. 17

Situations in which managers are likely to engage in domain planning include (1) when there is a recognized need for flexibility, (2) when people cannot agree on goals, (3) when an organization’s external environment is unstable and highly uncertain, and (4) when an organization is starting up or is in a transitional period. In addition, domain planning is likely to prevail at upper levels in an organization, where managers are responsible for dealing with the external environment and when task uncertainty is high. Goal planning (formulating goals compatible with the chosen domain) is likely to prevail in the technical core, where there is less uncertainty.

Hybrid Planning

Occasionally, coupling of domain and goal planning occurs, creating a third approach, called hybrid planning . In this approach, managers begin with the more general domain planning and commit to moving in a particular direction. As time passes, learning occurs, uncertainty is reduced, preferences sharpen, and managers are able to make the transition to goal planning as they identify increasingly specific targets in the selected domain. Movement from domain planning to goal planning occurs as knowledge accumulates, preferences for a particular goal emerge, and action statements are created.

Consequences of Goal, Domain, and Hybrid Planning

Setting goals not only affects performance directly, but also encourages managers to plan more extensively. That is, once goals are set, people are more likely to think systematically about how they should proceed to realize the goals. 18 When people have vague goals, as in domain planning, they find it difficult to draw up detailed action plans and are therefore less likely to perform effectively. When studying the topic of motivation, you will learn about goal theory. Research suggests that goal planning results in higher levels of performance than does domain planning alone. 19

Step 3: Premising

In this step of the planning process, managers establish the premises, or assumptions, on which they will build their action statements. The quality and success of any plan depends on the quality of its underlying assumptions. Throughout the planning process, assumptions about future events must be brought to the surface, monitored, and updated. 20

Managers collect information by scanning their organization’s internal and external environments. They use this information to make assumptions about the likelihood of future events. As Kristin considers her four-year pursuit of her biochemistry major, she anticipates that in addition to her savings and funds supplied by her parents, she will need a full-time summer job for two summers in order to cover the cost of her undergraduate education. Thus, she includes finding full-time summer employment between her senior year of high school and her freshman year and between her freshman and sophomore years of college as part of her plan. The other two summers she will devote to an internship and finding postgraduate employment—much to mom and dad’s delight! Effective planning skills can be used throughout your life. The plan you develop to pay for and complete your education is an especially important one.

Step 4: Determining a Course of Action (Action Statements)

In this stage of the planning process, managers decide how to move from their current position toward their goal (or toward their domain). They develop an action statement that details what needs to be done, when, how, and by whom. The course of action determines how an organization will get from its current position to its desired future position. Choosing a course of action involves determining alternatives by drawing on research, experimentation, and experience; evaluating alternatives in light of how well each would help the organization reach its goals or approach its desired domain; and selecting a course of action after identifying and carefully considering the merits of each alternative.

Step 5: Formulating Supportive Plans

The planning process seldom stops with the adoption of a general plan. Managers often need to develop one or more supportive or derivative plans to bolster and explain their basic plan. Suppose an organization decides to switch from a 5-day, 40-hour workweek (5/40) to a 4-day, 40-hour workweek (4/40) in an attempt to reduce employee turnover. This major plan requires the creation of a number of supportive plans. Managers might need to develop personnel policies dealing with payment of daily overtime. New administrative plans will be needed for scheduling meetings, handling phone calls, and dealing with customers and suppliers.

Planning, Implementation, and Controlling

After managers have moved through the five steps of the planning process and have drawn up and implemented specific plans, they must monitor and maintain their plans. Through the controlling function (to be discussed in greater detail later in this chapter), managers observe ongoing human behavior and organizational activity, compare it to the outcome and action statements formulated during the planning process, and take corrective action if they observe unexpected and unwanted deviations. Thus, planning and controlling activities are closely interrelated (planning ➨ controlling ➨ planning . . .). Planning feeds controlling by establishing the standards against which behavior will be evaluated during the controlling process. Monitoring organizational behavior (the control activity) provides managers with input that helps them prepare for the upcoming planning period—it adds meaning to the awareness step of the planning process.

Influenced by total quality management (TQM) and the importance of achieving continuous improvement in the processes used, as well as the goods and services produced, organizations such as IBM-Rochester have linked their planning and controlling activities by adopting the Deming cycle (also known as the Shewhart cycle).

It has been noted on numerous occasions that many organizations that do plan fail to recognize the importance of continuous learning. Their plans are either placed on the shelf and collect dust or are created, implemented, and adhered to without a systematic review and modification process. Frequently, plans are implemented without first measuring where the organization currently stands so that future comparisons and evaluations of the plan’s effectiveness cannot be determined. The Deming cycle , shown in Exhibit 17.6 , helps managers assess the effects of planned action by integrating organizational learning into the planning process. The cycle consists of four key stages: (1) Plan—create the plan using the model discussed earlier. (2) Do—implement the plan. (3) Check—monitor the results of the planned course of action; organizational learning about the effectiveness of the plan occurs at this stage. (4) Act—act on what was learned, modify the plan, and return to the first stage in the cycle, and the cycle begins again as the organization strives for continuous learning and improvement.

Concept Check

• What are the five steps in the planning process?
• What is the difference between goal, domain, and hybrid planning?
• How are planning, implementation, and controlling related?

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Stop Making Plans; Start Making Decisions

• Michael Mankins
• Richard Steele

In most companies, strategic planning isn’t about making decisions. It’s about documenting choices that have already been made, often haphazardly. Leading firms are rethinking their approach to strategy development so they can make more, better, and faster decisions.

The Idea in Brief

Most executives view traditional strategic planning as worthless. Why? The process contains serious flaws. First, it’s conducted annually, so it doesn’t help executives respond swiftly to threats and opportunities (a new competitor, a possible acquisition) that crop up throughout the year.

Second, it unfolds unit by unit—with executive committee members visiting one unit at a time to review their strategic plans. Executives lack sufficient information to provide worthwhile guidance during these “business tours.” And the visits take them away from urgent companywide issues, such as whether to enter a new market, outsource a function, or restructure the organization.

Frustrated by these constraints, executives routinely sidestep their company’s formal strategic planning process—making ad hoc decisions based on scanty analysis and meager debate. Result? Decisions made incorrectly, too slowly, or not at all.

How to improve the quality and quantity of your strategic decisions? Use continuous issues-focused strategic planning . Throughout the year, identify the issues you must resolve to enhance your company’s performance—particularly those spanning multiple business units. Debate one issue at a time until you’ve reached a decision. And add issues to your agenda as business realities change.

Your reward? More rigorous debate and more significant strategic decisions each year—made precisely when they’re needed.

The Idea in Practice

To create an effective strategic-planning process:

Link Decision Making and Planning

Create a mechanism that helps you identify the decisions you must make to create more shareholder value. Once you’ve made those decisions, use your traditional planning process to develop an implementation road map. Example: 

At Boeing Commercial Airplanes, executives meet regularly to uncover the company’s most pressing, long-term strategic issues (such as evolving product strategy, or fueling growth in services). Upon selecting a course of action, they update their long-range business plan with an implementation strategy for that decision. (By separating—but linking—planning and execution, Boeing makes faster and better decisions.)

Focus on Companywide Issues

During strategy discussions, focus on issues spanning multiple business units. Example: 

Facing a shortage of investment ideas, Microsoft’s leaders began defining issues—such as PC market growth and security—that are critical throughout the company. Dialogues between unit leaders and the executive committee now focus on what Microsoft as a whole can do to address each issue—not which strategies individual units should formulate. Countless new growth opportunities have surfaced.

Develop Strategy Continuously

Spread strategy reviews throughout the year rather than squeezing them into a 2-3-month window. You’ll be able to focus on—and resolve—one issue at a time. And you’ll have the flexibility to add issues as soon as business conditions change. Example: 

Executives at multi-industry giant Textron review two to three units’ strategy per quarter rather than compressing all unit reviews into one quarter annually. They also hold continuous reviews designed to address each strategic issue on the company’s agenda. Once an also-ran among its peers, Textron was a top-quartile performer during 2004–2005.

Structure Strategy Reviews to Produce Results

Design and conduct strategy sessions so that participants agree on facts related to each issue before proposing solutions. Example: 

At Textron, each strategic issue is resolved through a disciplined process: In one session, the management committee debates the issue at hand and reaches agreement on the relevant facts (e.g., customers’ purchase behaviors, a key market’s profitability figures). The group then generates several viable strategy alternatives. In a second session, the committee evaluates the alternatives from a strategic and financial perspective and selects a course of action. By moving from facts to alternatives to choices, the group reaches many more decisions than before.

Is strategic planning completely useless? That was the question the CEO of a global manufacturer recently asked himself. Two years earlier, he had launched an ambitious overhaul of the company’s planning process. The old approach, which required business-unit heads to make regular presentations to the firm’s executive committee, had broken down entirely. The ExCom members—the CEO, COO, CFO, CTO, and head of HR—had grown tired of sitting through endless PowerPoint presentations that provided them few opportunities to challenge the business units’ assumptions or influence their strategies. And the unit heads had complained that the ExCom reviews were long on exhortation but short on executable advice. Worse, the reviews led to very few worthwhile decisions.

• Michael Mankins is a leader in Bain’s Organization and Strategy practices and is a partner based in Austin, Texas. He is a coauthor of Time, Talent, Energy: Overcome Organizational Drag and Unleash Your Team’s Productive Power (Harvard Business Review Press, 2017).
• RS Richard Steele ( [email protected] ) is a partner in Marakon’s New York office.

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This is how effective teams navigate the decision-making process

Zero Magic 8 Balls required.

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Flipping a coin. Throwing a dart at a board. Pulling a slip of paper out of a hat.

Sure, they’re all ways to make a choice. But they all hinge on random chance rather than analysis, reflection, and strategy — you know, the things you actually need to make the big, meaty decisions that have major impacts.

So, set down that Magic 8 Ball and back away slowly. Let’s walk through the standard framework for decision-making that will help you and your team pinpoint the problem, consider your options, and make your most informed selection. Here’s a closer look at each of the seven steps of the decision-making process, and how to approach each one. 

Step 1: Identify the decision

Most of us are eager to tie on our superhero capes and jump into problem-solving mode — especially if our team is depending on a solution. But you can’t solve a problem until you have a full grasp on what it actually is .

This first step focuses on getting the lay of the land when it comes to your decision. What specific problem are you trying to solve? What goal are you trying to achieve? 

How to do it: 

• Use the 5 whys analysis to go beyond surface-level symptoms and understand the root cause of a problem.
• Try problem framing to dig deep on the ins and outs of whatever problem your team is fixing. The point is to define the problem, not solve it. 

⚠️ Watch out for: Decision fatigue , which is the tendency to make worse decisions as a result of needing to make too many of them. Making choices is mentally taxing , which is why it’s helpful to pinpoint one decision at a time. 

2. Gather information

Your team probably has a few hunches and best guesses, but those can lead to knee-jerk reactions. Take care to invest adequate time and research into your decision.

This step is when you build your case, so to speak. Collect relevant information — that could be data, customer stories, information about past projects, feedback, or whatever else seems pertinent. You’ll use that to make decisions that are informed, rather than impulsive.

• Host a team mindmapping session to freely explore ideas and make connections between them. It can help you identify what information will best support the process.
• Create a project poster to define your goals and also determine what information you already know and what you still need to find out. 

⚠️ Watch out for: Information bias , or the tendency to seek out information even if it won’t impact your action. We have the tendency to think more information is always better, but pulling together a bunch of facts and insights that aren’t applicable may cloud your judgment rather than offer clarity. 

3. Identify alternatives

Use divergent thinking to generate fresh ideas in your next brainstorm

Blame the popularity of the coin toss, but making a decision often feels like choosing between only two options. Do you want heads or tails? Door number one or door number two? In reality, your options aren’t usually so cut and dried. Take advantage of this opportunity to get creative and brainstorm all sorts of routes or solutions. There’s no need to box yourselves in. 

• Use the Six Thinking Hats technique to explore the problem or goal from all sides: information, emotions and instinct, risks, benefits, and creativity. It can help you and your team break away from your typical roles or mindsets and think more freely.
• Try brainwriting so team members can write down their ideas independently before sharing with the group. Research shows that this quiet, lone thinking time can boost psychological safety and generate more creative suggestions .

⚠️ Watch out for: Groupthink , which is the tendency of a group to make non-optimal decisions in the interest of conformity. People don’t want to rock the boat, so they don’t speak up. 

4. Consider the evidence

Armed with your list of alternatives, it’s time to take a closer look and determine which ones could be worth pursuing. You and your team should ask questions like “How will this solution address the problem or achieve the goal?” and “What are the pros and cons of this option?” 

Be honest with your answers (and back them up with the information you already collected when you can). Remind the team that this isn’t about advocating for their own suggestions to “win” — it’s about whittling your options down to the best decision. 

How to do it:

• Use a SWOT analysis to dig into the strengths, weaknesses, opportunities, and threats of the options you’re seriously considering.
• Run a project trade-off analysis to understand what constraints (such as time, scope, or cost) the team is most willing to compromise on if needed. 

⚠️ Watch out for: Extinction by instinct , which is the urge to make a decision just to get it over with. You didn’t come this far to settle for a “good enough” option! 

5. Choose among the alternatives

This is it — it’s the big moment when you and the team actually make the decision. You’ve identified all possible options, considered the supporting evidence, and are ready to choose how you’ll move forward.

However, bear in mind that there’s still a surprising amount of room for flexibility here. Maybe you’ll modify an alternative or combine a few suggested solutions together to land on the best fit for your problem and your team. 

• Use the DACI framework (that stands for “driver, approver, contributor, informed”) to understand who ultimately has the final say in decisions. The decision-making process can be collaborative, but eventually someone needs to be empowered to make the final call.
• Try a simple voting method for decisions that are more democratized. You’ll simply tally your team’s votes and go with the majority. 

⚠️ Watch out for: Analysis paralysis , which is when you overthink something to such a great degree that you feel overwhelmed and freeze when it’s time to actually make a choice. 

6. Take action

Making a big decision takes a hefty amount of work, but it’s only the first part of the process — now you need to actually implement it. 

It’s tempting to think that decisions will work themselves out once they’re made. But particularly in a team setting, it’s crucial to invest just as much thought and planning into communicating the decision and successfully rolling it out. 

• Create a stakeholder communications plan to determine how you’ll keep various people — direct team members, company leaders, customers, or whoever else has an active interest in your decision — in the loop on your progress.
• Define the goals, signals, and measures of your decision so you’ll have an easier time aligning the team around the next steps and determining whether or not they’re successful. 

⚠️Watch out for: Self-doubt, or the tendency to question whether or not you’re making the right move. While we’re hardwired for doubt , now isn’t the time to be a skeptic about your decision. You and the team have done the work, so trust the process. 

7. Review your decision

9 retrospective techniques that won’t bore your team to tears.

As the decision itself starts to shake out, it’s time to take a look in the rearview mirror and reflect on how things went.

Did your decision work out the way you and the team hoped? What happened? Examine both the good and the bad. What should you keep in mind if and when you need to make this sort of decision again? 

• Do a 4 L’s retrospective to talk through what you and the team loved, loathed, learned, and longed for as a result of that decision.
• Celebrate any wins (yes, even the small ones ) related to that decision. It gives morale a good kick in the pants and can also help make future decisions feel a little less intimidating.

⚠️ Watch out for: Hindsight bias , or the tendency to look back on events with the knowledge you have now and beat yourself up for not knowing better at the time. Even with careful thought and planning, some decisions don’t work out — but you can only operate with the information you have at the time. 

Making smart decisions about the decision-making process

You’re probably picking up on the fact that the decision-making process is fairly comprehensive. And the truth is that the model is likely overkill for the small and inconsequential decisions you or your team members need to make.

Deciding whether you should order tacos or sandwiches for your team offsite doesn’t warrant this much discussion and elbow grease. But figuring out which major project to prioritize next? That requires some careful and collaborative thought. 

It all comes back to the concept of satisficing versus maximizing , which are two different perspectives on decision making. Here’s the gist:

• Maximizers aim to get the very best out of every single decision.
• Satisficers are willing to settle for “good enough” rather than obsessing over achieving the best outcome.

One of those isn’t necessarily better than the other — and, in fact, they both have their time and place.

A major decision with far-reaching impacts deserves some fixation and perfectionism. However, hemming and hawing over trivial choices ( “Should we start our team meeting with casual small talk or a structured icebreaker?” ) will only cause added stress, frustration, and slowdowns. 

As with anything else, it’s worth thinking about the potential impacts to determine just how much deliberation and precision a decision actually requires. 

Decision-making is one of those things that’s part art and part science. You’ll likely have some gut feelings and instincts that are worth taking into account. But those should also be complemented with plenty of evidence, evaluation, and collaboration.

The decision-making process is a framework that helps you strike that balance. Follow the seven steps and you and your team can feel confident in the decisions you make — while leaving the darts and coins where they belong.

Advice, stories, and expertise about work life today.

Table of Contents

What is a business plan, the advantages of having a business plan, the types of business plans, the key elements of a business plan, best business plan software, common challenges of writing a business plan, become an expert business planner, business planning: it’s importance, types and key elements.

Every year, thousands of new businesses see the light of the day. One look at the  World Bank's Entrepreneurship Survey and database  shows the mind-boggling rate of new business registrations. However, sadly, only a tiny percentage of them have a chance of survival.   

According to the Bureau of Labor Statistics, about 20% of small businesses fail in their first year, about 50% in their fifth year.

Research from the University of Tennessee found that 44% of businesses fail within the first three years. Among those that operate within specific sectors, like information (which includes most tech firms), 63% shut shop within three years.

Several  other statistics  expose the abysmal rates of business failure. But why are so many businesses bound to fail? Most studies mention "lack of business planning" as one of the reasons.

This isn’t surprising at all. 

Running a business without a plan is like riding a motorcycle up a craggy cliff blindfolded. Yet, way too many firms ( a whopping 67%)  don't have a formal business plan in place. 

It doesn't matter if you're a startup with a great idea or a business with an excellent product. You can only go so far without a roadmap — a business plan. Only, a business plan is so much more than just a roadmap. A solid plan allows a business to weather market challenges and pivot quickly in the face of crisis, like the one global businesses are struggling with right now, in the post-pandemic world.  

But before you can go ahead and develop a great business plan, you need to know the basics. In this article, we'll discuss the fundamentals of business planning to help you plan effectively for 2021.  

Now before we begin with the details of business planning, let us understand what it is.

No two businesses have an identical business plan, even if they operate within the same industry. So one business plan can look entirely different from another one. Still, for the sake of simplicity, a business plan can be defined as a guide for a company to operate and achieve its goals.  

More specifically, it's a document in writing that outlines the goals, objectives, and purpose of a business while laying out the blueprint for its day-to-day operations and key functions such as marketing, finance, and expansion.

A good business plan can be a game-changer for startups that are looking to raise funds to grow and scale. It convinces prospective investors that the venture will be profitable and provides a realistic outlook on how much profit is on the cards and by when it will be attained. 

However, it's not only new businesses that greatly benefit from a business plan. Well-established companies and large conglomerates also need to tweak their business plans to adapt to new business environments and unpredictable market changes. 

Before getting into learning more about business planning, let us learn the advantages of having one.

Since a detailed business plan offers a birds-eye view of the entire framework of an establishment, it has several benefits that make it an important part of any organization. Here are few ways a business plan can offer significant competitive edge.

