UNIT-II

PLANNING
AND
DECISION MAKING
 PLANNING

Meaning:-

Planning is looking ahead of the future course of action. It is deciding in advance what to do in future in an
organization. It is an intellectual process of thinking before doing.

Definition:-
According to Koontz and Donnel

Planning is an intellectual process, the conscious determination of course of action the basing of decisions
on purpose, facts and considered estimates.
 NATURE OF PLANNING
Planning is the first essential Managerial function, planning nature it enquires about organizational goals
and involves decision making about desired ways and means to achieve goal.

• It is a contribution to objectives,

• It is primacy of planning.

• It is pervasiveness, and

• The efficiency of resulting plans.

• Continuous in nature

• Goal oriented

It is a contribution to Objectives

Since plans are made to attain goals or objectives, every plan and all its support should contribute to the
achievement of the organization’s purpose and objectives. An organized enterprise exists to accomplish group
Primacy of Planning

That planning is the prime managerial function is proved by the fact that all other functions such as
organizing, staffing, and controlling are designed to support the accomplishment of the enterprise’s objectives.
Planning quite logically, therefore, comes first before executing all other managerial functions as it involves
establishing the objectives necessary for all group efforts. Also, all the other managerial functions must be
planned if they are to be effective. Likewise, planning and controlling are inextricably bound up. Control
without a plan is meaningless because the plan provides the basis or standard of control.

Pervasiveness of Planning

Planning is a unique and universal function of all managers. The character and scope of planning may
vary with each manager’s authority and with the nature of the policies and plans outlined by superiors, but all
managers must have some function of planning. Because of one’s authority or position in the managerial
hierarchy, one may do more or less planning, but some kind or amount of planning a manager must do.
According to Weihrich and Koontz; “All managers, from presidents to first-level supervisors – plan.”
The Efficiency of Plans

Plans should not only be effective, but also efficient. The effectiveness of a plan relates to the extent to
which it accomplishes the objectives. The efficiency of the plan, however, means its contribution to the purpose
and objectives, offset by the costs and other factors required to formulate and operate it. Plans are efficient if
they achieve their objective at a reasonable cost when such a cost is the measure not only in terms of time,
money or production but also in terms of satisfaction of the individual or group. Both conceptual and practical
reasons are put forward in support of planning. Two conceptual reasons supporting systematic planning by
managers are limited resources and an uncertain environment.
 PURPOSE OF PLANNING

The primary purpose of planning is to create universal buy in and understanding of the objective and to
put operational process in place to guide.

 To Manage By Objectives

 To Offset Uncertainty And Change

 To Secure Economy In Operation

 To Help In Co-ordination

 To Make Control Effective

 To Increase Organizational Effectiveness

To Manage By Objectives:-

All the activities of an organization are designed to achieve certain specified objectives. However,
planning makes the objectives more concrete by focusing attention on them.
To Offset Uncertainty And Change

Future is always full of uncertainties and changes. Planning foresees the future and makes the
necessary provisions for it.
To Secure Economy In Operation

Planning involves, the selection of most profitable course of action that would lead to the best result at
the minimum costs.

To Help In Co-ordination

Co-ordination is, indeed, the essence of management, the planning is the base of it. Without planning it
is not possible to co-ordinate the different activities of an organization.

To Make Control Effective

The controlling function of management relates to the comparison of the planned performance with the
actual performance. In the absence of plans, a management will have no standards for controlling other's
performance.
To Increase Organizational Effectiveness

Mere efficiency in the organization is not important; it should also lead to productivity and effectiveness.
Planning enables the manager to measure the organizational effectiveness in the context of the stated objectives
and take further actions in this direction.

STEPS IN PLANNING
planning involves the advance determination of things to be done. The future course of action is decided at
present. Planning consist of formulation of objective, policies, programs, procedures, and other names of
achieving these objectives

 Establishment of objective

 Planning premises

 Choice of alternate course of action

 Formulative of derivatives

 Secure Co-ordination

 Follow-up
 CHARACTERISTICS OF A SOUND PLAN
I. It should be based on clearly defined objectives.

