Why should students studying management care about planning and decision making? Planning is one of the central activities of managers, who devote a lot of time and energy to formulating and then implementing plans; it is crucial that managers plan well because the evidence suggests that whereas good planning can improve the performance of an organization, bad planning may be as damaging as no planning at all. Without planning, the organization can lack purpose, and there may be no agreement about its strategy. Without planning, different parts of the organization may pull in different directions, there may be a lack of synchronicity between actions, and different units may pursue inconsistent strategies. Without planning, resources may be allocated in a haphazard fashion, with no link between strategy and budgets. Finally, there may be a lack of control in the enterprise: By allowing managers to compare performance against goals, planning becomes a crucial link in the process of controlling the organization.

At the same time it is wise to keep the limitations of planning in mind. Planning does not guarantee perfect strategy formulation. Good ideas can emerge in the absence of planning: Much of what organizations do is not planned but rather is a response to unanticipated circumstances. However, if such responses are something other than a quick tactical move, they may subsequently be incorporated into the plans of the enterprise. Thus although Microsoft did not plan for the emergence of a World Wide Web based on HTML, when it did emerge Microsoft quickly made plans based on that new reality. So although planning does not have a monopoly on the generation of good ideas, and plans can be made obsolete by unforeseen events, coordinated action is still needed to exploit good ideas and respond to unforeseen events.

In addition, much of a manager's work involves making decisions. Planning is nothing more than a formal process for making decisions. As we have seen, decision makers suffer from bounded rationality and tend to fall back on simple heuristics when making complex decisions. In turn, these heuristics can give rise to cognitive biases. Even the best-designed decision-making systems will fail to produce the desired results if managers let cognitive biases skew their decisions. Thus managers should use techniques that have been shown to minimize the likelihood that cognitive biases and groupthink will contaminate the decision-making process. These techniques include scenario planning, devil's advocacy, dialectic inquiry, and taking an outside view.