• Sets objectives and benchmarks: Proper planning helps a business set realistic objectives and assign stipulated time for those goals to be met. This results in long-term profitability. It also lets a company set benchmarks and Key Performance Indicators (KPIs) necessary to reach its goals. 
• Maximizes resource allocation: A good business plan helps to effectively organize and allocate the company’s resources. It provides an understanding of the result of actions, such as, opening new offices, recruiting fresh staff, change in production, and so on. It also helps the business estimate the financial impact of such actions.
• Enhances viability: A plan greatly contributes towards turning concepts into reality. Though business plans vary from company to company, the blueprints of successful companies often serve as an excellent guide for nascent-stage start-ups and new entrepreneurs. It also helps existing firms to market, advertise, and promote new products and services into the market.
• Aids in decision making: Running a business involves a lot of decision making: where to pitch, where to locate, what to sell, what to charge — the list goes on. A well thought-out business plan provides an organization the ability to anticipate the curveballs that the future could throw at them. It allows them to come up with answers and solutions to these issues well in advance.
• Fix past mistakes: When businesses create plans keeping in mind the flaws and failures of the past and what worked for them and what didn’t, it can help them save time, money, and resources. Such plans that reflects the lessons learnt from the past offers businesses an opportunity to avoid future pitfalls.
• Attracts investors: A business plan gives investors an in-depth idea about the objectives, structure, and validity of a firm. It helps to secure their confidence and encourages them to invest. 

Now let's look at the various types involved in business planning.

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Business plans are formulated according to the needs of a business. It can be a simple one-page document or an elaborate 40-page affair, or anything in between. While there’s no rule set in stone as to what exactly a business plan can or can’t contain, there are a few common types of business plan that nearly all businesses in existence use.  

Here’s an overview of a few fundamental types of business plans. 

• Start-up plan: As the name suggests, this is a documentation of the plans, structure, and objections of a new business establishments. It describes the products and services that are to be produced by the firm, the staff management, and market analysis of their production. Often, a detailed finance spreadsheet is also attached to this document for investors to determine the viability of the new business set-up.
• Feasibility plan: A feasibility plan evaluates the prospective customers of the products or services that are to be produced by a company. It also estimates the possibility of a profit or a loss of a venture. It helps to forecast how well a product will sell at the market, the duration it will require to yield results, and the profit margin that it will secure on investments. 
• Expansion Plan: This kind of plan is primarily framed when a company decided to expand in terms of production or structure. It lays down the fundamental steps and guidelines with regards to internal or external growth. It helps the firm to analyze the activities like resource allocation for increased production, financial investments, employment of extra staff, and much more.
• Operations Plan: An operational plan is also called an annual plan. This details the day-to-day activities and strategies that a business needs to follow in order to materialize its targets. It outlines the roles and responsibilities of the managing body, the various departments, and the company’s employees for the holistic success of the firm.
• Strategic Plan: This document caters to the internal strategies of the company and is a part of the foundational grounds of the establishments. It can be accurately drafted with the help of a SWOT analysis through which the strengths, weaknesses, opportunities, and threats can be categorized and evaluated so that to develop means for optimizing profits.

There is some preliminary work that’s required before you actually sit down to write a plan for your business. Knowing what goes into a business plan is one of them. 

Here are the key elements of a good business plan:

• Executive Summary: An executive summary gives a clear picture of the strategies and goals of your business right at the outset. Though its value is often understated, it can be extremely helpful in creating the readers’ first impression of your business. As such, it could define the opinions of customers and investors from the get-go.  
• Business Description: A thorough business description removes room for any ambiguity from your processes. An excellent business description will explain the size and structure of the firm as well as its position in the market. It also describes the kind of products and services that the company offers. It even states as to whether the company is old and established or new and aspiring. Most importantly, it highlights the USP of the products or services as compared to your competitors in the market.
• Market Analysis: A systematic market analysis helps to determine the current position of a business and analyzes its scope for future expansions. This can help in evaluating investments, promotions, marketing, and distribution of products. In-depth market understanding also helps a business combat competition and make plans for long-term success.
• Operations and Management: Much like a statement of purpose, this allows an enterprise to explain its uniqueness to its readers and customers. It showcases the ways in which the firm can deliver greater and superior products at cheaper rates and in relatively less time. 
• Financial Plan: This is the most important element of a business plan and is primarily addressed to investors and sponsors. It requires a firm to reveal its financial policies and market analysis. At times, a 5-year financial report is also required to be included to show past performances and profits. The financial plan draws out the current business strategies, future projections, and the total estimated worth of the firm.

The importance of business planning is it simplifies the planning of your company's finances to present this information to a bank or investors. Here are the best business plan software providers available right now:

• Business Sorter

The importance of business planning cannot be emphasized enough, but it can be challenging to write a business plan. Here are a few issues to consider before you start your business planning:

• Create a business plan to determine your company's direction, obtain financing, and attract investors.
• Identifying financial, demographic, and achievable goals is a common challenge when writing a business plan.
• Some entrepreneurs struggle to write a business plan that is concise, interesting, and informative enough to demonstrate the viability of their business idea.
• You can streamline your business planning process by conducting research, speaking with experts and peers, and working with a business consultant.

Whether you’re running your own business or in-charge of ensuring strategic performance and growth for your employer or clients, knowing the ins and outs of business planning can set you up for success. 

Be it the launch of a new and exciting product or an expansion of operations, business planning is the necessity of all large and small companies. Which is why the need for professionals with superior business planning skills will never die out. In fact, their demand is on the rise with global firms putting emphasis on business analysis and planning to cope with cut-throat competition and market uncertainties.

While some are natural-born planners, most people have to work to develop this important skill. Plus, business planning requires you to understand the fundamentals of business management and be familiar with business analysis techniques . It also requires you to have a working knowledge of data visualization, project management, and monitoring tools commonly used by businesses today.   

Simpliearn’s Executive Certificate Program in General Management will help you develop and hone the required skills to become an extraordinary business planner. This comprehensive general management program by IIM Indore can serve as a career catalyst, equipping professionals with a competitive edge in the ever-evolving business environment.

What Is Meant by Business Planning?

Business planning is developing a company's mission or goals and defining the strategies you will use to achieve those goals or tasks. The process can be extensive, encompassing all aspects of the operation, or it can be concrete, focusing on specific functions within the overall corporate structure.

What Are the 4 Types of Business Plans?

The following are the four types of business plans:

Operational Planning

This type of planning typically describes the company's day-to-day operations. Single-use plans are developed for events and activities that occur only once (such as a single marketing campaign). Ongoing plans include problem-solving policies, rules for specific regulations, and procedures for a step-by-step process for achieving particular goals.

Strategic Planning

Strategic plans are all about why things must occur. A high-level overview of the entire business is included in strategic planning. It is the organization's foundation and will dictate long-term decisions.

Tactical Planning

Tactical plans are about what will happen. Strategic planning is aided by tactical planning. It outlines the tactics the organization intends to employ to achieve the goals outlined in the strategic plan.

Contingency Planning

When something unexpected occurs or something needs to be changed, contingency plans are created. In situations where a change is required, contingency planning can be beneficial.

What Are the 7 Steps of a Business Plan?

The following are the seven steps required for a business plan:

Conduct Research

If your company is to run a viable business plan and attract investors, your information must be of the highest quality.

Have a Goal

The goal must be unambiguous. You will waste your time if you don't know why you're writing a business plan. Knowing also implies having a target audience for when the plan is expected to get completed.

Create a Company Profile

Some refer to it as a company profile, while others refer to it as a snapshot. It's designed to be mentally quick and digestible because it needs to stick in the reader's mind quickly since more information is provided later in the plan.

Describe the Company in Detail

Explain the company's current situation, both good and bad. Details should also include patents, licenses, copyrights, and unique strengths that no one else has.

Create a marketing plan ahead of time.

A strategic marketing plan is required because it outlines how your product or service will be communicated, delivered, and sold to customers.

Be Willing to Change Your Plan for the Sake of Your Audience

Another standard error is that people only write one business plan. Startups have several versions, just as candidates have numerous resumes for various potential employers.

Incorporate Your Motivation

Your motivation must be a compelling reason for people to believe your company will succeed in all circumstances. A mission should drive a business, not just selling, to make money. That mission is defined by your motivation as specified in your business plan.

What Are the Basic Steps in Business Planning?

These are the basic steps in business planning:

Summary and Objectives

Briefly describe your company, its objectives, and your plan to keep it running.

Services and Products

Add specifics to your detailed description of the product or service you intend to offer. Where, why, and how much you plan to sell your product or service and any special offers.

Conduct research on your industry and the ideal customers to whom you want to sell. Identify the issues you want to solve for your customers.

Operations are the process of running your business, including the people, skills, and experience required to make it successful.

How are you going to reach your target audience? How you intend to sell to them may include positioning, pricing, promotion, and distribution.

Consider funding costs, operating expenses, and projected income. Include your financial objectives and a breakdown of what it takes to make your company profitable. With proper business planning through the help of support, system, and mentorship, it is easy to start a business.

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A better way to drive your business

Managing the availability of supply to meet volatile demand has never been easy. Even before the unprecedented challenges created by the COVID-19 pandemic and the war in Ukraine, synchronizing supply and demand was a perennial struggle for most businesses. In a survey of 54 senior executives, only about one in four believed that the processes of their companies balanced cross-functional trade-offs effectively or facilitated decision making to help the P&L of the full business.

That’s not because of a lack of effort. Most companies have made strides to strengthen their planning capabilities in recent years. Many have replaced their processes for sales and operations planning (S&OP) with the more sophisticated approach of integrated business planning (IBP), which shows great promise, a conclusion based on an in-depth view of the processes used by many leading companies around the world (see sidebar “Understanding IBP”). Assessments of more than 170 companies, collected over five years, provide insights into the value created by IBP implementations that work well—and the reasons many IBP implementations don’t.

Understanding IBP

Integrated business planning is a powerful process that could become central to how a company runs its business. It is one generation beyond sales and operations planning. Three essential differentiators add up to a unique business-steering capability:

• Full business scope. Beyond balancing sales and operations planning, integrated business planning (IBP) synchronizes all of a company’s mid- and long-term plans, including the management of revenues, product pipelines and portfolios, strategic projects and capital investments, inventory policies and deployment, procurement strategies, and joint capacity plans with external partners. It does this in all relevant parts of the organization, from the site level through regions and business units and often up to a corporate-level plan for the full business.
• Risk management, alongside strategy and performance reviews. Best-practice IBP uses scenario planning to drive decisions. In every stage of the process, there are varying degrees of confidence about how the future will play out—how much revenue is reasonably certain as a result of consistent consumption patterns, how much additional demand might emerge if certain events happen, and how much unusual or extreme occurrences might affect that additional demand. These layers are assessed against business targets, and options for mitigating actions and potential gap closures are evaluated and chosen.
• Real-time financials. To ensure consistency between volume-based planning and financial projections (that is, value-based planning), IBP promotes strong links between operational and financial planning. This helps to eliminate surprises that may otherwise become apparent only in quarterly or year-end reviews.

An effective IBP process consists of five essential building blocks: a business-backed design; high-quality process management, including inputs and outputs; accountability and performance management; the effective use of data, analytics, and technology; and specialized organizational roles and capabilities (Exhibit 1). Our research finds that mature IBP processes can significantly improve coordination and reduce the number of surprises. Compared with companies that lack a well-functioning IBP process, the average mature IBP practitioner realizes one or two additional percentage points in EBIT. Service levels are five to 20 percentage points higher. Freight costs and capital intensity are 10 to 15 percent lower—and customer delivery penalties and missed sales are 40 to 50 percent lower. IBP technology and process discipline can also make planners 10 to 20 percent more productive.

When IBP processes are set up correctly, they help companies to make and execute plans and to monitor, simulate, and adapt their strategic assumptions and choices to succeed in their markets. However, leaders must treat IBP not just as a planning-process upgrade but also as a company-wide business initiative (see sidebar “IBP in action” for a best-in-class example).

IBP in action

One global manufacturer set up its integrated business planning (IBP) system as the sole way it ran its entire business, creating a standardized, integrated process for strategic, tactical, and operational planning. Although the company had previously had a sales and operations planning (S&OP) process, it had been owned and led solely by the supply chain function. Beyond S&OP, the sales function forecast demand in aggregate dollar value at the category level and over short time horizons. Finance did its own projections of the quarterly P&L, and data from day-by-day execution fed back into S&OP only at the start of a new monthly cycle.

The CEO endorsed a new way of running regional P&Ls and rolling up plans to the global level. The company designed its IBP process so that all regional general managers owned the regional IBP by sponsoring the integrated decision cycles (following a global design) and by ensuring functional ownership of the decision meetings. At the global level, the COO served as tiebreaker whenever decisions—such as procurement strategies for global commodities, investments in new facilities for global product launches, or the reconfiguration of a product’s supply chain—cut across regional interests.

To enable IBP to deliver its impact, the company conducted a structured process assessment to evaluate the maturity of all inputs into IBP. It then set out to redesign, in detail, its processes for planning demand and supply, inventory strategies, parametrization, and target setting, so that IBP would work with best-practice inputs. To encourage collaboration, leaders also started to redefine the performance management system so that it included clear accountability for not only the metrics that each function controlled but also shared metrics. Finally, digital dashboards were developed to track and monitor the realization of benefits for individual functions, regional leaders, and the global IBP team.

A critical component of the IBP rollout was creating a company-wide awareness of its benefits and the leaders’ expectations for the quality of managers’ contributions and decision-making discipline. To educate and show commitment from the CEO down, this information was rolled out in a campaign of town halls and media communications to all employees. The company also set up a formal capability-building program for the leaders and participants in the IBP decision cycle.

Rolled out in every region, the new training helps people learn how to run an effective IBP cycle, to recognize the signs of good process management, and to internalize decision authority, thresholds, and escalation paths. Within a few months, the new process, led by a confident and motivated leadership team, enabled closer company-wide collaboration during tumultuous market conditions. That offset price inflation for materials (which adversely affected peers) and maintained the company’s EBITDA performance.

Our research shows that these high-maturity IBP examples are in the minority. In practice, few companies use the IBP process to support effective decision making (Exhibit 2). For two-thirds of the organizations in our data set, IBP meetings are periodic business reviews rather than an integral part of the continuous cycle of decisions and adjustments needed to keep organizations aligned with their strategic and tactical goals. Some companies delegate IBP to junior staff. The frequency of meetings averages one a month. That can make these processes especially ineffective—lacking either the senior-level participation for making consequential strategic decisions or the frequency for timely operational reactions.

Finally, most companies struggle to turn their plans into effective actions: critical metrics and responsibilities are not aligned across functions, so it’s hard to steer the business in a collaborative way. Who is responsible for the accuracy of forecasts? What steps will be taken to improve it? How about adherence to the plan? Are functions incentivized to hold excess inventory? Less than 10 percent of all companies have a performance management system that encourages the right behavior across the organization.

By contrast, at the most effective organizations, IBP meetings are all about decisions and their impact on the P&L—an impact enabled by focused metrics and incentives for collaboration. Relevant inputs (data, insights, and decision scenarios) are diligently prepared and syndicated before meetings to help decision makers make the right choices quickly and effectively. These companies support IBP by managing their short-term planning decisions prescriptively, specifying thresholds to distinguish changes immediately integrated into existing plans from day-to-day noise. Within such boundaries, real-time daily decisions are made in accordance with the objectives of the entire business, not siloed frontline functions. This responsive execution is tightly linked with the IBP process, so that the fact base is always up-to-date for the next planning iteration.

A better plan for IBP

In our experience, integrated business planning can help a business succeed in a sustainable way if three conditions are met. First, the process must be designed for the P&L owner, not individual functions in the business. Second, processes are built for purpose, not from generic best-practice templates. Finally, the people involved in the process have the authority, skills, and confidence to make relevant, consequential decisions.

Design for the P&L owner

IBP gives leaders a systematic opportunity to unlock P&L performance by coordinating strategies and tactics across traditional business functions. This doesn’t mean that IBP won’t function as a business review process, but it is more effective when focused on decisions in the interest of the whole business. An IBP process designed to help P&L owners make effective decisions as they run the company creates requirements different from those of a process owned by individual functions, such as supply chain or manufacturing.

One fundamental requirement is senior-level participation from all stakeholder functions and business areas, so that decisions can be made in every meeting. The design of the IBP cycle, including preparatory work preceding decision-making meetings, should help leaders make general decisions or resolve minor issues outside of formal milestone meetings. It should also focus the attention of P&L leaders on the most important and pressing issues. These goals can be achieved with disciplined approaches to evaluating the impact of decisions and with financial thresholds that determine what is brought to the attention of the P&L leader.

The aggregated output of the IBP process would be a full, risk-evaluated business plan covering a midterm planning horizon. This plan then becomes the only accepted and executed plan across the organization. The objective isn’t a single hard number. It is an accepted, unified view of which new products will come online and when, and how they will affect the performance of the overall portfolio. The plan will also take into account the variabilities and uncertainties of the business: demand expectations, how the company will respond to supply constraints, and so on. Layered risks and opportunities and aligned actions across stakeholders indicate how to execute the plan.

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Trade-offs arising from risks and opportunities in realizing revenues, margins, or cost objectives are determined by the P&L owner at the level where those trade-offs arise—local for local, global for global. To make this possible, data visible in real time and support for decision making in meetings are essential. This approach works best in companies with strong data governance processes and tools, which increase confidence in the objectivity of the IBP process and support for implementing the resulting decisions. In addition, senior leaders can demonstrate their commitment to the value and the standards of IBP by participating in the process, sponsoring capability-building efforts for the teams that contribute inputs to the IBP, and owning decisions and outcomes.

Fit-for-purpose process design and frequency

To make IBP a value-adding capability, the business will probably need to redesign its planning processes from a clean sheet.

First, clean sheeting IBP means that it should be considered and designed from the decision maker’s perspective. What information does a P&L owner need to make a decision on a given topic? What possible scenarios should that leader consider, and what would be their monetary and nonmonetary impact? The IBP process can standardize this information—for example, by summarizing it in templates so that the responsible parties know, up front, which data, analytics, and impact information to provide.

Second, essential inputs into IBP determine its quality. These inputs include consistency in the way planners use data, methods, and systems to make accurate forecasts, manage constraints, simulate scenarios, and close the loop from planning to the production shopfloor by optimizing schedules, monitoring adherence, and using incentives to manufacture according to plan.

Determining the frequency of the IBP cycle, and its timely integration with tactical execution processes, would also be part of this redesign. Big items—such as capacity investments and divestments, new-product introductions, and line extensions—should be reviewed regularly. Monthly reviews are typical, but a quarterly cadence may also be appropriate in situations with less frequent changes. Weekly iterations then optimize the plan in response to confirmed orders, short-term capacity constraints, or other unpredictable events. The bidirectional link between planning and execution must be strong, and investments in technology may be required to better connect them, so that they use the same data repository and have continuous-feedback loops.

Authorize consequential decision making

Finally, every IBP process step needs autonomous decision making for the problems in its scope, as well as a clear path to escalate, if necessary. The design of the process must therefore include decision-type authority, decision thresholds, and escalation paths. Capability-building interventions should support teams to ensure disciplined and effective decision making—and that means enforcing participation discipline, as well. The failure of a few key stakeholders to prioritize participation can undermine the whole process.

Decision-making autonomy is also relevant for short-term planning and execution. Success in tactical execution depends on how early a problem is identified and how quickly and effectively it is resolved. A good execution framework includes, for example, a classification of possible events, along with resolution guidelines based on root cause methodology. It should also specify the thresholds, in scope and scale of impact, for operational decision making and the escalation path if those thresholds are met.

Transforming supply chains: Do you have the skills to accelerate your capabilities?