II. It must be simple and easily understandable

III. It should be flexible or adoptable to changing condition.

IV. It must be balanced in all respects and should be reasonably comprehensive.

V. It should provide standard for the evaluation of performance and actions.

VI. It should be economical i.e. permit optimum use of available resources before creating new
authorities.

VII. It should be practicable or feasible and unambiguous.

VIII. It should provide for proper analysis and classification of actions.

 TYPES OF PLANNING
 Standing plan

 Single use plan

 Strategic plan

 Tactical (or) operational plan

 Contingency plan

 Derivative plan

STANDING PLAN

These plans are prepared by managers at different levels. They are intended for repeated use and are designed
to deal with recurring problems. When a particular and familiar problem arises, a standing plan provides a ready
guide to action. They form one of the important means for building predictable patterns of behaviour in a business
firm. When a group of people live together or work together, they must be able to anticipate each other’s action.
This is especially necessary for interdependent activities which require such ability to anticipate.
Types of standing plan

1. Objectives

2. Policies

3. Procedures

4. Rules

5. Strategy

Objectives:-

Effective management implies management by objective. Objectives are goal established to guide of the
enterprise. So, all planning work must spell out in clear terms the objectives to be realized from proposed
business activities.

Policies :-

Planning also requires laying down of policies for the easy realization of the objectives of business.
Policies provide a standing answer to recurring questions and problems. They are basic guides to action.
Procedures:-

Objectives and policies will lose much of their significance, if the planning is cannot lay down the
procedure and methods for work performance. Procedures will indicate and outline a series of task for a specific
course of action. Method is the manner of work performance and follows the set procedures.

Rules:-

A rule specifies necessary course of action in respect of a situation. It acts as a guide and is in the nature of
a decision made by the management. This decision lays down what is to be done and what is not to be done In a
particular situation. The rules prescribe a definite and rigid course of action without any scope for deviation or
discretion entails penalty.

Strategy:-

They are device formulated from the competitive standpoint by being fully informed somehow about the
planning secrets of the competitors. They are a kind business spying and are applied as the situation demands.
So, the success of the plan requires that it should be strategy oriented.
Key points:-

 Prepared by top management

 Long term plan

 Objective is to attain primary goals

 Used for objectives, policies, rules and procedures

SINGLE USE PLAN

They are highly useful devices for managerial decision-making. However, besides these standing plans, a
manager can resort to single- use plans to decide in advance the action to be taken to meet a particular problem
or a problems arising within a given period. Once the problem is over or met or the time is passed, a new plan is
devised for the next period or problem. This type of planning is called single-use plans.

Types of single use plan

1. Programmes

2. Budgets

3. Projects
Programmes:-

Program are precise plans of action followed in proper sequence in accordance with objectives, policies and
procedures. Thus, a program lays down the principle steps to be undertaken to accomplish an objective and sets
an approximate time for its fulfillment. A program may accordingly be a major or a minor one, a long-term one
or a medium or short-term one. It is included in a single-use plan because it will not be used in the same form
once its task is over.

Budgets:-

Budget estimates the men, money, material and equipment, in numerical terms, required for the
implementation of plans and program. It covers a particular period and when the period is over, a fresh budget
comes into being. Budget, thus, is the main instrument of a single-use plan.

Projects:-

A project is particular job that need to be done in connection with a general program. So, a single step in a
program is set up a project. A period has a distinct object and a clear cut termination. So, it is include In a
single-use plan. The task of management is made easier by setting up the work in a project.
Key points:-
 Prepared by the middle and lower level manager

 Shot term

 Flexible in nature

 Objective is to attain specific goals and to solve specific problem

CONTINGENCY PLAN

Contingency plans as the name suggest are the plans which are formulated in some contingency. The
plan is short term and time is deciding factor in the implementation of this plan. These are most important and
prior in nature. Decision taken during this is generally non- programmed but some time programmed decisions
are also taken. Organizations usually plan in advance to face any contingency to avoid chance to bear losses.
These plans are extremely risky in nature.

Example: In most organization contingency fund and contingency stock of inventory are maintained in advance
in order to face any contingency in a near future. Sometimes government makes some plans to control the
market price of the commodity in contingency like natural calamities like earthquake, flooding etc. And
manmade contingencies like strikes, wars, and riots etc.
STRATEGIC PLAN
Key points:-

 Done by top level management

 Covers the entire firm

 Long term

 Allocation of new resources

 Top level implement strategy properly

TACTICAL (OR) OPERATIONAL PLAN
Key points:-

 Done by middle level management

 Covers specific department

 Covers short term span up to one year

 Plan for department

DERIVATIVE PLAN
Unit plan, departmental plan, and individual plan are derived from the overall organization plan.
 PLANNING PREMISES
 A planning premises is a set of assumptions that are derived from forecasting the future. It is logical and
systematic estimate of the future factors that can affect planning.