In addition to guidelines for decision making, the cross-functional team in charge of executing the plan needs autonomy to decide on a course of action for events outside the original plan, as well as the authority to see those actions implemented. Clear integration points between tactical execution and the IBP process protect the latter’s focus on midterm decision making and help tactical teams execute in response to immediate market needs.

An opportunity, but no ‘silver bullet’

With all the elements described above, IBP has a solid foundation to create value for a business. But IBP is no silver bullet. To achieve a top-performing supply chain combining timely and complete customer service with optimal cost and capital expenditures, companies also need mature planning and fulfillment processes using advanced systems and tools. That would include robust planning discipline and a collaboration culture covering all time horizons with appropriate processes while integrating commercial, planning, manufacturing, logistics, and sourcing organizations at all relevant levels.

As more companies implement advanced planning systems and nerve centers , the typical monthly IBP frequency might no longer be appropriate. Some companies may need to spend more time on short-term execution by increasing the frequency of planning and replanning. Others may be able to retain a quarterly IBP process, along with a robust autonomous-planning or exception engine. Already, advanced planning systems not only direct the valuable time of experts to the most critical demand and supply imbalances but also aggregate and disaggregate large volumes of data on the back end. These targeted reactions are part of a critical learning mechanism for the supply chain.

Over time, with root cause analyses and cross-functional collaboration on systemic fixes, the supply chain’s nerve center can get smarter at executing plans, separating noise from real issues, and proactively managing deviations. All this can eventually shorten IBP cycles, without the risk of overreacting to noise, and give P&L owners real-time transparency into how their decisions might affect performance.

P&L owners thinking about upgrading their S&OP or IBP processes can’t rely on textbook checklists. Instead, they can assume leadership of IBP and help their organizations turn strategies and plans into effective actions. To do so, they must sponsor IBP as a cross-functional driver of business decisions, fed by thoughtfully designed processes and aligned decision rights, as well as a performance management and capability-building system that encourages the right behavior and learning mechanisms across the organization. As integrated planning matures, supported by appropriate technology and maturing supply chain–management practices, it could shorten decision times and accelerate its impact on the business.

Elena Dumitrescu is a senior knowledge expert in McKinsey’s Toronto office, Matt Jochim is a partner in the London office, and Ali Sankur is a senior expert and associate partner in the Chicago office, where Ketan Shah is a partner.

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• Business strategy |
• 7 strategic planning models, plus 8 fra ...

7 strategic planning models, plus 8 frameworks to help you get started

Strategic planning is vital in defining where your business is going in the next three to five years. With the right strategic planning models and frameworks, you can uncover opportunities, identify risks, and create a strategic plan to fuel your organization’s success. We list the most popular models and frameworks and explain how you can combine them to create a strategic plan that fits your business.

A strategic plan is a great tool to help you hit your business goals . But sometimes, this tool needs to be updated to reflect new business priorities or changing market conditions. If you decide to use a model that already exists, you can benefit from a roadmap that’s already created. The model you choose can improve your knowledge of what works best in your organization, uncover unknown strengths and weaknesses, or help you find out how you can outpace your competitors.

In this article, we cover the most common strategic planning models and frameworks and explain when to use which one. Plus, get tips on how to apply them and which models and frameworks work well together. 

Strategic planning models vs. frameworks

First off: This is not a one-or-nothing scenario. You can use as many or as few strategic planning models and frameworks as you like. 

When your organization undergoes a strategic planning phase, you should first pick a model or two that you want to apply. This will provide you with a basic outline of the steps to take during the strategic planning process.

During that process, think of strategic planning frameworks as the tools in your toolbox. Many models suggest starting with a SWOT analysis or defining your vision and mission statements first. Depending on your goals, though, you may want to apply several different frameworks throughout the strategic planning process.

For example, if you’re applying a scenario-based strategic plan, you could start with a SWOT and PEST(LE) analysis to get a better overview of your current standing. If one of the weaknesses you identify has to do with your manufacturing process, you could apply the theory of constraints to improve bottlenecks and mitigate risks. 

Now that you know the difference between the two, learn more about the seven strategic planning models, as well as the eight most commonly used frameworks that go along with them.

1. Basic model

The basic strategic planning model is ideal for establishing your company’s vision, mission, business objectives, and values. This model helps you outline the specific steps you need to take to reach your goals, monitor progress to keep everyone on target, and address issues as they arise.

If it’s your first strategic planning session, the basic model is the way to go. Later on, you can embellish it with other models to adjust or rewrite your business strategy as needed. Let’s take a look at what kinds of businesses can benefit from this strategic planning model and how to apply it.

Small businesses or organizations

Companies with little to no strategic planning experience

Organizations with few resources 

Write your mission statement. Gather your planning team and have a brainstorming session. The more ideas you can collect early in this step, the more fun and rewarding the analysis phase will feel.

Identify your organization’s goals . Setting clear business goals will increase your team’s performance and positively impact their motivation.

Outline strategies that will help you reach your goals. Ask yourself what steps you have to take in order to reach these goals and break them down into long-term, mid-term, and short-term goals .

Create action plans to implement each of the strategies above. Action plans will keep teams motivated and your organization on target.

Monitor and revise the plan as you go . As with any strategic plan, it’s important to closely monitor if your company is implementing it successfully and how you can adjust it for a better outcome.

2. Issue-based model

Also called goal-based planning model, this is essentially an extension of the basic strategic planning model. It’s a bit more dynamic and very popular for companies that want to create a more comprehensive plan.

Organizations with basic strategic planning experience

Businesses that are looking for a more comprehensive plan

Conduct a SWOT analysis . Assess your organization’s strengths, weaknesses, opportunities, and threats with a SWOT analysis to get a better overview of what your strategic plan should focus on. We’ll give into how to conduct a SWOT analysis when we get into the strategic planning frameworks below.

Identify and prioritize major issues and/or goals. Based on your SWOT analysis, identify and prioritize what your strategic plan should focus on this time around.

Develop your main strategies that address these issues and/or goals. Aim to develop one overarching strategy that addresses your highest-priority goal and/or issue to keep this process as simple as possible.

Update or create a mission and vision statement . Make sure that your business’s statements align with your new or updated strategy. If you haven’t already, this is also a chance for you to define your organization’s values.

Create action plans. These will help you address your organization’s goals, resource needs, roles, and responsibilities. 

Develop a yearly operational plan document. This model works best if your business repeats the strategic plan implementation process on an annual basis, so use a yearly operational plan to capture your goals, progress, and opportunities for next time.

Allocate resources for your year-one operational plan. Whether you need funding or dedicated team members to implement your first strategic plan, now is the time to allocate all the resources you’ll need.

Monitor and revise the strategic plan. Record your lessons learned in the operational plan so you can revisit and improve it for the next strategic planning phase.

The issue-based plan can repeat on an annual basis (or less often once you resolve the issues). It’s important to update the plan every time it’s in action to ensure it’s still doing the best it can for your organization.

You don’t have to repeat the full process every year—rather, focus on what’s a priority during this run.

3. Alignment model

This model is also called strategic alignment model (SAM) and is one of the most popular strategic planning models. It helps you align your business and IT strategies with your organization’s strategic goals. 

You’ll have to consider four equally important, yet different perspectives when applying the alignment strategic planning model:

Strategy execution: The business strategy driving the model

Technology potential: The IT strategy supporting the business strategy

Competitive potential: Emerging IT capabilities that can create new products and services

Service level: Team members dedicated to creating the best IT system in the organization

Ideally, your strategy will check off all the criteria above—however, it’s more likely you’ll have to find a compromise. 

Here’s how to create a strategic plan using the alignment model and what kinds of companies can benefit from it.

Organizations that need to fine-tune their strategies

Businesses that want to uncover issues that prevent them from aligning with their mission

Companies that want to reassess objectives or correct problem areas that prevent them from growing

Outline your organization’s mission, programs, resources, and where support is needed. Before you can improve your statements and approaches, you need to define what exactly they are.

Identify what internal processes are working and which ones aren’t. Pinpoint which processes are causing problems, creating bottlenecks , or could otherwise use improving. Then prioritize which internal processes will have the biggest positive impact on your business.

Identify solutions. Work with the respective teams when you’re creating a new strategy to benefit from their experience and perspective on the current situation.

Update your strategic plan with the solutions. Update your strategic plan and monitor if implementing it is setting your business up for improvement or growth. If not, you may have to return to the drawing board and update your strategic plan with new solutions.

4. Scenario model

The scenario model works great if you combine it with other models like the basic or issue-based model. This model is particularly helpful if you need to consider external factors as well. These can be government regulations, technical, or demographic changes that may impact your business.

Organizations trying to identify strategic issues and goals caused by external factors

Identify external factors that influence your organization. For example, you should consider demographic, regulation, or environmental factors.

Review the worst case scenario the above factors could have on your organization. If you know what the worst case scenario for your business looks like, it’ll be much easier to prepare for it. Besides, it’ll take some of the pressure and surprise out of the mix, should a scenario similar to the one you create actually occur.

Identify and discuss two additional hypothetical organizational scenarios. On top of your worst case scenario, you’ll also want to define the best case and average case scenarios. Keep in mind that the worst case scenario from the previous step can often provoke strong motivation to change your organization for the better. However, discussing the other two will allow you to focus on the positive—the opportunities your business may have ahead.

Identify and suggest potential strategies or solutions. Everyone on the team should now brainstorm different ways your business could potentially respond to each of the three scenarios. Discuss the proposed strategies as a team afterward.

Uncover common considerations or strategies for your organization. There’s a good chance that your teammates come up with similar solutions. Decide which ones you like best as a team or create a new one together.

Identify the most likely scenario and the most reasonable strategy. Finally, examine which of the three scenarios is most likely to occur in the next three to five years and how your business should respond to potential changes.

5. Self-organizing model

Also called the organic planning model, the self-organizing model is a bit different from the linear approaches of the other models. You’ll have to be very patient with this method. 

This strategic planning model is all about focusing on the learning and growing process rather than achieving a specific goal. Since the organic model concentrates on continuous improvement , the process is never really over.

Large organizations that can afford to take their time

Businesses that prefer a more naturalistic, organic planning approach that revolves around common values, communication, and shared reflection

Companies that have a clear understanding of their vision

Define and communicate your organization’s cultural values . Your team can only think clearly and with solutions in mind when they have a clear understanding of your organization's values.

Communicate the planning group’s vision for the organization. Define and communicate the vision with everyone involved in the strategic planning process. This will align everyone’s ideas with your company’s vision.

Discuss what processes will help realize the organization’s vision on a regular basis. Meet every quarter to discuss strategies or tactics that will move your organization closer to realizing your vision.

6. Real-time model

This fluid model can help organizations that deal with rapid changes to their work environment. There are three levels of success in the real-time model: 

Organizational: At the organizational level, you’re forming strategies in response to opportunities or trends.

Programmatic: At the programmatic level, you have to decide how to respond to specific outcomes or environmental changes.

Operational: On the operational level, you will study internal systems, policies, and people to develop a strategy for your company.

Figuring out your competitive advantage can be difficult, but this is absolutely crucial to ensure success. Whether it’s a unique asset or strength your organization has or an outstanding execution of services or programs—it’s important that you can set yourself apart from others in the industry to succeed.

Companies that need to react quickly to changing environments

Businesses that are seeking new tools to help them align with their organizational strategy

Define your mission and vision statement. If you ever feel stuck formulating your company’s mission or vision statement, take a look at those of others. Maybe Asana’s vision statement sparks some inspiration.

Research, understand, and learn from competitor strategy and market trends. Pick a handful of competitors in your industry and find out how they’ve created success for themselves. How did they handle setbacks or challenges? What kinds of challenges did they even encounter? Are these common scenarios in the market? Learn from your competitors by finding out as much as you can about them.

Study external environments. At this point, you can combine the real-time model with the scenario model to find solutions to threats and opportunities outside of your control.

Conduct a SWOT analysis of your internal processes, systems, and resources. Besides the external factors your team has to consider, it’s also important to look at your company’s internal environment and how well you’re prepared for different scenarios.

Develop a strategy. Discuss the results of your SWOT analysis to develop a business strategy that builds toward organizational, programmatic, and operational success.

Rinse and repeat. Monitor how well the new strategy is working for your organization and repeat the planning process as needed to ensure you’re on top or, perhaps, ahead of the game. 

7. Inspirational model

This last strategic planning model is perfect to inspire and energize your team as they work toward your organization’s goals. It’s also a great way to introduce or reconnect your employees to your business strategy after a merger or acquisition.

Businesses with a dynamic and inspired start-up culture

Organizations looking for inspiration to reinvigorate the creative process

Companies looking for quick solutions and strategy shifts

Gather your team to discuss an inspirational vision for your organization. The more people you can gather for this process, the more input you will receive.

Brainstorm big, hairy audacious goals and ideas. Encouraging your team not to hold back with ideas that may seem ridiculous will do two things: for one, it will mitigate the fear of contributing bad ideas. But more importantly, it may lead to a genius idea or suggestion that your team wouldn’t have thought of if they felt like they had to think inside of the box.

Assess your organization’s resources. Find out if your company has the resources to implement your new ideas. If they don’t, you’ll have to either adjust your strategy or allocate more resources.

Develop a strategy balancing your resources and brainstorming ideas. Far-fetched ideas can grow into amazing opportunities but they can also bear great risk. Make sure to balance ideas with your strategic direction. 

Now, let’s dive into the most commonly used strategic frameworks.

8. SWOT analysis framework

One of the most popular strategic planning frameworks is the SWOT analysis . A SWOT analysis is a great first step in identifying areas of opportunity and risk—which can help you create a strategic plan that accounts for growth and prepares for threats.

SWOT stands for strengths, weaknesses, opportunities, and threats. Here’s an example:

9. OKRs framework

A big part of strategic planning is setting goals for your company. That’s where OKRs come into play. 

OKRs stand for objective and key results—this goal-setting framework helps your organization set and achieve goals. It provides a somewhat holistic approach that you can use to connect your team’s work to your organization’s big-picture goals.  When team members understand how their individual work contributes to the organization’s success, they tend to be more motivated and produce better results

10. Balanced scorecard (BSC) framework

The balanced scorecard is a popular strategic framework for businesses that want to take a more holistic approach rather than just focus on their financial performance. It was designed by David Norton and Robert Kaplan in the 1990s, it’s used by companies around the globe to: 

Communicate goals

Align their team’s daily work with their company’s strategy

Prioritize products, services, and projects

Monitor their progress toward their strategic goals

Your balanced scorecard will outline four main business perspectives:

Customers or clients , meaning their value, satisfaction, and/or retention

Financial , meaning your effectiveness in using resources and your financial performance

Internal process , meaning your business’s quality and efficiency

Organizational capacity , meaning your organizational culture, infrastructure and technology, and human resources

With the help of a strategy map, you can visualize and communicate how your company is creating value. A strategy map is a simple graphic that shows cause-and-effect connections between strategic objectives. 

The balanced scorecard framework is an amazing tool to use from outlining your mission, vision, and values all the way to implementing your strategic plan .

You can use an integration like Lucidchart to create strategy maps for your business in Asana.

11. Porter’s Five Forces framework

If you’re using the real-time strategic planning model, Porter’s Five Forces are a great framework to apply. You can use it to find out what your product’s or service’s competitive advantage is before entering the market.

Developed by Michael E. Porter , the framework outlines five forces you have to be aware of and monitor:

Threat of new industry entrants: Any new entry into the market results in increased pressure on prices and costs. 

Competition in the industry: The more competitors that exist, the more difficult it will be for you to create value in the market with your product or service.

Bargaining power of suppliers: Suppliers can wield more power if there are less alternatives for buyers or it’s expensive, time consuming, or difficult to switch to a different supplier.

Bargaining power of buyers: Buyers can wield more power if the same product or service is available elsewhere with little to no difference in quality.

Threat of substitutes: If another company already covers the market’s needs, you’ll have to create a better product or service or make it available for a lower price at the same quality in order to compete.

Remember, industry structures aren’t static. The more dynamic your strategic plan is, the better you’ll be able to compete in a market.

12. VRIO framework

The VRIO framework is another strategic planning tool designed to help you evaluate your competitive advantage. VRIO stands for value, rarity, imitability, and organization.

It’s a resource-based theory developed by Jay Barney. With this framework, you can study your firmed resources and find out whether or not your company can transform them into sustained competitive advantages. 

Firmed resources can be tangible (e.g., cash, tools, inventory, etc.) or intangible (e.g., copyrights, trademarks, organizational culture, etc.). Whether these resources will actually help your business once you enter the market depends on four qualities:

Valuable : Will this resource either increase your revenue or decrease your costs and thereby create value for your business?

Rare : Are the resources you’re using rare or can others use your resources as well and therefore easily provide the same product or service?

Inimitable : Are your resources either inimitable or non-substitutable? In other words, how unique and complex are your resources?

Organizational: Are you organized enough to use your resources in a way that captures their value, rarity, and inimitability?

It’s important that your resources check all the boxes above so you can ensure that you have sustained competitive advantage over others in the industry.

13. Theory of Constraints (TOC) framework

If the reason you’re currently in a strategic planning process is because you’re trying to mitigate risks or uncover issues that could hurt your business—this framework should be in your toolkit.

The theory of constraints (TOC) is a problem-solving framework that can help you identify limiting factors or bottlenecks preventing your organization from hitting OKRs or KPIs . 

Whether it’s a policy, market, or recourse constraint—you can apply the theory of constraints to solve potential problems, respond to issues, and empower your team to improve their work with the resources they have.

14. PEST/PESTLE analysis framework

The idea of the PEST analysis is similar to that of the SWOT analysis except that you’re focusing on external factors and solutions. It’s a great framework to combine with the scenario-based strategic planning model as it helps you define external factors connected to your business’s success.

PEST stands for political, economic, sociological, and technological factors. Depending on your business model, you may want to expand this framework to include legal and environmental factors as well (PESTLE). These are the most common factors you can include in a PESTLE analysis:

Political: Taxes, trade tariffs, conflicts

Economic: Interest and inflation rate, economic growth patterns, unemployment rate

Social: Demographics, education, media, health

Technological: Communication, information technology, research and development, patents

Legal: Regulatory bodies, environmental regulations, consumer protection

Environmental: Climate, geographical location, environmental offsets

15. Hoshin Kanri framework

Hoshin Kanri is a great tool to communicate and implement strategic goals. It’s a planning system that involves the entire organization in the strategic planning process. The term is Japanese and stands for “compass management” and is also known as policy management. 

This strategic planning framework is a top-down approach that starts with your leadership team defining long-term goals which are then aligned and communicated with every team member in the company. 

You should hold regular meetings to monitor progress and update the timeline to ensure that every teammate’s contributions are aligned with the overarching company goals.

Stick to your strategic goals

Whether you’re a small business just starting out or a nonprofit organization with decades of experience, strategic planning is a crucial step in your journey to success. 

If you’re looking for a tool that can help you and your team define, organize, and implement your strategic goals, Asana is here to help. Our goal-setting software allows you to connect all of your team members in one place, visualize progress, and stay on target.

Related resources

Solve your tech overload with an intelligent transformation

9 steps to craft a successful go-to-market (GTM) strategy

Unmanaged business goals don’t work. Here’s what does.

How Asana uses work management to effectively manage goals

Guide to strategic decision-making: Tools and techniques to make better business decisions

Reading time: about 11 min

• Expert tips

"Choices are the hinges of destiny," said the ancient Greek philosopher Pythagoras. In modern business, this timeless wisdom holds true. We’re well aware that our choices determine our fate, which often leads to gripping decision paralysis.

So, we have a catch-22 situation. In an age of constant change, effective leadership relies on responsive and strategic decision-making. Yet our fear of making the wrong choice makes learning that crucial skill set a challenge. 

That's why we've created this guide for decision-making—to equip you with Lucid's approach to making stronger and faster choices. Our goal is to provide you with practical tools and knowledge of decision-making best practices to fuel more confidence and empowerment within your teams.

Laying the foundation: Why does decision-making matter?

Firstly, let’s dive into the obvious: Why does learning decision-making skills matter?

Great decision-making skills can make or break an organization. It’s not enough to make strategic moves or fast moves—you need to have sound choices, quick implementation, and the ability to adapt and pivot based on results to succeed. 

There has to be a better way. 

For the most creative, well-informed ideas, we have to learn this core professional skill: strategic decision-making. 

What is strategic decision-making?

Strategic decision-making involves making choices based on analysis, data, and overall impact on the organization as a whole. To fully maximize the effectiveness of strategic decision-making, you have to focus on making the right choice at the right time. This combination of making an effective decision at the correct time takes strategic planning and intention, which is what separates a strategic decision from a regular one. 

Businesses have to align their decision-making frameworks to minimize long-term risk while optimizing short-term gain. That approach is central to the strategic decision-making process.

Diving into the prep work

Before you even begin incorporating a new business decision-making strategy, you need to foster the right culture. Having a safe space to express dissenting opinions, generate ideas, and prioritize tasks makes it much easier to take on difficult decisions as a team. 

Start by establishing working agreements and documenting these in a shared space like a team charter . Ensure you cover the basics of professional etiquette with your team, including: 

• Active listening (made easier through strong facilitation )
• Conflict resolution
• Clear expression
• Constructive feedback

Lucid’s tip

Try out Team Spaces in Lucid to centralize your team charter, agreements, and other important documents.

Before you dive into the different decision-making frameworks available, you have to determine the current state of the business, including processes, architecture, and business metrics around OKRs and KPIs .

“In order to make a decision, I need to know what the current state is. Where are we right at right now? How are we progressing toward our goals and objectives as an organization? What new things do we need to consider?” says Bailey, “From there, we pull this collection of information together that can frame a successful decision.”

Mapping out the current state of your processes and visualizing the future state is the way to identify roadblocks and opportunities. Don’t skip this critical step!

Putting in the framing: The toolkit

The key to making successful decisions is to leverage the capable tools available to you. By harnessing a powerful combination of frameworks, templates, methodologies, and techniques, you will be equipped to confidently tackle complex decisions. 

Here are a few other instrumental tools in our decision-making toolkit.

Decision-making and analysis frameworks

When it comes to making efficient and well-informed decisions, it's essential to embrace your inner researcher and gather the necessary information and insights. A research-driven approach empowers you to involve your team early on in the process or arrive at your group decision-making meeting fully prepared to educate participants about the factors shaping the decision. 

Gather information—like blockers, value, and associated risk—using an analysis framework. With an analysis framework, you can create clarity with the group on how to make decisions, how to evaluate options, and what data is needed to properly evaluate options.

A decision-making framework promotes consistency in making sound decisions, which reduces the likelihood of errors. It also facilitates post-mortem evaluations, allowing for a structured review of decisions made and enabling continuous improvement.

Here are a few of the best decision-making frameworks available (including links to Lucid templates to get you started): 

• Consensus approach ( mind maps , decision trees , or dialogue mapping )
• The Vroom-Yetton decision model
• Decision matrix
• PESTEL analysis
• Cost-benefit analysis
• SWOT analysis
• MoSCoW prioritization
• Identify the impact

Decision-making techniques

While analysis frameworks are vital to informing your decisions, they’re not as useful when it comes time to facilitate a group decision-making meeting. For that, you’ll need a specific technique to gather input and reach a consensus.

One of our favorite methods here at Lucid, and one that Bailey and Rosenbaugh use regularly on the professional services team, is the fist to five method. 

Not only is this technique highly effective, but it is also remarkably simple. Instead of dedicating a significant portion of your meeting time to explaining a complex decision-making methodology, fist to five can be explained and used with a group in just a few minutes. We’ll explain below in a few sentences.

In fist to five, the facilitator presents the decision the team is planning to make following a prompting discussion, and team members indicate their agreement level by raising a specific number of fingers, ranging from one to five. One finger signifies complete disagreement, while five fingers indicate wholehearted agreement. Once everyone votes at the same time (to reduce bias), the facilitator can call out team members with hesitation (represented as votes of two or one) and invite them to voice their concerns.

It’s that easy! This straightforward decision-making technique can help you gather feedback from your team quickly and easily. It’s useful for groups both small and large.

Using Lucid, you can use fist to five simple frameworks regardless of whether your team is altogether in-person or not. We make it easy to visualize everyone’s feedback in a collaborative environment.

That being said, fist to five isn’t the only decision-making technique out there. You can also try Roman Voting (a simple thumbs up or down from all participants, whether in-person or on a Lucid board) or Dot Voting .

You can use Lucid’s Visual Activities to facilitate these kinds of techniques and much more. Try Visual Activities for yourself today!

Installing the insulation: Best practices for group decision-making

Most of the time, group decision-making meetings are DOA. Without laying the groundwork we’ve covered in the previous sections of this guide, teams are destined to struggle through these meetings and finish without a clear action plan afterward.

After tackling those tasks, you’ll be in a fantastic position to go into a decision-making meeting. This is where the magic happens—where you gather your team, go over mission-critical information, and gather opinions to reach a final resolution. Here are three best decision-making tips to help your team work smarter, not harder, to reach an agreement.

1. Facilitate divergent thinking

Diverse opinions are a natural occurrence, especially in larger groups or cross-functional teams. Embracing the reality that not everyone will share the same opinion is crucial for effective decision-making. In fact, learning how to navigate disagreements can lead to the most successful outcomes. 

Diverse perspectives challenge the group, foster growth, and ultimately enhance the final decision. Embracing and respecting differences in opinion becomes a valuable skill set that extracts the best results from the decision-making process.

“Disagree and Commit”

Amazon embraces a powerful philosophy known as "Disagree and Commit" when it comes to decision-making. In traditional business settings, the aftermath of a decision may be filled with instances of "I told you so" if team members didn’t fully agree with the final choice. That kind of attitude doesn’t cultivate an environment conducive to success. 

According to Amazon’s philosophy, leaders have a responsibility to engage in constructive arguments, even against their peers and superiors, while maintaining a commitment to the collective decision. 

This concept fosters a culture of open dialogue and continuous improvement, ultimately driving the organization toward greater achievements.

2. Gather all possible opinions (and keep moving when that isn’t possible)

Every voice in the room holds valuable insights that can shape the best possible outcomes. Sometimes, it’s hard to get every participant to speak up, and even harder to visualize everyone’s opinions. These pain points can deter teams from ensuring everyone has a stake in the decision. 

“To avoid letting a decision linger forever, one option is to say that if we have a quorum of opinions coming in, then we’re going to trust the group’s decision here. We’re going to trust that everybody else is thinking holistically about this decision,” says Bailey. “Alternatively, you can leverage asynchronous opportunities.”  

With a visual collaboration platform, you can facilitate a more inclusive environment that makes participation more accessible. This approach helps democratize input, which keeps it from being dominated by the loudest individual or the stakeholder with the highest title. Understanding the different collaboration styles in the room can be incredibly helpful in facilitating an inclusive space.

Through the power of visual collaboration, you can harness the collective wisdom of your team, fostering a culture of inclusivity and yielding more informed and balanced decisions.

Lowering the barrier to entry

Lucid offers a range of features designed to facilitate seamless input sharing among team members, with Visual Activities being an emerging champion . Visual Activities makes the decision-making process more approachable and less intimidating, all while adding some fun back into your meeting flow.

Establishing faith in the group decision 

Despite your best efforts to include everyone's input, there may be times when it isn’t possible to gather every single opinion. Team members may be absent due to illness or other commitments and might miss the final verdict. In these cases, facilitating an asynchronous session can be a helpful alternative to gather opinions and ensure participation.

However, time constraints often demand immediate decision-making. It’s at times like these that team members need to embrace the concept that decisions are made collectively. Even if team members are absent during the final verdict, trusting the team's judgment to make the best decision for the company is crucial.

3. Empower team members

The modern workplace is still divided. Many companies adhere to tradition—centralizing decision-making authority within executives and formal leadership positions. Team members then feel frustrated and disconnected from their own contributions and responsibilities.  

David Marquet, a renowned former nuclear submarine commander, is celebrated for his insightful approach to decision-making. He has a simple yet profound philosophy that involves engaging team members in the decision-making process and, most importantly, empowering them to lead out on decisions for themselves. 

When each team member feels empowered in their own leadership capabilities, a remarkable transformation occurs. They become more inclined to actively contribute their thoughts, expertise, and opinions during decision-making discussions. This inclusive environment naturally fosters divergent perspectives and robust discussions, leading to greater innovations.

Check out Lucid’s free resource on legendary leadership within agile organizations or transitions.

Undergoing inspection: the importance of the feedback loop

Surprisingly, making the decision itself is not the most critical aspect of the decision-making process. What matters most is implementing a feedback loop once your team has reached a verdict, which is crucial for learning and improvement.

A feedback loop involves incorporating the results generated by the group’s decision back into your decision-making process at regular intervals. This iterative approach keeps everyone informed and allows for adjustments based on the actual outcomes, which leads to additional transparency, better results, and more informed decisions in the future. 

“I say, ‘Let’s measure to see if a decision actually gets us closer to the resulting outcome,’ and then we check in regularly to see if we’re moving the needle or not,” says Bailey. “Depending on that, we have three choices — park, pivot, or persevere. Do we park the work we’ve been doing, pivot towards something totally different, or persevere? This decision constitutes another move through the feedback loop, so we’re constantly moving through it.”

Reflecting on projects and effortless documentation

To gain valuable insights and enhance future projects, scheduling a post-mortem meeting to review the entire project can be beneficial. This comprehensive evaluation allows you to assess the decisions made throughout the process. Additionally, you can leverage the project resources and decision documentation to create more structured and replicable processes for your team, promoting efficiency and continuous process improvement .

Lucid simplifies the transformation of collaboration into documentation . Using Lucid throughout your decision-making and collaboration journey means you’ve naturally generated living documents that capture the entire project's story. These documents play a vital role during post-mortem reviews and regular feedback sessions, providing valuable insights to inform future decisions.

Using the Lucid Visual Collaboration Suite can help your teams make powerful decisions quickly. Ready to find out more about what we can do for you?

About Lucid

Lucid Software is a pioneer and leader in visual collaboration dedicated to helping teams build the future. With its products—Lucidchart, Lucidspark, and Lucidscale—teams are supported from ideation to execution and are empowered to align around a shared vision, clarify complexity, and collaborate visually, no matter where they are. Lucid is proud to serve top businesses around the world, including customers such as Google, GE, and NBC Universal, and 99% of the Fortune 500. Lucid partners with industry leaders, including Google, Atlassian, and Microsoft. Since its founding, Lucid has received numerous awards for its products, business, and workplace culture. For more information, visit lucid.co.

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Relationship 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.

Definition of Planning

Planning managerial functions where managers are required to establish goals and state the ways and means by which these goals are to be attained.

Therefore planning is taken as the foundation for future activities. Or in simple terms; planning is deciding in advance what is to be done. Planning is thinking of doing.

Management every time has to look for planning long-range and short-range future direction by estimating and evaluating the future behavior of the relevant environment and by determining the enterprise’s own desired role.

Plans have two basic components: goals and action statements. Goals represent an end state the targets and results that managers hope to achieve.

Action statements represent how an organization goes ahead to attain its goals. Planning is a deliberate and conscious work using which managers determine a future course of action for attaining a specific goal.

To a manager means planning is thinking about what is to be done, who is going to do it, and how and when he will do it.

Planning also required thinking about past events and future opportunities and impending threats. The planning process finds organizational strengths and weaknesses.

Definition of Decision-making

Decision-making is the process of identifying a set of feasible alternatives and choosing a course of action from them. Decision-making is a part of planning.

Decision-making is an intermediate-sized set of activities that begins with an identifying problem and ends with choice making or decision giving.

Management is constantly influencing the organization’s activities and the decision-making process is central to doing it.

In the decision-making process, a manager identifies a specific situation and finds the threats and opportunities that it offers.

Then the manager must find the available alternatives to tackle the situation.

This is where planning comes in.

By planning; manager finds these alternatives by testing and measuring their effectiveness. They identify the pros and cons of each alternative.

After that, the managers must use their decision-making skills for selecting one path of action. Decision making is the core of planning. Unless a decision has been made, a plan cannot be implemented in the field.

So we can say that planning and decision-making, both are interrelated.

Decisions can be made without planning but planning cannot be done without making decisions. Planning can be defined as the process of selecting a future course of action.

Decision-making defined as the process of selecting a course of action from the alternatives. They need to be accurate for the welfare of the organization.

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Team-Building Strategies: Building a Winning Team for Your Organization

Discover how to build a winning team and boost your business negotiation results in this free special report, Team Building Strategies for Your Organization, from Harvard Law School.

Leadership and Decision-Making: Empowering Better Decisions

A key task in leadership and decision-making is finding ways to encourage employees at all levels to make better decisions on the organization’s behalf in negotiations and beyond, according to a new book..

By Katie Shonk — on December 19th, 2023 / Leadership Skills

What is the role of leadership in an organization? Contrary to the traditional image of a sole individual steering the ship, leaders have an obligation to empower everyone in their organization to make sound and ethical decisions in negotiations and other contexts, write University of California, Berkeley, professor Don A. Moore and Harvard Business School professor Max Bazerman in their new book, Decision Leadership: Empowering Others to Make Better Choices .

During a virtual event moderated by Harvard Business School professor Deepak Malhotra , Moore and Bazerman shared principles on leadership and decision-making from their book. “The thing that leaders can most affect are the decisions of the people they lead,” said Bazerman; consequently, “we’re interested in the decisions not just of the leader but of all of those people who are influenced by the leader.”

Don’t Neglect Ethics

“Great leaders create the norms, structures, incentives, and systems that allow their direct reports, organizations, and the broader stakeholders to make decisions that maximize collective benefit through value creation,” Moore and Bazerman write in Decision Leadership . They emphasize the importance of “setting the stage”—creating environments in which people can make good decisions.

As a result, the leadership and decision-making book focuses a great deal on ethics, noted Malhotra during the book talk. He asked if effective leadership thus must embody a certain type of leadership, such as moral leadership or ethical leadership . “Is there such a thing as being a great leader when you’re not thinking about maximizing collective benefit or value creation?” Malhotra asked.

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According to Moore, leaders who ignore the ethical implications of their decisions face profound moral, legal, financial, and other risks. “To pretend that business decisions don’t have ethical implications ignores a key dimension on which decisions will be evaluated,” he said. “Effective leadership must consider the wider consequences of any decision,” which is by definition an ethical consideration.

“If we think about some of the failed leaders of the past decade,” added Bazerman, “whether it’s Adam Neumann [of WeWork] or Elizabeth Holmes [of Theranos] or Travis Kalanick [Uber], we see people who dramatically influenced the behavior of others.” Such leaders caused harm in part “because their leadership was so devoid of the ethical dimension,” Bazerman said. In particular, these leaders failed to consider “how to help people make ethical decisions that will make society better off.”

Beyond Changing Hearts and Minds

Decision Leadership offers advice on how leaders can create cultures, environments, norms, and systems that will promote high-quality ethical decisions within their organizations. As such, the authors argue that the real task of leaders is not just to change “hearts and minds”—that is, persuasion—but to fundamentally change what people do. Wise leaders, they argue, design the organization to steer people toward better, more ethical decisions.

“We have nothing against leaders who inspire change by influencing culture, changing how others think and feel,” said Moore. But Decision Leadership offers more useful, less costly tools for prompting better decisions, he said.

Many of these tools draw on the concept of “nudges” offered by Richard H. Thaler and Cass R. Sunstein in their book Nudge: Improving Decisions About Health, Wealth, and Happiness . Nudges steer people toward better decisions rather than relying on persuasion. Moore and Bazerman gave the example of organizations that make it convenient for employees to get vaccinated against Covid-19, such as offering the vaccine at work, instead of trying to convince the skeptical of the benefits of being vaccinated.

Rather than leaving hearts and minds out of the equation, Bazerman said, he and Moore aimed to add a consideration of “strategies that will get the behavior done, even if people’s hearts and minds aren’t changed at all.” In recent decades, the tech industry and many governments have embraced the world of behavioral economics and nudges. Bazerman predicted that in the next decade, more business will make use of these tools to spur wiser decisions. In so doing, organizations will move in the direction of collective leadership and away from a more autocratic leadership style .

Experiments in Leadership and Decision-Making

During the talk, Moore, Bazerman, and Malhotra discussed several proven strategies for prompting better leadership and decision-making in organizations, including creating a culture in which employees feel empowered to speak up when they see something wrong, finding ways to encourage leaders to be more open to accepting advice, and running experiments to test the likely success of a decision rather than basing it on intuition.

Google runs thousands of experiments every year to test new ideas and initiatives, Bazerman noted, but “a lot of companies are behind the curve on thinking systematically about how to learn over time.” That’s a strategic mistake, he said: “If you have a company, and you have an idea about how to change some behavior at your 22 offices across the globe involving millions of customers, why wouldn’t you want to test a new idea on 10,000 people first so that you can find what works, tweak it, and make it better over time?”

What leadership and decision-making strategies have you found to be effective in prompting better decisions in your organization?

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2 responses to “leadership and decision-making: empowering better decisions”.

A brief and concise article which I think could be easily understood by students in the Public Administration discipline….

This is a great, circumspect article that draws attention to the bigger picture in negotiations: the broader and more diverse field of motives and the interests that drive those involved in decision-making. Also noteworthy is awareness if the ethical factor, so often neglected in business decisions and so often detrimental as a result.

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Preparing for negotiation.

Understanding how to arrange the meeting space is a key aspect of preparing for negotiation. In this video, Professor Guhan Subramanian discusses a real world example of how seating arrangements can influence a negotiator’s success. This discussion was held at the 3 day executive education workshop for senior executives at the Program on Negotiation at Harvard Law School.

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What Is Decision-Making In A Business? Why Is It Important?

Decision-making in Business is one of the most significant aspects of running a business. It involves choosing what products or services to offer, how to price them, where to sell them, and how to promote them. Good decision-making can mean the difference between success and failure for a business.

Good decision-making in business requires careful consideration of all factors involved. This includes understanding the market, understanding consumer needs and wants, understanding your competition, and understanding your strengths and weaknesses. Once all this information has been gathered, you can start making informed decisions about which course of action is the best for your business.

Importance of Decision-Making in Business

Decision-making in business can affect everything from your products and services to how you manage your finances.

Making decisions can be difficult, but weighing up all the options before settling on a course of action is essential. This guide will help you understand the different types of decision-making and how they can impact your business.

There are three main types of decision-making in business: strategic, operational, and tactical.

Strategic decisions are long-term and usually involve major changes to the direction of your business. They’re typically made by senior management and require careful planning.

Operational decisions are medium-term and usually relate to the day-to-day running of your business. They’re typically made by middle managers and often involve trade-offs between different objectives.

Tactical decisions are short-term and usually relate to specific tasks or projects. They’re typically made by front-line employees and often involve local optimisation rather than global optimisation.

The type of decision you need to make will depend on the situation you’re facing. For example, if you’re launching a new product, you’ll need to make strategic decisions about what market you want to target and what price point you want to set. If you’re managing a team of salespeople, you’ll need to make operational decisions about how best to allocate resources amongst them. 