 Planning premises provide a background against which the estimated events takes place. These are the
events that affect planning. Established planning premises is a critical elements in the planning phases.

 The managerial plans are based on certain assumption. The assumption for managerial planning are
called planning premises.

Example: A competitor might enter the same market with same kind of product. This is an anticipated event.the
possibility of the happening is not particular.

Importance of planning premises:-

i. They help in well organized planning.

ii. The risk of uncertainty is reduced considerably.

iii. Manager can do effective co-ordination.

iv. It also increase profitability.

Types of planning

Planning premises in management are vital in making important decision that are based on certain
predictions about the future.

 Internal and External premises

 Tangible and Intangible premises

 Controllable, semi controllable and uncontrollable

 Constant and variable premises

Internal and External premises:-

Internal premises which exist within the boundaries of the business (Men, Money, Material and
Methods)

External premises are derived from the environment that surrounds the business (Money market, Product
market, Government policies)
Tangible and Intangible premises:-

Tangible can be Quantified (Time, Money, Unit of product)

Intangible cannot be Quantified ( Public relation, Business reputation, The Morale of employee)

Controllable, Semi controllable and Uncontrollable:-

It can be controllable (Production, finance, marketing, material, machines & money)

Partially control some premises (Shares in market, Union relation, Product demand)

Cannot be controlled by management (Economy, politics, Weather condition, Natural Disaster)

Constant and Variable premises:-

Which do not change irrespective of actions taken are constant premises (like men, money etc)

Based on the course of action taken some premises change which is termed as variable premises. These
cannot be controllable or predicted.
 MBO( MANAGEMENT BY OBJECTIVES)
 Popular techniques of appraisal of managerial performance. The first original work on MBO can be found in
Peter Ducker’s book. The practice of management published in 1954.

 He states that it is soundly based on a concept of human behavior and human motivation that it applies to
manager at all levels in all functional areas and to any kind and size of organization.

 Then at second level of the organization, manager working with their bosses, establish objective for their
departments that are consistent with the organization’s objective.

 MBO thus allows employee to participate in planning and control of their own work. The involvement of
employee increases their motivation and commitment to their work.
Definition:-
Harold Koontz and Heinz Weil rich

MBO is a Comprehensive Managerial system that integrates many key managerial activities in a systematic
manner consciously directed towards the effective and efficient achievement of organizational and individual
objectives.
Features of MBO
 It is applicable in profit oriented and also in non profit oriented organization such as charitable,
hospitals, educational institution, etc..

 It focus in on achieving excellence in organization.

 The organizational objective derived from vision and mission. Department objective are derived
from organizational objective. Individual objective derived from departmental objective.

 Manager and sub-ordinate set their objective.

 It improves the motivation level of sub-ordinate.

 Major areas of responsibility are defined and result are clearly communicated

 It gives important to periodic review to find problem

 It serves as a good basis for conducting performance appraisal

Steps in involved MBO
Step 1 : Deciding an organizational goal

Step 2 : setting of Departmental objective

Step 3 : Deciding on the target for sub-ordinate

Step 4 : Establishing key result area

Step 5 : Periodic review of progress

Step 6: Appraisal of performance

Step 1 : Deciding an organizational goal
Organization objective set after a complete study of the external and internal environment.
Step 2 : Setting of Departmental objective
Based on organizational objective the departmental objectives are derived.
Step 3 : Deciding on the target for sub-ordinate
The Superior fixes the targets for his sub-ordinate by discussing with them.
Step 4 : Establishing key result area

It is on the basis of the key result area that the performance of the employee would be assessed the key
result area for a sales man number new customer and repeated business from existing customer

Step 5 : Periodic review of progress

At regular time intervals, the superior should review the progress made by sub-ordinate.

Step 6: Appraisal of performance

At the end of the review period, generally one year, the result are compared with the targets.

Purpose of MBO
 To give direction and set standard for the measurement of performance

 To set both long term and short term objectives

Merits of MBO
 Efficient management

 Early detection of problem

 Enables better planning

 Clarity of goals

 Better motivation

Demerits of MBO
 Lack of top management

 Unrealistic goal

 Over importance to short term

 Inflexibility of objective

 Hierarchical difference
 DECISION MAKING
Decision making is the integral part of life. Life is filled with choices. In all aspects of life including food,
education, religion, profession, marriage, investment etc. decision making is involved. Decision making is an
important component of management.