7-Step Decision-Making in Business Process

Decision-making is a process that businesses use to identify and select the best course of action to achieve their desired goal. The steps in this process are: 

1. Define the problem or opportunity

Defining the problem or opportunity is a critical step in any decision-making process. It involves asking questions to identify and understand the issue, its causes and effects, and who or what is affected by it. This helps define the scope of what needs to be addressed and provides an understanding of how big a task lies ahead. Defining the problem also serves as a solid foundation for developing strategies tailored to achieve desired outcomes. Therefore, taking the time upfront to define the problem or opportunity carefully can help ensure success when deciding how best to address it.

2. Gather information and options

It involves researching potential courses of action, evaluating risks and benefits, examining alternative possibilities, and consulting experts. This helps to ensure that decision-makers have adequate data to make informed choices about their organisation’s long-term success. Collecting relevant data includes:

• Obtaining appropriate facts from reliable sources such as reports or surveys.
• Conducting interviews or focus groups with stakeholders .
• Review existing records or documents related to the issue at hand.
• Performing experiments or simulations.
• Scanning internal databases for useful insights.

Additionally, gathering input from those affected by a decision can help build consensus around any proposed choice before moving forward – thus limiting surprises down the line.

Also Read: What is Digital Financial Services? Explained

3. Analyse the information and options

Once you have all the vital information and options, an essential step in the decision-making in the business process is to analyse everything available before moving forward. It involves breaking down data, researching alternatives, and understanding the implications of each option. This allows us to make informed decisions based on facts rather than assumptions or guesses. During this step, it’s essential to consider all aspects of a potential decision, including possible risks and rewards, as well as any ethical issues that may be involved. Analysing information can help ensure we have all relevant details before moving forward with an action plan.

4. Select the best option

It involves evaluating all options carefully and determining which would provide the most benefit or create the least amount of harm. To select the best option, it’s important to consider data and evidence that support each choice and consult with experts who may have further knowledge about any potential consequences of an action. 

Additionally, it’s important to be aware of any potential biases that could influence your decision-making process, such as the personal beliefs or opinions of individuals involved. Ultimately, selecting the best option requires careful thought and consideration before making a final call on what action should be taken.

5. Plan for implementation

 It involves mapping out a strategy for taking action and ensuring that all steps necessary to complete a project are accounted for. The plan should include objectives, a timeline, resources needed and a budget. In addition, it should also consider potential risks and contingencies as well as how any results will be monitored and evaluated. 

A successful plan will help maximise chances of success by minimising wasted time, effort or money while guiding how to proceed when faced with unexpected obstacles or changes. Planning can make all the difference between failure and success when implementing decisions!

6. Implement the plan

Implementing the plan is the final step in the decision-making in a business process. It involves putting into action all of the decisions made throughout the previous steps of planning, analysis and evaluation. The implementation phase requires clear communication among stakeholders, ensuring everyone knows their roles and responsibilities for this stage. Additionally, it is important to track progress to quickly identify and address any changes or adjustments. The implementation also includes monitoring results to ensure goals are met, evaluating what worked well and determining any areas for improvement for plans.

7. Evaluate the results

Evaluating the results of a decision is an important step in the decision-making process. It provides feedback on whether or not the chosen course of action successfully met its desired outcome. Evaluating results can determine if changes need to be made to improve future outcomes or if more resources should be allocated towards achieving success. 

Evaluations help to identify what worked and what didn’t, allowing for better-informed decisions further down the line. This can also ensure that potential risks are identified and managed before they become costly. Ultimately, taking time to evaluate the results of a decision will save time and money in the long run by pinpointing areas where improvements can be made quickly and efficiently. This process helps businesses to make sound decisions that will lead to positive outcomes and help them achieve their goals.

Decision-Making in Business Models

Decision-Making Models are tools used to help decision-makers identify, analyse and prioritise potential solutions to a problem. They can help make decisions in both personal and professional contexts. There are several different types of Decision Making Models, including Rational Choice Theory, the Delphi Technique and System Dynamics. 

Each model has unique strengths and weaknesses that should be considered when evaluating which option best fits the needs of a particular situation. Ultimately, each Decision-Making in Business Model is designed to provide structure, clarity and guidance during the decision-making process while allowing individuals to remain creative and open-minded in their approach.

Rational Model

The Rational Model of decision-making is a systematic approach to the problem-solving and decision-making process. This model provides a logical, step-by-step method for making decisions that are based on facts and data rather than emotion or bias. The main features of this model include the following: 

1) Identification of the Problem: Before making any decisions, it is important to identify and analyse the problem at hand. This involves analysing the situation from multiple perspectives to understand its cause and potential solutions. 

2) Gathering Information: Once the problem has been identified, it is essential to gather information about possible solutions through research or consulting experts to determine which solution will work best for the organisation or individual involved. 

3) Assessing Alternatives: After collecting data on potential solutions, it is necessary to assess each alternative in terms of cost efficiency and other criteria such as feasibility, effectiveness, etc., so that only those options with positive outcomes are chosen as viable alternatives. 

4) Making Decisions: After assessing all available alternatives according to whatever criteria have been set forth by stakeholders, it is time for management or leadership personnel responsible for deciding upon a course of action must come together and make an informed choice that takes into account both rational analysis as well as personal preferences before finalising their selection. 

Benefits associated with using this type of decision-making model include the following:

• Improved accuracy due to relying on factual evidence instead of intuition. Increased objectivity since opinions doesn’t play into the decision-making process.
• Greater consistency because all participants use identical sources when considering different paths forward
• More efficient implementation since everyone understands what needs to be done when they agree upon a solution.
• Better buy-in from stakeholders due to their involvement in every stage, along with being apprised throughout proceedings
• Enhanced accountability results from having a clear chain of command throughout deliberations while also providing traceability should something go wrong.

Intuitive Model 

An intuitive decision-making model is a type of decision-making model which relies heavily on intuition and gut feelings. It is often used when making high-risk decisions or involving complex data with many variables.

The main feature of the intuitive decision-making model is its reliance on instinct to make decisions, rather than traditional analytical approaches that rely mainly on facts and data. This allows users to draw upon their personal experiences, values and beliefs to devise creative solutions for difficult situations. Consequently, this type of decision-making is suitable for scenarios where there may not be enough reliable information available, or the situation requires creativity due to its complexity.

Another key benefit of the intuitive decision-making model is that it can provide users with an immediate response, allowing them to react quickly in uncertain or fast-paced environments such as emergencies or markets requiring rapid responses from investors. Additionally, unlike more analytical models, which require substantial time commitments from users, an intuitive approach can allow individuals to make quick judgments without being bogged down by excessive research and analysis processes. 

Despite these advantages, there are certain drawbacks associated with using an intuitive decision-making model, including potential bias due to personal experiences influencing outcomes as well as a possible oversimplification of complex problems leading to less optimal results than if more effort had been put into researching all angles before coming up with a solution (ease trap). 

Furthermore, since this kind of approach generally does not consider external factors such as market trends etc., it should only be used when other sources cannot provide comprehensive enough insights into what would constitute a successful outcome for any given problem/solution scenario (could also increase risks associated with implementing said solution). 

In conclusion, while the use of Intuitive Decision-Making in Business Models has several benefits, such as providing quick responses when needed and encouraging creative thinking – it must still be used cautiously alongside other forms of analysis so that any potentially damaging constraints may be taken into account before finalising any decisions made based upon this method alone.

Also Read: Types and Methods of Demand Forecasting

Vroom-Yetton Model

The Vroom–Yetton model is a decision-making business model designed to help managers make decisions about how best to approach a particular problem. Victor Vroom and Phillip Yetton developed it in 1973. The model provides guidance for managers on selecting an appropriate leadership style based on the amount of involvement or participation desired from their subordinates and the level of uncertainty associated with the situation at hand.

The basic idea behind the Vroom–Yetton Model is that different levels of decision-making require different management styles and involvements – such as autocratic (leader makes all decisions) vs democratic (all members participate). This means that when faced with a difficult decision, it can be beneficial for leaders to consider which style would work best given the available information and resources and what goals they are trying to achieve.

The primary benefit of using this decision-making process is that it allows leaders to assess situations better before choosing an action plan. This helps them avoid making hasty decisions without considering other factors like group dynamics or potential outcomes. Additionally, because this method encourages open communication between team members during discussions surrounding essential topics, there is less chance for misunderstandings or disagreements down the line regarding who made what choices or why those selections were made in the first place. 

Considering each person’s experience and expertise when deciding upon an action plan instead of relying solely on one individual’s opinion allows for more balanced opinions, which may result in better outcomes overall than if one single voice had been relied upon without further investigation into others’ perspectives. This increases efficiency since everyone involved feels heard while still allowing efficient time decisions due to having already outlined parameters of various options within several predetermined models before commencing discussion around hypothetical courses of action – reducing wasted time debating issues outside the scope that could have been addressed beforehand through proper use pre-established models such as Vroom-Yetton’s. 

Utilising a framework like Vroom–Yetton Model can be beneficial in helping teams come up with practical solutions quickly while still ensuring all voices are considered carefully before any conclusions are drawn. By considering multiple perspectives throughout each step and understanding exactly what kind of managerial approach should be taken depending on current circumstances, collective wisdom can ensure optimal results over-relying on one individual alone whenever complex problems arise, requiring rapid yet thoughtful resolutions.

Recognition Primed Model

The Recognition Primed Decision (RPD) model is a type of decision-making in a business model that relies on the recognition and experience of an individual to make decisions. Developed by Gary Klein, this model focuses on recognising patterns in situations that can help people make quick decisions without having to analyse or process data. This method is based on the belief that experienced professionals do not need detailed information or analysis when making decisions; instead, they can draw upon their previous experiences and recognise similarities between them and the current situation to come up with a good solution quickly.

One advantage of using the RPD model is its speedy nature: it helps individuals rapidly assess different options and determine the most effective given their current situation. Additionally, because it relies heavily on personal experience, this method allows for more creativity than traditional analytical approaches, as it encourages individuals to think outside the box when solving problems. Furthermore, since this approach does not require extensive amounts of data collection or processing time, it allows for quicker implementation of solutions. 

Another benefit provided by RPD models is that they encourage collaboration among professionals who have similar experiences and knowledge bases through sharing stories about how they handled similar challenges in other contexts. This provides an opportunity for team members to compare notes while also building trust within teams due to improved communication processes. Additionally, such collaborative activities help strengthen relationships between individuals and organisations involved in projects where multiple parties must work together efficiently towards achieving the same goal(s). 

Finally, another benefit offered by utilising RPD models is that these methods can easily be adapted according to contextual changes since each situation will present unique opportunities for problem-solving; thus allowing users to implement versatile strategies depending on what fits best with changing conditions at hand. In addition, such flexible approaches are beneficial for those working under tight deadlines since there will likely be less wasted energy due to fewer errors from wrong assumptions being made priorly.

Overall, recognition-primed decision-making models enable faster response times and ensure accurate results. The experiential nature helps enhance collaborative efforts amongst professionals with similar knowledgebases while providing efficient solutions regardless of circumstantial changes. Thus, this method offers a reliable and beneficial approach to problem-solving and decision-making.

Bounded Rationality Model

The bounded rationality model is decision-making in the business model based on the idea that humans are limited in their ability to make decisions due to time, information and cognitive constraints. This model suggests that people do not always have access to all of the facts or have enough time or resources to weigh up all potential options before making a choice. Instead, they rely on intuition, heuristics and their own experiences when making decisions.

The main benefit of the bounded rationality approach is that it explains why non-optimal choices are often made instead of purely rational ones. It considers how human psychology affects our decision-making processes and reflects real-life situations more accurately than traditional models that assume perfect knowledge and unlimited resources. Additionally, this model allows us to account for ‘irrational’ behaviour such as risk aversion or loss aversion – behaviours which cannot be explained by pure rational analysis alone but can still be observed in practice. 

Adopting a bounded rationality approach also has implications for policy design; rather than trying to achieve ideal outcomes through complicated rules or regulations, policies should consider peoples’ limitations when it comes to understanding complex systems or weighing up multiple options to produce better results overall. 

Finally, since this approach recognises the role played by emotions and personal biases when making decisions, it helps us understand how these factors can influence individual behaviour even if they don’t necessarily lead them towards an optimal outcome – something which could help inform strategies like marketing campaigns where companies need insight into what drives consumer preferences over specific products/services etc.

In conclusion, the bounded rationality model offers valuable insights into how people behave when faced with difficult decisions due to its focus on psychological aspects such as intuition and emotion as well as practical limitations like time constraints or lack of information – allowing us both to understand irrational behaviour better but also helping improve policy design so that solutions are tailored towards actual user needs rather than theoretical ideals.

Decision-making in business is an essential activity for any organisation. It involves analysing available data and options, weighing the merits and drawbacks of the options, and choosing the best course of action to achieve desired results. By clearly understanding decision-making processes, businesses can make better decisions based on sound information and research that will lead to improved performance. This includes increasing profits, enhancing customer satisfaction, reducing costs or improving operational efficiency. Ultimately, effective decision-making leads to tremendous success for the company as a whole.

The Executive Development Programme in General Management course is an important resource for helping business professionals understand the importance of decision-making. This comprehensive programme provides detailed instruction on how to develop a strategic approach towards problem-solving, analyse issues through research and data analysis, and effectively engage stakeholders throughout the process. Additionally, it offers guidance on making ethical and financially sound decisions while considering long-term implications for the company’s success. With this knowledge, executives can become more confident when making key business decisions that will have lasting impacts on their organisation.

More Information:

What are the Types of Business Environments?

What is the Scope of Macroeconomics in Management?

Importance of Digital Marketing for the Success of a Business

What is Digital Leadership? Why is it important?

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Why Managers Should Involve Their Team in the Decision-Making Process

• 05 Mar 2020

Decision-making is a critical component of every manager’s day-to-day. Whether reshuffling the department’s budget, delegating tasks , or implementing a new strategy , the daily choices managers make have a direct impact on their organization’s success.

But that decision-making process isn’t always easy. In a survey by management consulting firm McKinsey , only 28 percent of executives touted the quality of their company’s strategic decisions, while 60 percent reported that bad decisions are about as frequent as good ones.

The Role of a Team in Decision-Making

One way to increase your likelihood of success is to include your team in the process. Research shows that diversity leads to better decision-making. By bringing people into the conversation with different disciplinary and cultural backgrounds, you can enhance creativity and gain a fresh perspective on the task or problem at hand.

“Map out the technical, political, and cultural underpinnings of the decision that needs to be made and then build your group accordingly,” says Harvard Business School Professor Len Schlesinger, who’s featured in the online course Management Essentials . “You’re looking for a broad array of experience. You want some newcomers who are going to provide a different point of view, as well as people who have profound knowledge and deep experience with the problem.”

Some managers might shy away from integrating their team into the process to avoid additional complexity or a potential clash of opinions. Yet the ideas that could come out of that dialogue are often far more valuable and critical to business success. Here’s a closer look at how successful team decision-making can benefit your organization.

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Benefits of Team Decision-Making

1. overcoming consensus.

Managers often defer to consensus, or the majority of opinion, to avoid conflict and foster group harmony. But Schlesinger argues that it’s not always the right choice.

“Consensus is likely to lead to a lower evaluation of the problem and a less creative solution,” Schlesinger says. “You need to be willing to engineer in conflict, which is often perceived as uncomfortable, but is essential to uncovering some of the hidden assumptions and data that leads people to make less-informed decisions.”

Schlesinger suggests one approach of establishing a process of devil’s advocacy and encouraging individuals to poke holes in arguments and problem framing. As a result, your team will likely conduct a more in-depth critical evaluation, which could lead to a greater number of alternative solutions.

“Managers often get to convergence too quickly, which is one of the most negative byproducts of the consensus-oriented model and why it’s only appropriate for the most simplistic decisions,” Schlesinger says. “Unless you’re intentional about trying to overcome consensus, you’re going to be stuck with it and then get a group together who’s going to manifest a decision-making process that’s essentially no better than what you would come up with by yourself.”

As a team leader, it’s critical to encourage diverse thoughts and opinions around the table to discover more innovative solutions.

2. Increasing Employee Engagement

By involving your team members in the decision-making process, you show that you trust and value their opinion, which is a key element of building employee engagement .

According to analytics and advisory firm Gallup , highly engaged employees produce substantially better outcomes, are more likely to stay at their organization, and experience less burn-out. They can’t reach that level, though, unless they feel invested in their work, are given opportunities to develop their strengths, and understand how their role contributes to the company’s overall success.

Every decision you’re asked to make is a moment for you to empower others on your team by leveraging their strengths, experiences, and expertise.

3. Enabling Collaboration and Communication

According to a Queens University of Charlotte study , nearly 75 percent of employers rate teamwork and collaboration as “very important,” yet 39 percent of employees say their organization doesn't collaborate enough. In a separate study , 86 percent of respondents attributed workplace failures to a lack of collaboration or ineffective communication.

By involving others in the decision-making process, you create an opportunity for colleagues to share ideas, learn from each other, and work toward a common goal. In turn, you foster collaboration and help break down organizational silos. You might even surface overlapping initiatives within the company, which could save the organization resources and employees from duplicating work.

Related : 7 Skills You Need to Effectively Manage Teams

4. Surfacing Your Own Blind Spots

Self-awareness is a vital management skill , and has proven to be what sets high performers apart in the workplace. It’s a core tenet of emotional intelligence and describes your ability to understand your strengths, weaknesses, and managerial tendencies.

While you might think you know your blind spots, research suggests otherwise. According to organizational psychologist Tasha Eurich , 95 percent of people think they’re self-aware, but only 10 to 15 percent actually are. Meaning, if you’re making every decision by yourself, there’s likely cultural, informational, or technical data you’re missing.

Involving your team in the decision-making process can help surface your blind spots and enable you to cultivate self-awareness in the process.

5. Getting Buy-In from the People Who Need to Implement

The people you include in the decision-making process should be those who need to implement the agreed-upon solution.

“Getting to the ‘right answer’ without anybody who is supporting it or having to execute it is just a recipe for failure,” Schlesinger says.

If, upfront, you assembled a team with an array of skills, experience levels, and backgrounds, established clear goals, and explored all viable solutions, you should reach a stage where you’re ready to not only make a decision but execute.

“In the general manager’s job, the quality of the decision is only one part of the equation,” Schlesinger says. “All of this is oriented toward trying to make sure that once a decision is made, you have the right groupings and support to implement.”

Related : 5 Tips to Becoming a Better Manager

Should You Always Involve Your Team in Decision-Making?

Managers might fear they’ll slow work down if they involve their team in every decision. When faced with the choice of involving your colleagues or going solo, you must determine whether there’s absolute clarity and enough widespread, shared data that the decision is on the cusp of obvious. Yet, even then, Schlesinger recommends bringing the issue to a group in a short meeting or touch base since these decisions likely affect every aspect of the organization.

“Even the most obvious of decisions analytically still have enormous consequences from an implementation perspective,” Schlesinger says. “I encourage people, for decisions that have reasonably significant organizational consequences, to recognize that the decision-making group has both analytical and executional responsibilities. Even if the analysis is obvious, the execution generally is not.”

What Are the Different Types of Decision-Making?

There are several important decisions leaders must make on a daily basis to maintain their organization’s success. As a manager, it’s important to find ways to involve your team in this critical decision-making process in some capacity, whether strategic, tactical, or operational.

• Strategic decision-making : Decisions that have a significant or long-term impact on the organization, such as department restructuring or acquiring a new client. Being transparent about bigger-picture decisions and long-term organizational goals is one way to show your team they have a say in the company’s future.
• Tactical decision-making: Topics of discussion that focus on the immediate steps your organization needs to take to achieve long-term goals, like hiring a new team member or intern. Since these are smaller actions that likely affect the team’s daily routine, their input is invaluable.
• Operational decision-making: Decisions that involve the team's high-volume, daily operational tasks. Team involvement is crucial because it encourages valuable ideas and possible solutions to make systems or processes run smoothly. Teams are likely to perform well when they’re involved in the day-to-day efficiency of the organization.

Improving the Decision-Making Process

Involving your team in the decision-making process can benefit your entire organization. The quality of the decisions made will improve because you’ll have the right mix of skills and expertise at the table, but you’ll also have the people in place who are prepared, and in sync on what, to implement.

Are you interested in further developing your managerial skills? Explore our eight-week online Management Essentials course , and discover how you can gain the tools and strategies to excel in decision-making, implementation, organizational learning, and change management.

This post was updated on June 6, 2022. It was originally published on March 5, 2020.

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An entrepreneur’s guide to business planning and decision making.

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An Entrepreneur’s Guide to Business Planning and Decision Making !

This article provides you an extensive and detailed guide of business planning and decision making that exists today. Below given information includes everything you need to know about making the best business plans and taking the right decisions at right time for your organization.

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Planning means deciding today for tomorrow. Thus, whatever we plan for tomorrow has to be done through decision making. Hindustan Unilever (HUL) has recently planned to increase sales to Rs. 50,000 crore by 2015. HUL could have opted for different goals, different plans and different time frame. But HUL decided for a particular mix of goals and plans for growth rate and time frame reflected choices from a variety of alternatives.

The decision making works as a driver of the planning process. It underlies every aspect of setting up goals and formulating plans among variety of options.

Concept of Planning :

Planning is an intellectual process of deciding in advance today for tomorrow) what is to be done (ends, i.e. objectives), who is to do it (responsibility), how it is to be done (means), and when it is to be done (time frame).

The planning process is as such made up of the following elements:

1. Identification of objectives

2. Formulation of steps to achieve objectives

3. Forecasting

4. Decision making

Characteristics of Planning :

1. Planning is goal-oriented:

Planning is an action-oriented activity and goals are its cornerstones. Goals provide guidance (to know where the organisation wants to go) and unified direction to people (all activities going in for the same destination); goal setting activity affects all other aspects of planning; work as a source of motivation of employees work hard (especially if goal attainment is related with the rewards); and provides mechanism for evaluation and control (by providing the standards).

2. Planning is the primary function of management:

Planning is the first and primary activity of management as all other management functions start only after the planning function and they are performed within the framework laid down by planning.

3. Planning is pervasive:

Every manager has to plan, irrespective of level. Off Course, planning will be related to the task assigned to him. Higher the level more time is devoted to distant future planning and lower the level more time is devoted to near future planning.

4. Planning is dynamic by nature:

Planning involves forecasting. Forecasting involves environmental scanning. Since environment is never static, plans may have to be changed midway. Since, the target is always moving, revision has to be made to be compatible to the environment. Thus, planning is by nature dynamic and it leads planning to be flexible.

5. Planning is continuous:

Planning is time-bound. A plan has a specific time frame after which a new plan has to be prepared. Thus planning is not one-time activity.

6. Planning is futuristic:

Planning is not a historical exercise but relates to future. This calls for looking ahead and plan goals and activities for the future.

7. Planning involves choice

If there is no other way out, then there is no need for planning. But if there are so many ways to reach the destination, Planning has to make a choice, depending on cost, time, and goals.

8. Planning is an intellectual exercise:

Planning is not based on guess work, but it is an intellectual exercise of data collection, analysis, and interpretation of past events, current happening and forecasting future. It is on this tedious intellectual exercise that planning is done, for which managers must have the abilities of analysis, imagination and judgement.

The Planning Process :

Different organisations may follow different steps to planning-depending upon the nature and their own standing in the industry. However, some of the general steps followed are as under.

1. Situational Analysis:

We may call it with other names also, like environmental scanning, or strategic analysis. The internal and external environments are scanned for locating strengths and weaknesses; and opportunities and threats.

Also the industry environment is also scanned to know of where our organisation stands in competition. The situational analysis helps to identify and diagnose planning assumptions or premises, issues and concerns.

2. Setting Gals or Objectives:

The next step is to set the objectives or goals. In the characteristics, we have explained what purposes goals serve. Goals may be many and at times the organisation may find them conflicting.

Manufacturing goal may be to keep the cost at the lowest and marketing goal may to provide the stylish product. The incongruence has to be sorted out by the concerned organisation only.

3. Establishing Planning Premises:

Premises mean assumptions about future. While making a demand forecast for processed food, we must know of the population, our targeted segment, per capita consumption, etc. These are premises on which plan stands.

4. Search, Evaluation and Selection of Right Choice:

Of the various choices available, the planner has to search for different alternatives, evaluate them one by one, and finally select the best one.

5. Formulation of Derivative Plans:

Derivative plans exist in the form of policies, procedures, rules, schedules, budgets, etc. These plans are necessary to implement the basic plans. If a company makes a basic plan for launching a new product, the derivative plans would be plans regarding the product design, purchase of inventories, advertising of the product, channel arrangement, etc

6. Communicating the Plan:

A plan has no meaning unless it is communicated to the person who is to implement it. The implementer must also be asked to send his feedback for future improvement. 7. Implementation of the Plan. Plans are useless exercises unless they are put to proper use to achieve desired results. Proper implementation requires cooperation of all concerned and provision of necessary resources.

8. Monitoring:

It is the last step in the planning process. The actual attainment has to be compared with planned and tells manager whether plans need any review. Though it is last step but ultimately, it reaches to first step. Thus planning is a cyclical activity.

Approaches to Planning :

How the planning work is done is a matter of approach to it – autocratic, democratic, composite or assigned to a task force.

1. Top-down Planning:

In this approach the top management prepare vision and mission statements and determine strategies and other plans. And then these are passed on to middle and lower managements for implementation.

This is a case where vision is shared and little scope for shared vision. It is akin to authoritative management style, where others have to merely follow the dictates of top management.

2. Bottom-up Planning:

In this approach plan proposals originate at lower level and travel through middle management level to top management levels. Ultimately the top management while finalising the plans gives due consideration to them. This approach is indicative of participative management and highly responsible and dedicated bunch of managers. This approach motivates the implementers.

3. Composite Planning:

This is an amalgam of both of the above approaches. The top management encourages middle and lower managers to formulate the plans. However, the finalisation is the prerogative of top management. But in composite approach the finalisation is done in consultation with the managers at appropriate levels.

4. Taskforce Planning:

In some of the companies, the task of planning is assigned to professional staff which may lower the workload of individual managers, coordinate the individual manager’s planning, and have a broader perspective than the individual managers.

Types of Plans:

While planning is a process, the document(s) or statement(s) coming out of this exercise is known as Plan(s). In an organisation, one will find a plethora of plans. The numerous plans are due to different reasons and different purposes. The plans can be classified on the basis of the following:

1. On the Basis of Management Levels.

Managers at different levels prepare different plans:

(i) Corporate Plan:

The top management comprises the Board of Directors, CEO, and the Executive Committee. The Vision, mission, and strategy formulation is the exclusive prerogative of the Board in consultation with other top managers.

Corporate plan is concerned with Growth, Stability or Retrenchment. Corporate plan is for the whole organisation, and allocation of resources comes under its arena.

In the case of ITC Limited, the Board ensures that the company has clear goals and seeks accountability for their fulfilment. Then there is a corporate Management Committee, under the strategic supervision and control of the Board, responsible for corporate planning.

(ii) Strategic Business Unit Plan:

The Plans for different subsidiary companies having different kinds of business are to be made well within the directives of corporate plan. However, the plan for how to compete is made for each strategic business unit. The Plans cover the generic strategies as suggested by Michael Porter – cost leadership, differentiation, and focus strategies.

In the case of ITC, the task is assigned to Divisional Committee/SBU Management Committee to realise tactical and strategic objectives in accordance with Board approved plan.

(iii) Functional Plans:

Functional planning in an SBU of a conglomerate is done by the departmental heads, whose status is that of middle management. It deals with different functional areas, like marketing, Finance, Human Resources, and operations. The Functional Plans must be within the framework of corporate and SBU Plans. The functional plans help in the attainment of corporate and SBU objectives.

(iv) Operational Plans:

The plans for different cells or work stations have also to be made. This task is left to the first-line managers. In case of manufacturing operations, the plans have to be prepared with respect to work time-table, work duties, and facilities for work performance. Effective operational plans make functional planning successful.

2. On the Basis of Time Frame for Plan:

On the basis of time frame plans may be having long-term, intermediate-term, or short-range focus.

(i) Long-Range Plans:

It covers a very long time period. The time span for long-range plan differs from organisation to organisation. Long-term planning is the prerogative of top management level only. The Vision, mission and values’ statements are prepared for 10-20 years.

Normally it covers a period of five years. But in turbulent times the time frame for long-range planning may have to be brought down. In technology for mobile phones, the long-term may be 3-6 months only.

(ii) Intermediate Plans:

An intermediate plan covers from one to five years. These plans are especially important for middle and first-line management levels. Shifting domestic production to low cost destinations abroad or winding up in-house work facilities to outsource require intermediate plans.

(iii) Short-range Plans:

Such a plan covers a span of one year or less. Some of the short- range plans may be for a period as short as one day, one week, or one month. A short- range plan may be an action plan (to do something as per the plan) and reaction plan (a plan to do something as a reaction to some unforeseen circumstance -due to fire in the plant the production has to be stopped so as to replace the machinery).

3. On the Basis of Response to Environmental Challenges:

Planning cannot be separated from business environment and environment cannot remain static. Basically it is reactive and proactive.

(i) Reactive Plan:

Reactive plan is a response in reaction to some development in the environment. In Japan, due to recent earthquake and tsunami many Japanese companies had to shut their operations. Many importers from Europe had to search other countries for the goods, earlier imported from Japan.

(ii) Proactive Plan:

A proactive plan comes into effect to when an organisation scans its environment and undertakes initiatives in anticipation of likely changes in future and formulates proper initiative to deal with the likely situation.

Tatas saw an opportunity in two-wheeler-riders suffering in treacherous weather, and came out with an idea to offer small car at budget prices. There are many products, like mosquito repellents, bottled water, where the first movers saw an opportunity and planned proactively.

(iii) Contingency Plan:

What, if an intended plan of action becomes redundant or rendered inappropriate. This often happens in one-day and T-20 cricket matches. Every team comes with a plan of action, but the opponent team may spoil the plan. In such a case the teams do come up with different action plans.

These additional plans are part of contingency planning. In the business world, contingency planning was seen due to “Y2K bug”. Air India used contingency plan when its pilots went on strike recently in May, 2011.

4. On the Basis of Frequency of Use:

Operational plans or derivative plans, aimed at achieving operational goals, are normally focussed narrowly and their horizon also remains relatively short. These plans may be called Single use plans and Standing Plans.

(i) Single-Use Plans:

Single-use plans are situation specific (one time situation, one time use). After the objectives have been achieved they become outdated and are no longer used. When Mahindra and Mahindra acquired Ssang Yong Motors of South Korea, the strategy to expand through acquisition of Korean firm was a single-use plan of action.

The single-use plans include strategy (a plan of action giving direction – Stability strategy during recessionary period), programme (a scheme of action involving large set of activities to solve a problem to achieve certain objective(s) – Introduction of metro rail in Delhi to solve public transport problem), project (a part of the programme with small scope and complexity – Division of introduction of metro rails in Delhi and NCR into phases, First phase starting from Shahdara to Rithala, and University to Central Secretariat was the initial project), and budget (the numerical plans of action over a period of time – Sales Budget showing territory- wise monthly allocation of sales targets of individual sales mangers for the full year)

(ii) Standing Plans:

Standing Plans are meant for recurring use in similar situations (recurring situations, recurring use) for a longer time frame, i.e., ongoing, extending to many years. The ethics policy of Tatas not to bribe is a standing plan and has been in currency since long. Standing plans make decision making a routine exercise. Standing plans include – Policies (for guide to action – all automobile manufacturers do not give agencies to those who are also having agency for another manufacturer as a policy; in Delhi University the quota for reservation is fixed; and policies also prescribe how exceptions are to be handled – if the reserved seats remain vacant, how these are to be filled in); Procedures (more specific than policies spell steps to be followed in a sequence – admission procedure of Delhi University is that the colleges will declare cut-off percentage and keep the list open for three days, students within this percentage will fill the forms, admission clerk will check the marks received, send it to the admission committee which will see the marks are in cut-off percentage, send it to cashier who will give a bank slip for depositing fee in the bank, after receiving information from the bank the cashier will notify his admission to concerned clerk for making Identity Card and the library to issue Book Borrowing cards – dates may change but procedure remains the same); Methods (details of action for performing particular operation.

While checking marks by an admission clerk he will follow the method- taking marks only of one of the languages, checking the marks with the respective board Gazettes) and Rules and Regulations (directives that must be followed – in Delhi College admission the science students marks are to be deducted by 5% is a rule; No smoking in College compound is a rule, ragging is prohibited and violation of these rules is punishable).

Table 7.1: Difference between Single-use and Standing Plans :

5. On the Basis of Scope of Activities:

On the basis of scope and nature of activities the plan can be segregated into Strategic Plan, Tactical Plan and Operational Plan.

(i) Strategic Plan:

A plan which determines overall objectives to give long-term direction to the organisation with regard to deployment of resources is known as a strategic plan. Its scope is the total organisation.

These plans are prepared by top management of the firm and serve as the base for tactical plans and operational plans. Peter F. Drucker has identified eight key areas of strategic goals – market standing, innovation, human resources, financial resources, productivity, social responsibility, and profit requirements.

(ii) Tactical Plans

These plans, sometimes referred as operational plans, provide the details of how the overall objectives are to be achieved. It is the middle management to formulate the tactical plans. While strategy focuses basically on resources, environment, and mission, tactical focus is on people and action.

To be effective, tactical plans, used to implement specific parts of a strategic plan, must have an organic relationship with the strategic plan. Secondly, while strategies are specified in general terms, tactics must specify resources and time horizon.

The Strategy of Tata is being globally present. Tactical plans call for which sectors, which markets, and Greenfield investment (establishing own facility) Vs brown field (acquisition of an existing facility) specifications.

Thirdly, managers dealing with tactical plan spend a large amount of time working with other people to receive process and pass on information to other people.

Strategic plans differ from tactical plans in three ways — time horizon (tactical plans cover shorter period but strategic plans cover five or more years), scope (Strategic plan covers a border area and deals less with specifics but tactical plans have smaller area but make greater specifics), and objectives (strategic plan has to begin with the objectives, but tactical plans already have them and are concerned only with how these objectives are to be achieved.

(iii) Operational Plans:

As tactical plans are related with strategic plan, operational plans are related with tactical plans and are aimed at achieving operational objectives. The single-use and standing plans are part and parcel of operational plans.

6. On the Basis of Formalism:

Formal planning by managers mean there is a structured process of planning and there is proper authorisation to undertake planning. Large companies prepare their formal plans through formal planning. Some of the Companies have a separate planning department.

Informal planning is associated with unstructured process of planning. Most of the small companies use informal planning for their plans. It is the owner’s subjective evaluation which matters.

Why Study Planning (Importance) :

Planning is neither a fashion nor a fad. It is a necessity. Failing to plan means planning to fail. It is important for the students, mangers and entrepreneurs to study planning and develop planning abilities. Planning offers following benefits:

1. Planning provides a sense of direction to the organisation:

Preparation of vision, mission, objectives and goals provide clear direction to the organisation as to where it has to go and how. Such a clear direction helps to coordinate different plans and activities and develop cooperation and teamwork. Lack of planning means different people may work against one another.

2. Planning facilitates coordination:

By deciding in advance what to do and how to do planning formulates planned programmes of activity in the organisation. These planned programmes serve as the basis for orderly integration of efforts of different departments, divisions and people.

3. Reduces the impact of change:

Planning develops a mindset of looking ahead, anticipate change, evaluate change and develop proper responses. It, therefore, reduces uncertainty.

4. Planning minimises wastage and reduces redundancy:

Because of clear direction leading to coordinated effort, planning reduces wasteful activities. The activities that have no role in the organisation are retrenched because such activities can remain no more hidden.

5. Planning provides standards to assist control:

Planning sets up objectives / goals / standards, which help in control? It is against them, the actual performance is compared and gaps are located and corrective action is taken.

6. Planning makes employees feel meaningful and important:

Employees feel themselves as valuable to the organisation. Because they know where the organisation is to go and what role they have to play and how their role is related with the organisation’s goals.

7. Planning promotes creativity:

Since planning is an intellectual exercise of proactively looking in future provides ample opportunities to make use of creativity in determining objectives and choosing the best course of action to achieve the desired results.

Barriers to Planning :

Planning is in the nature of a person. But planning has its own limitations, drawbacks, criticisms. These are as under:

1. Planning may bring in Rigidity in thinking and operations:

A plan involves several activities and programmes and there is a tendency to execute them without any changes or deviations. Managers get more concerned with the rules and procedures than achieving goals. This attitude brings inflexibility in their thinking and operations.

2. Planning is time consuming and expensive:

Planning involves large number of people making efforts to collect facts and data, analyse, and interpret them. This requires huge expenditure apart from the time. This is why during a crisis or emergency use of planning becomes difficult.

3. Planning is probabilistic:

Plans are based on forecasts. If these forecasts fail, planning is bound to fail. This barrier to planning arises on account of difficulties associated with planning premises. If the forecasting of rainfall is calculated wrongly the premises of agricultural products will also go wrong and hence, any sales plan will also go haywires.

4. Planning is not feasible in a dynamic environment:

Today the business environment is undergoing turbulence. If the planners start from the premise that the environment will not change, it is faulty. Today’s environment can be rightly called as random and unpredictable.

5. Formal plans can’t replace intuition and creativity:

A successful organisation may be the result of someone’s vision. But with the pace of time the vision gets formalised. This may cause doom for the organisation.

6. Planning creates focus among managers on today’s competition, not on tomorrow’s survival:

Planners have a tendency to capitalise on the existing opportunities, rather than creating new opportunities. The firm has to spend a lot when other firm takes the lead. Even otherwise, because of the quarterly results, firms do not think of getting into unchartered waters.

7. Success breeds Failure:

Success is the biggest reason of failure. Successful plans are hard to change. Success may generate a false sense of security, generating more confidence than deserved.. Managers fail to take timely decisions in case situation changes suddenly.

8. Resistance to Change:

Planning involves changes in the organisation, but people resist change. People want the neighbour to change but not self. Thus people resist plans.

How to make Planning Effective :

Planning is not a luxury, but a necessity. To make planning effective and useful, following principles need to be followed:

1. Make objectives crystal clear

2. Make forecasts as accurate as possible

3. Get the consent of implementers

4. The plan should be sound

5. The job of planning be assigned to the right people

6. Do not be over-optimistic

7. Keep the plan flexible

8. Long-range plans be reviewed on short-range basis

Decision Making :

Concept of decision and decision making process :.

Decision making is normally supposed to be making a choice out of different alternatives. The choice is the decision. But the process of decision making begins much before. “Decision making is the process through which managers identify organisational problems and attempt to resolve them.”

For our purposes, the process of decision making is an intellectual activity involving defining the problem, and using judgment and evaluation in finding various alternatives and selection of the best among them.

Decision and Problem Solving :

When a decision is put to implementation to solve the problem it is known as problem solving. In fact this is the objective of decision making.

Characteristics of Decision Making :

1. Decision making involves selecting a course of action:

If there are no choices, there is no need of any decision making. But when so many choices are there, the best among them is to be selected. Suppose the problem is how to increase sales.