The quality of decision making depends on the education, experience and information made available to
the decision maker. Decision making skills are required in all areas of management.

Decision making is goal oriented

Meaning:-

Decision making is an important functions of management. It is a conclusion that the manager reaches as to
what should be done at some later time. Decision making involves two or more alternatives from one best
alternative should be selected by the manager. Decision means to cut off or conclude deliberation and to come
to a conclusion.
CHARACTERISTICS OF DECISION MAKING
 It is human process

 It is a complex activity

 Goal oriented

 Based on the situation

 Time dimension

 Both Science and Art

 Involves choice

 Positive or negative effort

 Continuous process

 Managerial functions involves decision making

 ELEMENTS OF DECISION MAKING

 The decision maker

 The decision problem (or) goal

 Attitude, values and personal goals of the decision maker

 Assumption with regards to future event and things

 The environment in which decision is to be made

 Available known alternative and their estimated or imagined outcomes

 Analytical result in whole perspective

 The act of selection or choice

 Timing of decision

 Proper communication of decision for its effective execution

Importance of decision making
 It is an Essential function

 Important functions of management

 Optimum use of resources

 Solution to problems

 Efficiency

 Conflict resolution

Process of decision making

1. Step 1: Defining the problem

2. Step 2 : Analysis of the problem

3. Step 3 : collection of data

4. Step 4 : Developing alternatives

5. Step 5 : Reviewing key factors

6. Step 6 : Implementing the decision

Step 1: Defining the problem

A problem well defined is half solved. Correct definition of problem helps to find an effective solution.

Example: Decline in sales may be identified as the problem, but the actual reason may be poor product quality

Step 2 : Analysis of the problem

once the problem is identified, the next step is analyzing the problem. If the problem is poor
product quality is because of
 Poor quality of raw material

 Poorly trained workers

 Defective packaging
Step 3 : collection of data

To solve problem, relevant data needs to be collected. problem cannot be effectively solved by mere
guesswork. Collection of right data is essential.
Step 4 : Developing alternatives

The manager has to analyze the alternative course of action. Alternatives are the different methods for
solving a problem or doing a task. compare the alternative the best alternative should be chosen

Step 5 : Reviewing key factors

While analysing the alternatives, the key factor should be considered. A key factor limits the ability of an
organization in achieving its goal. Key factors can be available of raw material, labour, power, machine hours
etc. All alternatives should be based on the key factors.

Step 6 : Implementing the decision

Once the best alternative is chosen, the next step is its implementation. Systematic steps need to be taken to
implement the decision effectively. The real success in decision making lies in timely and perfect implementation

Step 7 : Feedback

The final step in the decision making process is getting feedback. By obtaining feedback the manager can
know weather the decision implement is effective or not. If the desired result is not good, corrective action can be
taken.
Types of Decision Making

1. Programmed Decision

2. Non programed Decision

3. Operational Decision

4. Strategic Decision

5. Personal Decision

6. Group Decision

Programmed Decision

These decision are routine in nature and are used for dealing with recurring organizational problems.
Example of programmed decision includes, ordering of material once stock have reached the re-order level,
granting an casual leave to an employee etc.
Non programed Decision

These involves decision making in case of complex and non routine situations problems are generally
unstructured and not well defined. Decision making is difficult when compared to programmed decision. Example
include, introduction of new products, handling sudden workers unrest, investing in new technology etc.

Operational Decision

They are repetitive in nature, decentralised and decision are taken by the middle and lower management. They
relate to the present and are taken to run the business in a more efficient manner. For e.g. decision relating to the
type of tools to be used, inventory level, purchase to be made, production schedule etc.

Strategic Decision

They are long term, non respective, centralised decision. They are taken by the top management. Strategic
decision have long term impact and greatly influence the success and failure of organisations. Examples on strategic
decision are deciding on a new advertisement campaign, introduction of new product, huge capital investment etc.
Personal Decision

Personal decision attempt to achieve personal goals. They cannot ordinarily be delegated to others. Personal
decision generally individual taking the decision. It can also affect the organization

Group Decision

Decisions are taken by a group to achieve organizational goals. Important and strategic decisions are taken
by a group. They are generally delegated to others.