There are different alternatives like introduce new products, increase the frequency of use, find new markets, or modify existing products. The management will have to decide the right course of action.

2. Decision making is an intellectual activity:

Selection of right choice requires conceptualisation, analysis, and verification. Selection of right choice needs a deep cost- benefit analysis – an intellectual activity.

3. Decision making is a problem-solving activity:

Decisions are taken to resolve conflict of goals, means, and needs. A decision is of no use if it cannot solve the problem, it will merely be waste of time, money, and efforts.

4. Decision making involves funds and commitment:

Decisions like introduction of new products, or replacement of old technology with the latest one involves huge funds and top management’s commitment. Because ones the decisions are taken, the organisation cannot go back.

5. Decision making is a social process:

Decisions are taken by human beings for the human beings and are implemented by human beings. Thus it has a social dimension. The decisions must have a humane face to avoid appearing anti-humane.

6. Decision making is all Pervasive.

“Whatever a manager does he does through decision making”, said Peter Drucker. Decision making is an indispensable component of management activity. It embraces all the functions of management. In fact, a person is a manager because he takes decisions.

Features of Managerial Decisions :

The characteristics of managerial decisions show that decisions taken do not conform to rational model of decision making.

1. Most decisions are Unstructured:

Since the problems are so new, novel, and complex, the decisions about them also appear so, because there is no structure in relations to those problems.

2. Most decisions suffer from Satisfying:

Most managerial decisions are the outcome of conducting search until some possible alternative is found. Exhaustive search is not undertaken because of subjective and personal considerations.

3. Most decisions are constrained by Bounded Rationality:

Most managers are ‘limited by their values, unconscious reflexes, skills and habits’ that an optimum decision is not taken. It may also be due to incomplete information and knowledge.

4. Ambiguity:

Most of the managerial decisions suffer from the lack of clarity about the goals and hence to find a rightful option becomes difficult.

5. Conflicting in Nature:

While selecting the best course of action, the final choice is not free from limitations. Often all the courses have their own merits and demerits. The spectrum pressures are always there. So to take a decision liked by all is difficult to choose.

In purchase of inventory the production engineer has the functional utility in mind, the finance manager has economy perspective, and the marketing manager has customer satisfaction perspective, finally a decision is taken after lot of politicking and the second best decision is taken.

Process of Decision Making :

The process of management is a comprehensive process. Figure 7.2 depicts the process of decision making.

1. Recognising and Defining the Problem:

First of all there must be some stimulus to initiate some decision making. For this purpose the problem has to be recognised. Inherent in the problem recognition is to define the problem. And a problem properly defined means half the problem solved. It would be a mistake to consider the features to be problem areas.

Features are merely indicators of some malaise. Air India’s pilots strike is not a problem of raising the remuneration, but it is indicative of growing distrust between the management and the pilots.

2. Identifying Alternatives:

After recognising the need and defining the problem, the next step is to develop alternative courses of action. While identifying alternatives, both the standard and the creative alternatives should be developed. And while doing so due attention be paid to legal restrictions, moral and ethical norms, economic and social considerations.

3. Evaluating Alternatives:

All alternatives must be evaluated in terms of feasibility, satisfactions and their consequences. For the proper analysis of alternatives Peter Drucker has suggested four criteria – the risk, economy of effort, timing, and limitations of resources.

4. Selecting an Alternative.

After the stress test of various alternatives, now is the time to select the best of all, which will optimise the goal for which the decision making is being done.

5. Communicating and Gaining Support for Decisions

After taking a decision and before putting it to implementation it would be in the interest of the organisation to inform other members of the organisation and garner their support in favour of the decision to be implemented.

To communicate the decision and gain acceptance many techniques are used – endorsement of top management, using a committee of key managers from all the departments, participative management during decision making, et al.

6. Implementing the selected Alternative:

Once a choice of an alternative is finalised, the next step is to put it to implementation, so that it may lead to problem solution. In case of acquisition of sang Yong, it was a difficult job to culturally integrate with Mahindra and Mahindra. It took time, but it succeeded. While implementing resistance to change due to insecurity, inconvenience and fear of the unknown as identified in the case must be given due consideration.

7. Following-up and evaluating the Results:

At last it is time to ensure that the selected alternative has corrected the problem or served the purpose. If not, the organisation may decide to give more time to chosen alternative to work, adopt second or third alternative, or start the problem identification process again. Failure to monitor the effectiveness (removal of gap between actual and the desired condition) of the decision may prove to be very costly.

Types of Decisions :

Managers take different kinds of decisions, and for each type of decision, decision making variables and management decision situations change. A classification of those decisions is given under.

1. On the Basis of Concern for whom:

Chester I Bernard has described the decisions on this basis as Personal and Organisational decisions. Personal decisions are taken by a person in his individual capacity, separate from the organisation.

A manager leaving an organisation is his personal decision. Organisational decisions are taken by a manager in his official capacity, and may delegate the decision making authority to his subordinate.

2. On the Basis of frequency of occurrence:

Some of the problems recur again and again. Such problems situations are routine, repetitive and for them the structure to take decisions is in place. Such decisions are known as programmed decisions.

Purchase of raw material is a programmed decision, because the structure is in place, the procedure is known, and not much risk is involved. On the other hand, non-programmed decisions are taken in relations to situations which are unique, not properly defined, unstructured and have large impact on the organisation.

Managers take custom-made decisions for unique problems on the basis of their experience, knowledge and creativity. Non- programmed decisions are quite risky as they are taken under uncertainty.

Some examples of such decisions include which firm to acquire, which global market to enter, whether to divest some unprofitable division. Lower level managers devote more time for programmed decisions, and as we go up we find the top management is more concerned with non-programmed decisions.

Table7. 2: Difference between Programmed and Non-programmed Decisions:

3. On the Basis of Decision Making Situations or Conditions:

Decision making is very complex activity. On the basis of decision making conditions decisions may be classified as Decisions under Certainty, under Risk, and under Uncertainty.

Under certainty, the decision making becomes easy. The decision maker has simply to choose the best alternative. Very short-range decisions are taken, as they do not represent any uncertainty.

When a manager takes a decision on the basis of incomplete but most reliable and factual information, and when every alternative has number of outcomes. Hiring of a new sales manager, the marketing manager has some idea as to how much increase in sales can be brought in by him. But he can never be sure of the exact increase in the sales.

Decisions under uncertainty are those decisions which are taken without much of information about environmental situations. Such situations arise when there is no past data. Decisions are made on the basis of intuition and the outcomes are a matter of chance.

4. On the Basis of Who Makes the Decisions?

Decisions for the organisation are made by managers. Some of the decisions are made by individual executives, but some of the decisions are taken by a group of managers. Thus, decisions may be Individual Decisions and Group decisions.

The degree of importance determines whether an individual manager is to take a decision or the group or a team is to make a decision. The advantages and disadvantages of Group decision making have been given in Table 7.3.

Table 7.3: Advantages and Disadvantages of Group Decision Making :

Factors Affecting Decision Making :

There are many factors or pressures influencing decision making. Every pressure leaves its influence on the process of decision making. Some of the factors are:

1. Time Pressures:

Most managers are over-worked and time is the rarest thing with them. If the time given is less or the time at disposal is less and the decision has to be made at the eleventh hour, the quality of decision will suffer as the manager will not be able to collect, analyse and interpret the information for decision making.

2. Manager’s Values:

Values reflect one’s attitude and norms of life. The values themselves come from so many sources. A person of strong values may not like to consider society’s needs and ignore other perspectives of a decision. Many businessmen do consider inclusion of all members of society, but those having their own value judgments may ignore inclusive growth.

3. Organisational Policy:

Decisions have to be taken within the parameters of the policies of the organisation. However some progressive managers compel the organisation to accept decisions outside this framework. Birla Group has not expanded to liquor or tobacco or hotel industry as part of the policy of the Birla Group.

4. Manager’s Propensity to Risk:

No two managers may be same in relation to propensity to take risk. Those who can their decisions will definitely be different – more the risk, more benefits and less the risk, less the benefits.

5. The Environment:

The business environment has a great influence on the decision making. ITC’s diversification decision is more because of Government of India’s policy to tax tobacco products more year-after-year. The decision to enter into foods business is because of growing personal income of Indians. The decision to enter into Hotel business was due to increasing international tourism in India.

The attitude of top management, allocation of funds, reaction of subordinates and the interaction with other departments are the other major factors that affect decision making.

Decision Making and Bounded Rationality :

It was Herbert Simon who introduced the concept of Bounded Rationality. It is correct to say that managers are rational beings in that they try to understand things and make sensible choices. However, the world is large and complex and we are not Buddha or God, we will never have a complete understanding of a situation before having to make a decision. In real life we don’t have the capacity to understand everything and decide rationally. Herbert Simon indicated that there were thus two major causes of bounded rationality:

(a) Limitations of the human mind

(b) The structure within which the mind operates.

The decision makers (irrespective of their level of intelligence) have to work under three unavoidable limitations: (1) only limited, often unreliable, information is available regarding possible alternatives and their consequences, (2) human mind has only limited capacity to evaluate and process the information that is available, and (3) only a limited amount of time is available to make a decision.

Therefore even individuals who intend to make rational choices are bound to make satisfying (rather than optimizing or maximizing) choices in complex situations.

These limits (bounds) on rationality also make it nearly impossible to draw up contracts that cover every contingency, necessitating reliance on rules of thumb. Harder problems require more thinking, which increases the cognitive load. One can only be rational within the limits of time and cognitive capability. I choose a new hi-fi system based on reading a few magazines and listening to several friends. Even when the sales person offers me a better bargain, I turn it down.

How to make Decision making Effective?

To make the process of decision making effective, following points are useful:

1. Prioritise the decisions — which one first and which can be deferred.

2. Right decisions can never come out of wrong or inadequate information.

3. Creative decision making is always better than the run-of-the-mill decisions.

4. Different managerial decisions should not run counter to each other.

5. To gain better acceptance, cooperation and commitment, the implementers’ views be kept into consideration.

6. In this age of information explosion, the managers must be trained in utilising only requisite information and ignoring the unwanted information.

Related Articles:

• Decision Making : Definition, Characteristics and Importance
• 8 Key Elements of Strategic Planning Process | Business Management

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Original text

As a student entrepreneur, you've probably encountered discussions about balance sheets, yet you might not entirely comprehend their importance in small business management. A balance sheet is more than just a snapshot of a company's financial condition; it's a powerful tool that can guide your strategic decision-making and propel your entrepreneurial endeavors toward success.

Having a comprehensive picture of your business's assets, liabilities, and equity at your fingertips is invaluable. This invaluable information can empower you to navigate the complexities of starting and running a small business with confidence and foresight.

Understanding balance sheets opens up opportunities to make informed choices, mitigate risks, and establish the groundwork for sustainable growth.

The Indispensable Value of Accountancy in Small Business Management

Foundation of financial decision making.

Accountancy is crucial for making smart financial decisions in any new business. It helps business owners keep a close eye on their finances, understand how their business is doing, and plan for the future. The importance of a strong command over the basics of accountancy cannot be overstated. In this regard, online math tutors can play a pivotal role in strengthening one’s understanding of accounting principles. By offering personalized guidance and expertise, these tutors ensure that entrepreneurs grasp the fundamental concepts essential for financial analysis and decision-making.

Regulatory Compliance and Transparency

Accountancy plays a crucial role in ensuring compliance and avoiding legal pitfalls. As a student entrepreneur, maintaining transparency with stakeholders, such as investors or lenders, is paramount. 

A well-managed balance sheet demonstrates your commitment to fiscal responsibility and builds trust with those who have a vested interest in your business's success.

Strategic Budgeting and Forecasting

Effective budgeting and forecasting are essential components of any successful small business strategy. Accountancy aids in budget formulation, financial forecasting, and strategic planning, ensuring that resources are allocated efficiently to foster growth and sustainability.

By analyzing your balance sheet, you can identify areas where costs can be optimized, investments can be made, or financing is needed. This proactive approach allows you to stay ahead of the curve and make informed decisions that align with your long-term goals.

Balance Sheets for Decision Making

Risk assessment.

A primary function of a balance sheet is to identify potential financial risks by analyzing liabilities and assessing your company's ability to cover them with assets. This invaluable insight empowers you to take preemptive measures and mitigate risks before they escalate, safeguarding your business from potential pitfalls.

For example, if your balance sheet reveals an excessive reliance on debt financing or a significant portion of your assets tied up in inventory, you can address these issues proactively by exploring alternative financing options or implementing inventory management strategies.

Opportunity Identification

While the balance sheet illuminates potential risks, it also unveils a wealth of growth and expansion opportunities. By scrutinizing the assets listed on your balance sheet, you can identify underutilized resources or untapped potential that can be leveraged for new business opportunities.

In case discovering that your company owns a valuable piece of intellectual property or a prime real estate location that could be monetized through licensing agreements or strategic partnerships. These insights, gleaned from your balance sheet, can open doors to diversification, increased revenue streams, and long-term sustainability.

Investor Attraction

In the world of entrepreneurship, attracting investors is often a make-or-break factor for success. By maintaining a well-managed balance sheet, you demonstrate your company's financial health and strategic asset management, increasing your appeal to potential investors.

According to a report by the National Venture Capital Association ,  most venture capitalists cite a strong balance sheet as a critical factor in their investment decisions. By presenting a compelling balance sheet, you signal to investors that your business is a sound investment opportunity, increasing your chances of securing the necessary funding to fuel your growth.

Beyond Basics: Advanced Uses of Balance Sheets

Working capital insights.

Working capital, the lifeblood of any business, is a crucial metric that can be derived from your balance sheet. By calculating and optimizing your working capital, you can ensure operational efficiency and financial health, enabling your business to meet its short-term obligations and capitalize on growth opportunities.

Being able to identify the optimal level of inventory, accounts receivable, and cash on hand to maintain a healthy cash flow. This insight allows you to make strategic adjustments, such as negotiating better payment terms with suppliers or implementing just-in-time inventory management, ultimately improving your bottom line.

Growth Planning

As your business expands, so too will your need for strategic planning and forecasting. Projecting future balance sheets, known as pro forma balance sheets, enables you to plan for growth, investments, and financing needs with greater accuracy.

By analyzing various growth scenarios and their impact on your balance sheet, you can make informed decisions about when to seek additional financing, how to allocate resources for expansion, and what measures to take to maintain a healthy financial position. This proactive approach ensures that your business remains agile and adaptable in a constantly evolving market.

Common Mistakes to Avoid in Balance Sheet Analysis

While balance sheets offer invaluable insights, it's essential to understand and avoid common pitfalls that can undermine their effectiveness. Here are some common mistakes to watch out for:

Misclassification of Assets and Liabilities: Incorrectly categorizing items on your balance sheet can lead to inaccurate financial reporting and flawed decision-making. Ensure that you have a clear understanding of what constitutes an asset, liability, or equity, and consult with professionals if necessary.

Failing to Reconcile Accounts: Neglecting to reconcile your accounts regularly can result in discrepancies between your balance sheet and actual financial position. Implement robust accounting practices and regularly reconcile your accounts to maintain accurate records.

Overlooking the Importance of Regular Updates: Balance sheets are snapshots in time, and failing to update them regularly can render the information obsolete and misleading. Make it a habit to review and update your balance sheet at regular intervals to ensure you're working with the most current data.

By being aware of these common pitfalls and taking proactive steps to address them, you can ensure that your balance sheet analysis remains reliable and actionable, guiding you towards better decision-making and long-term success.

Enhancing Business Performance with Balance Sheet Analysis

Operational improvements.

Beyond its core financial functions, balance sheet analysis can also be leveraged to streamline operations, reduce costs, and improve overall efficiency. By analyzing your balance sheet, you can identify areas where resources are being underutilized or inefficiently allocated.

For instance, if your balance sheet reveals an excessive amount of inventory or fixed assets, you may consider implementing lean manufacturing principles or exploring asset-light business models to optimize your resource utilization. Conversely, if your balance sheet shows a shortage of working capital, you can take steps to improve cash flow management or negotiate better payment terms with suppliers.

Strategic Financing

One of the most critical decisions you'll face as a small business owner is determining the optimal financing strategy for your venture. Should you opt for debt financing, equity financing, or a combination of both? Your balance sheet holds the key to answering this question.

By analyzing your financial structure as revealed in the balance sheet, you can assess your company's ability to service debt, the potential dilution of equity, and the overall impact of various financing options on your long-term goals. This insight empowers you to make informed decisions that align with your risk tolerance and growth aspirations.

The Balance Sheet as a Foundation for Business Success

As a student entrepreneur, mastering the art of balance sheet analysis is instrumental in navigating the complexities of starting and running a small business. Financial literacy, fueled by a deep understanding of balance sheets, is a key driver of entrepreneurial success.

By leveraging the insights gleaned from your balance sheet, you can make informed decisions, mitigate risks, identify opportunities, and lay the groundwork for sustainable growth. Whether it's assessing financial health, attracting investors, or optimizing operations, the balance sheet serves as a powerful tool in your entrepreneurial arsenal.

1. Why is understanding balance sheets crucial for student entrepreneurs? Understanding balance sheets is essential as it provides a clear snapshot of a business's financial health, helping student entrepreneurs make informed decisions and manage their resources effectively.

2. How can balance sheets help in securing funding for a student-led startup? Balance sheets demonstrate a startup's financial stability and growth potential to investors and lenders, increasing the chances of securing necessary funding.

3. What key components of a balance sheet should student entrepreneurs focus on? Student entrepreneurs should focus on assets, liabilities, and equity, as these elements reveal the net worth of their business and its financial viability.

Copyright © 2024 SCORE Association, SCORE.org

Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.

THE WEEK AHEAD

Career decision-making and planning.

Online: Workshop to assess and match your interests, abilities, values, needs and goals with the world of work. Gain valuable, effective tools to pursue career exploration, for young adults and adults, 7 p.m., hosted by Hempstead Public Library, free, email [email protected] to register for a link,  hempsteadlibrary.info , 516-481-6990.

HANDLING CUSTOMER OBJECTIONS

Hauppauge: Learn a six-step process on how to handle customer objections, presented by The Long Island Advancement of Small Business, 8:45 a.m., Long Island Cares Center for Community Engagement, 75 Davids Dr., $25 in advance, $35 at the door, liasb.com , 516-473-7202.

STRATEGIES FOR EFFECTIVE DIGITAL MARKETING

Online: Unlock the secrets of digital marketing success, learn strategies, trends and tools to boost your online presence, 11 a.m., presented by Farmingdale Small Business Development Center, free, register for a link,  farmingdale.edu/sbdc , 934-420-2765.

QUICKEN AND QUICKBOOKS

Online: A review of the personal finance software Quicken Classic Business and Personal, as well as the small business accounting software QuickBooks, 6 p.m., Shelter Island Public Library, 37 N. Ferry Rd., free, register for a link,  shelterislandpubliclibrary.org , 631-749-0042.

LEARN MARKETING STRATEGIES

Online: Learn about developing a marketing plan, performing market research, pricing and more, 7 p.m., Hempstead Public Library, free, email [email protected] to register for a link,  hempsteadlibrary.info , 516-481-6990.

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UNLOCK HR FUNDAMENTALS

Online:  Learn how to build a strong foundation for your own employee handbook template to help keep your employees engaged and accountable, as well as a high-level overview of a performance management process to aid with cases of unemployment claims, arbitration and litigation matters, 11 a.m., presented by Farmingdale Small Business Development Center, free, register for a link,  farmingdale.edu/sbdc , 934-420-2765.

MARKETING STRATEGIES

Greenlawn: Learn how to develop a marketing plan, perform market research, pricing, advertising and tracking your results, 10:30 a.m., Harborfields Public Library, 31 Broadway, free, register,  harborfieldslibrary.org , 631-757-4200.

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The state pension rises by 8.5% today.

The "new" state pension, for those reaching state pension age on or after 6 April 2016, will rise to £221.20 a week - up from £203.85.

The "basic" state pension, for those who took it out prior to April 2016, is rising to £169.50 a week. These people may also get SERPs (State Earnings Related Pension Scheme), which goes up by 6.7%.

Both groups may get more or less depending on individual circumstances. 

While the rise is welcome news for some 12 million pensioners, we reported last week that 650,000 additional pensioners could be dragged into paying income tax for the first time.

This is down to state pensions rising in line with inflation while the tax threshold has been frozen at £12,570 (and will remain so until 2028).

The 8.5% increase in the "new" state pension this week will take it to £11,502. While welcome, it means any pensioner with an additional income over £1,068 per year - for example from a private pension - will trigger a tax bill.

Means-tested benefits will also increase today - along with other benefits increases this weekend and at the start of the month. Here's a round up...

• Child benefit

The amount people can earn before child benefit is reduced or taken away is increasing.

At the moment, people lose 1% of the benefit for every £100 they earn over £50,000. At £60,000, the benefit is cut completely.

From this month, the benefit won't be reduced until one parent earns more than £60,000. And it will only go completely at £80,000.

Benefits and tax credits that are linked to inflation will rise by 6.7% this month.

That was the level CPI in September.

These benefits have to go up 6.7% by law:

• Personal independence payment (PIP)
• Disability living allowance
• Attendance allowance
• Incapacity benefit
• Severe disablement allowance
• Industrial injuries benefit
• Carer's allowance
• Additional State Pension
• Guardian's allowance

The government also pledged the same raise for benefits including:

• Universal credit
• Contributory employment and support allowance
• Contributory jobseeker's allowance
• Statutory maternity/paternity pay and maternity allowance
• Income-based jobseeker's allowance (JSA)
• Income-related employment and support allowance (ESA)
• Income support
• Working tax credit
• Child tax credit

From April universal credit rates are:

• Single and under 25 - £311.68
• Single and 25 or over - £393.45
• Live with partner, both under 25 - £489.23 (for you both)
• Live with partner, either of you are 25 or over £617.60 (for you both)

Every Monday we put your financial dilemmas or consumer disputes to industry experts. You can find out how to submit yours at the bottom of this post.

This week, Sky News reader SBwrry  asks...

"I own a flat in a block where the developer contracted a company to manage the communal facilities. The first year the monthly charge was £149 per month. From April they will increase the monthly charge to £216 per month. What rights do I have to challenge this increase?"

Mark Chick, senior partner at Bishop and Sewell law firm, picks up the first half of this one...

Firstly, we need to understand whether this is a shared ownership property or not. 

However, assuming the lease has a service charge, and that the common facilities form part of the costs which are recoverable under the terms of the lease, then the leaseholder would have the right to challenge the costs in the first-tier tribunal.

In accordance with the provisions of the Housing Act 1985, service charges must be "reasonable" and you have the right to bring a challenge.

In this situation, the leaseholder would need to pay their own costs of going to tribunal and therefore it may make sense to act collectively; if the tribunal did order the service charge is "unreasonable" and should be reduced, this should benefit all those that pay it.

But the first step is to write to the freeholder or manager querying why the increase has been levied, and also to review carefully the provisions of the lease to ensure these are costs which they can legitimately pass on to you as the flat owners.

The Money team's Katie Williams has looked at another avenue you could explore...

Leaseholders in a block of flats can take over management of the building under a process introduced in 2002 called right to manage (RTM).

The leaseholders have to set up a RTM company in order to be able to take over management duties. It can be done without the permission of the landlord, but they will have a right to be a part of the company. They'll also have the option to dispute the claim if they think the RTM company isn't entitled to manage the building.

The RTM process can be used to take back control of a poorly managed block, but flat owners don't need to prove mismanagement to exercise their right.

There are some conditions that have to be met before management can be taken over:

• The building must be self contained and include at least two flats;
• At least two-thirds of the flats in the building have to be leasehold;
• At least 75% of the building must be residential;
• At least half the leaseholders must participate, or all if the building consists of two flats only.

The advantage of right to manage is that you have greater control over the cost of running the building which could lead to big savings - but a potential disadvantage is that it could be time-consuming and stressful in the long run.

This feature is not intended as financial advice - the aim is to give an overview of the things you should think about. Submit your dilemma or consumer dispute, leaving your name and where in the country you are, in the form above or by emailing [email protected] with the subject line "Money blog". Alternatively, WhatsApp us  here .

If you regularly buy herbs and spices from the supermarket, it could be that you're doing it all wrong.

These items have their own section, usually somewhere near the stock cubes and gravy.

If that's where you pick up your cumin or chilli flakes, for example, you should consider having a look down the world aisle instead.

They're usually much, much cheaper per 10g, and although you'll likely have to buy a slightly bigger packet, you're getting much better value for money.

The Money team popped into a Tesco Extra to have a look - though you'll find this applies to all the big supermarkets where they have a world food aisle.

• East End ground cumin - 13p for 10g v Tesco own brand 23.3p
• East End chilli flakes - 7.6p for 10g v Tesco own brand 35.7p
• East End cinnamon sticks - 13p for 10g v Tesco own brand 83.3p
• Rajah chilli powder - 5p per 10g v Tesco own brand 20p
• Rajah turmeric - 6p per 10g v Tesco own brand 22.2p
• East End fennel seeds - 13p per 10g v Tesco own brand 27.8p
• Natco ground coriander - 14.5p per 10g v Tesco own brand 27.8
• East End garlic powder - 13p per 10g v Tesco own brand 22.2p

And it's not just herbs and spices.

For example, we saw desiccated coconut at £4.25 per kg down the world aisle, compared with £7.25 for Tesco's own brand.

A popular London restaurant chain has ditched tips - and has instead introduced a 15% "brand charge" in order to increase staff wages.

Ping Pong's decision comes just months before new laws mean restaurants will have to give 100% of tips to staff - and unions have hit out.

How much are wages going up?

The dim sum chain's lowest paid employees will see their pay increase from £10.42 to £12.64.

The national minimum wage for people aged over 21 rose from £10.42 to £11.44 on 1 April. The real living wage in London is £13.15, according to the Living Wage foundation.

What is the 15% 'brand charge'?

The "brand charge" covers "costs associated with operating a franchised brand and delivering the dining experience to brand standards", Ping Pong menus read.

The charge will eventually be incorporated into menu prices.

Customers at Ping Pong will no longer be able to leave a tip by card. Cash tips are allowed - but many customers don't carry cash these days.

Unite's Bryan Simpson said offering £1 above the minimum wage to replace "a healthy per hour tip rate" is "a complete slap in the face" for staff.

"Ping Pong's decision to effectively deny workers tips by cynically changing the service charge to a 'brand charge' in order to circumvent the new fair tips legislation is one of the most blatant examples of tips theft that we've come across as the union for restaurant and bar workers," he said.

"No matter what senior management call it, customers will assume that this 15% is a tip that should go to workers, but it won't. That is completely disingenuous."

Several reviews on TripAdvisor bemoaned the bill change, with some describing it as "outrageous". 

"I thought it was a service charge at first but queried it and was told it was a brand charge and service had to be paid in cash on top! Needless to say we asked for this to be deducted and I did not then feel inclined to give them a service tip," one reviewer said. 

What has Ping Pong said?

Owners AJT Dimsum said: "The business is very proud of the reputation it has as a good employer and, despite the many recent headwinds, has acted with integrity and honour, with a high priority placed on employee retention. 

"The benefit to our employees will be stability of wages throughout the year, reducing the impact of seasonality and the higher wages will also mean improved access to financial products such as loans and mortgages."

We're back for another week of consumer news, personal finance tips and all the latest on the economy.

This is how the week in the Money blog is shaping up...

Today : Every week we ask industry experts to answer your Money Problems. Today, a Money blog reader wants to know how to challenge a big hike in their flat's service charge.

Tuesday : This week's  Basically...  explains everything you need to know about tax codes - as the new tax year gets under way.

Wednesday : Cheap Eats is with a Michelin-starred chef - and Great British Menu legend - from Lancashire.

Thursday :  Savings Champion  founder Anna Bowes will be back examining the pros and cons of another type of savings account, and the best rates currently available - this week she's focusing on notice accounts.

Friday : We'll have another Myth or Must, and Sunna Van Kampen will take us down another supermarket aisle to help us shop healthier for less.

Running every weekday, Money features a morning markets round-up from the  Sky News business team  and regular updates and analysis from our business, City and economic correspondents, editors and presenters -  Ed Conway ,  Mark Kleinman ,  Ian King ,  Paul Kelso  and  Adele Robinson .

You'll also be able to stream  Business Live with Ian King  weekdays at 11.30am and 4.30pm.

Bookmark  news.sky.com/money  and check back from 8am, and through the day, each weekday.

The Money team is Emily Mee, Bhvishya Patel, Jess Sharp, Katie Williams, Brad Young and Ollie Cooper, with sub-editing by Isobel Souster. The blog is edited by Jimmy Rice.

By Bhvishya Patel, Money team

We're all familiar with the stats - nearly half (42%) of all marriages in the UK end in divorce.

But unless you've been through it, you'll probably be surprised at how much getting divorced costs. 

It varies depending on where you live and how you do it, but according to MoneyHelper a couple could be looking at between £1,300 and £2,600 for an uncontested divorce and between £10,000 and £30,000 if it is a contested case - for example, you've failed to reach an agreement and the case is taken to court.

The cost can climb even higher if the case drags on.

Family court backlogs mean a quick resolution is almost unheard of - with Ministry of Justice figures showing the average divorce takes more than a year to complete.

So what do you need to know?

This table shows some of the main costs to consider when getting a divorce.

Can you do it for less?

Although the process had become a lot more straightforward with the introduction of no-fault divorces, some solicitors still take advantage, says Desmond O'Donnell, a partner in the family team at the legal firm Thomson Snell & Passmore. 

"I say to my clients, you are more than capable of applying for a divorce without a solicitor - the court fee is £593. You get other solicitors who say 'let me do it for you' because they can charge the client for that and then costs go up to £600-800." Desmond O'Donnell

He says it is better to settle a separation outside court because taking a case to court "racks up costs".

"You get some solicitor firms who see it as a business rather than what is best for their client," he says. 

"If you settle a case quickly you don't make money, so they almost encourage their client to go to court."

He recommends looking at other avenues such as mediation, collaborative law, arbitration and the process of "one couple, one lawyer" to avoid being "at the mercy of the court".

Less lawyer routes

With mediation, through which a couple resolves issues with a mediator, "emails are not flying back and forth" between solicitors and matters can be resolved "within hours", Mr O'Donnell says.

Another way of handling a separation is arbitration - a private system in which spouses choose an arbitrator to hear their case in their chambers.

"It's having a judge who has the time to give your case the attention it needs and because it is much quicker, there is less correspondence so it is going to be cheaper," Mr O'Donnell says.

'Collaborative' lawyers

He also draws attention to collaborative law, which involves specially trained solicitors meeting for roundtable meetings for the benefit of the family.

"As there is more realism brought into it and we're not trying to bluff each other, very often we agree on things outside the traditional court system more quickly and cheaply than the traditional system," he says.

Sharing a solicitor?

Opting for "one couple, one lawyer", with the solicitor acting for both spouses, can cost £3,000 to £4,000 plus VAT - so "much cheaper", Mr O'Donnell says.

But this only works if the couple are on amicable terms.

Finances are not sorted with divorce

A common misconception is that divorce and finances are dealt with in the same processes - they are not, says Zoe Rose, senior associate at Hedges Law.

"I often say to clients you probably won't need a lawyer to help you with the divorce application because if you can do online shopping you can do the relevant online application with the court directly." Zoe Rose

But, she says, with discussions about finances and children people "should be spending some money getting some decent legal advice".

"You do the simple paperwork and come to me for the strategic stuff about what happens with assets and what happens with your children and what that looks like," she says.

How you communicate with your lawyer is key

How people communicate with lawyers is important in keeping costs down, according to Ms Rose.

"If you send your solicitor two emails and then automatically ring them, your solicitor won't have had time to look at your email and won't give you the nuanced advice you want," she says.

"Whereas if you send them a couple of emails and then book a slot later, what you will get back out will be much better."

Here are Ms Rose's other tips to keep fees down:  

• Only speak to your lawyer about legal advice as you are charged for the time you spend with them;
• Avoid asking the same questions more than once;
• Keep ongoing correspondence to a minimum and if you want to ask if an email has been received, your solicitor's assistant is the best person to answer this.

'Train wreck break-up prompted me to set up amicable divorce service'

In the course of writing this article, we came across Kate Daly, a relationship counsellor and the co-founder of Amicable. 

The company first offers a 15-minute free advice consultation and then follows this up by helping couples decide how to divide their money and property, or with arrangements for their children.

Once they have a financial agreement, this is drafted into a consent order and sent to court for a judge to review. 

It means no lawyers are needed and, the theory goes, results in an amicable divorce.

"I came up with the idea for this business off the back of my own awful train wreck divorce - it was really terrible," she says.

"It cost huge amounts of money and it created untold emotional damage, even now it still plays out in my family. A horrible divorce is like the gift that keeps on giving - it just stalks you through all life events.

"When I went through mine, I thought 'what have I done wrong to create this awful situation where we are both spending so much money and ended up in such a bad place?'"

Most couples could do a simple divorce - that is, one with no finances to sort out - themselves, she says, but it is "trickier" to do a consent order and "definitely worth getting legal advice at that point".

"We're on a mission to change the way society thinks about relationships ending and to get to a point where we can say love can end and that doesn't have to be a fight, and it doesn't have to be a failure," she says.

Four topics elicited the most consternation in our mailbox this week: pensioners being drawn into tax, the price of pints, banned adverts and Royal Mail cutbacks. 

On Tuesday we revealed that 650,000 extra pensioners will have to pay income tax for the first time following an inflation-linked 8.5% rise in the state pension which will take many with additional income over the (currently frozen) tax threshold of £12,570.

I have a service pension which I've been living off for 10 years and this month qualify for my state pension. Couldn't believe it when my service pension was nearly £200 less due to tax!! They give with one and take with another!! Brilliant!! I guess I should have expected it!! Ian, Fareham

Thanks to the tax bracket not being raised in line with inflation, I am now paying tax on my pension... Pointless the Tories keeping on about triple lock as I get an increase in one hand then take it out with the other. Mr c k

Others asked if the move meant pensioners were being effectively "taxed twice"...

Why should pensioners have to pay tax on personal/private pensions when they have already paid tax on it during their working lives. Surely the government is getting double payment of taxes? Sarah

This isn't quite right - as pension income is only taxed when it's withdrawn, ie when you retire. 

Making pension contributions during your working life is tax free within certain limits . 

Away from pensions, on Wednesday we reported that a Nationwide advert starring Dominic West would be banned following 282 complaints. 

The watchdog found it was misleading consumers into thinking the building society – unlike its rivals – would not be closing its branches.

Some of our readers have seen first-hand closures, in contrast to the advert's message...

Our Nationwide branch closed after they stated it would remain open for at least two years. Goldie30

Good! I am glad that the Nationwide adverts have been banned as they did, indeed, close last year the Blaby, Leicestershire branch of their bank. So the adverts always left a very bitter taste in the mouth. Well done ASA for calling Nationwide out on this. Alan Henry

Looking at the breakdown of the cost of a pint we posted on Thursday...

...we had an interesting question from Pete on non-alcoholic drinks...

Why do alcohol-free drinks cost so much in pubs and restaurants? Prices are often the same and yet tax is lower. Petethepilot

Although the same duty doesn't apply on alcohol-free drinks, they can be more expensive to manufacture.

Many breweries make their standard beer then "remove" the alcohol after - adding an extra step to an already expensive process, using the same ingredients and methods etc. 

Historically, it's also been brewed in much smaller quantities (naturally driving price up), although as its popularity continues to rise we may see that change. There's also development and marketing costs.

Another reader, John, said... 

Having just returned from a holiday in mainland Spain - I find myself asking why the cost of a large draft local beer (pint) - even in many restaurants - is only about €3. Which is the equivalent of about £2.56. Yet another example of rip-off Britain!!! JohnMette

On Wednesday, Royal Mail revealed it may slash  1,000 jobs as part of cutbacks including reducing second-class deliveries to three days a week, prompting comments like this...

So now we all pay for 1st class post and get 2nd class service.  Liyzlg

National insurance has been cut, for the second time this year, from 10% to 8% on employee earnings between £12,570 and £50,270 from today.

The change, announced by the chancellor in his March budget, impacts around 27 million payroll employees across the UK.

The cut is worth almost £250 to someone earning £25,000 a year and almost £750 for those earning £50,000

Use our tool below for a rough guide to what tax changes can be expected for most people, as there are other variables not included which might affect how much tax you pay including being in receipt of the blind person's allowance or the marriage allowance. It also assumes you are not self-employed and are under pension age...

There are also national insurance cuts for the self-employed. This includes the scrapping of Class 2 contributions, as well as a reduction of the rate of Class 4 contributions from 9% to 6% for the £12,570 to £50,270 earnings bracket.

These will impact nearly two million self-employed people, according to the Treasury.

While many campaigners welcomed the national insurance announcement last month, they pointed out that the tax burden remains at record high levels for Britons - thanks in part to the threshold at which people start paying income tax being frozen, rather than rising with inflation.

Big Issue founder Lord Bird says the government has "lost the plot" over proposed legislation which critics say criminalises homelessness .

He called the Criminal Justice Bill a "waste of time" that fails to stop people living and dying on the streets of the UK.

The bill contains provisions to allow police to forcibly move on "nuisance" rough sleepers, with criteria including creating "excessive smell" or "looking like they are intending to sleep on the streets".

"How the hell are you going to enforce this?" Lord Bird said on Sky News.

"You're going to get the old bill [police] or the local security going out their sniffing people? This is just a waste of time."

Lord Bird said it was "human rights abuse to let people live and die on our streets".

"When it's moved onto criminal justice issues, then you've lost the plot."

British Savings Bonds , which were announced in the budget, have gone on sale .

The bonds, issued by the Treasury-backed NS&I, offer a fixed rate for three years - and the rate has been revealed at 4.15%.

This has left experts feeling a little underwhelmed.

Savings Champion  founder Anna Bowes gave us her view: "In essence, this is simply a re-issuance of the NS&I three-year Guaranteed Income and Guaranteed Growth bonds, rather than anything new or British.

"As was reported just after the budget and as is often the case with NS&I products, while the interest rate is not rock bottom it’s mid-table, so is likely to still be utilised, especially for those rolling over old bonds, and those with more than the FSCS limit of £85,000, because of course all cash held with NS&I is guaranteed by HM Treasury.

"NS&I is a trusted institution so will always be popular, but savers can earn quite a lot more if they shop a

Trade groups have warned of higher food prices and empty supermarket shelves because of new post-Brexit border fees being introduced this month.

A maximum charge of £145 will apply on imports of plant and animal products, such as cheese and fish, entering the UK through the Port of Dover and Eurotunnel from 30 April.

The fees are intended to cover the cost of operating new border control posts required after Brexit, and will not apply to goods brought into the UK for personal use, the government said.

But importers warned the new charges could lead to higher prices for consumers.

Read more here ...

The Money blog is your place for consumer news, economic analysis and everything you need to know about the cost of living - bookmark news.sky.com/money.

It runs with live updates every weekday - while on Saturdays we scale back and offer you a selection of weekend reads.

Check them out this morning and we'll be back on Monday with rolling news and features.

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