Chapter 3PLANNING & DECISION MAKING

Power Point by:

A S Edu Car e Institute

MEANING OF PLANNINGPlanning “Involves selecting missions

and objectives and deciding on the action to achieve them; it requires decision-making, that is, choosing course of action from among alternatives.”

Planning is the most basic of all managerial functions, and it is about deciding in advance ‘what is to be done, by whom, how, when and where’

Nature & Characteristics of Planning:Focus on objectives It is an intellectual processPlanning is pervasivePlanning is an integrated processPlanning is directed towards efficiencyPlanning is flexiblePlanning is the most basic of all management

functionsPlanning is a continuous & never-ending processThe efficiency of planning is measured by what it

contributed to the objectives

Essentials of a good plan:The essentials of a good plan are as follows: It should be based on a clearly defined objective It must be simple It should be comprehensive It should prove for a proper analysis & classification of

action It must be flexible It must be balanced It must use all available resources & opportunities

utmost before creating new authorities & new resources It should be free from social & psychological bases of

the planners as well as the sub-ordinatesThere should be proper co-ordination among short-term

& long-term plans

Objectives of planning:Planning helps in effective forecastingPlanning provides certainty in the activitiesPlanning gives a specific direction to the

organizationIt establishes co-ordination in the enterpriseIt is helpful in creating a healthy competitionIt provides economy in the managementIt can forecast the riskIt provides important informationIt is helpful in facing competitionIt is very much helpful in the accomplishment

of budgets

Is Planning a necessity in an organization?

In organizations, planning is the process of setting goals & choosing the means to achieve those goals. Without plans, managers cannot know how to organize people & resources effectively. Without a plan, managers & their followers have little chance of achieving their goals. Faulty plans affect the future of an entire organization. Hence, planning is crucial.

Benefits of Good Planning:Reduces uncertaintyEnsures economical operationsFacilitates controlEncourages innovation & creativityImproves motivationsGives competitive edge to the enterpriseEnsures better co-ordination & avoids

duplication of efforts

Peter Drucker & 6 P’s of planning:1. Purpose2. Philosophy3. Premise4. Policies5. Plans6. Priorities

The hierarchy of organizational plans:Founder, Board of Directors, or Top Managers

• Mission statement: Broad organizational goal which justifies an organization's existence.

Top & Middle Managers

• Strategic plans:Plans designed to meet an organization's broad goals.

Middle & First Line Managers

• Operational plans: Plans that contain details for carrying out, or implementing, the strategic plans in day-to-day activities.

Principles of planning:

Principle of contribution to objectivesPrinciple of pervasiveness of planningPrinciple of flexibilityPrinciple of limiting factorsPrinciple of changes

Planning

Implementation of plans

Controlling:

comparing plans

with results

Corrective action

No undesirable deviations from plans

Undesirable deviation

New plans

Close Relationship Of Planning and Controlling.

TYPES OF PLANS

MISSION or PURPOSE: The mission and purpose identifies the basic purpose or

function or tasks of an enterprise or agency or any part of it. Mission implies that the identified tasks should enable the organization to link its activities to the need of society and legitimize its existence by social expression of its business purpose.

OBJECTIVES or GOALS: Objectives or goals are the ends towards which activity

is aimed. Objectives emanate primarily from the mission statement of the organization .Objective should be expressed as specifically as possible so that results can be seen and verified.

STRATEGIES: Strategies is defined as the determination of the basic long – term

objectives of an enterprise and the adoption of courses of action and allocation of resources necessary to achieve these goals. Strategies refer to a framework of grand plans formulated to meet the challenges of special circumstances. Strategy is a term that was originally used in military science to mean plans to counter what as adversary might or might not do. Strategy usually has the implication of action for countering completion by prior planning, and it is widely used in today’s industry.

POLICIES: Policies are also plans in that they are general statement or

understandings that guides or channel thinking in decision-making. Policies defined an area within which a decision is to be made and ensure that the decision will be consistent with, and contribute to an objective. Policies in an organization can thus be major or minor in nature, but they all serve the purpose of bringing uniformity in decisions and action.

PROCEDURES: Procedures are plans that establish a required method of handling

future activities .chronological sequences of required actions. Guides to action, rather exact manner in which certain activities must be accomplished.

RULES: The essence of a rule is that it reflects a managerial

decision that a certain action must-or must-not- be taken. Rules are different from policies in that policies are meant to guide decision making which managers can use their discretion, while rules allow no discretion in their application.

PROGRAMS: Programs are a complex of goals, policies, procedures,

rules, task assignment, steps to be taken, resources to be employed, and other element necessary to carry out a given course of action. The dimension of a programme can vary with the nature and purpose of the progamme, and can be termed major or minor.

BUDGETS: A budget is a statement of expected results expressed in

numerical terms. Budget should be expressed in financial or physical units, and must relate to a specific period of time.

STEPS IN PLANNING BEING AWARE OF OPPORTUNITIES: An awareness of opportunities in the external environment

as well as within the organization is the real starting point for planning .All managers should take a preliminary look at possible future opportunities and see them clearly and completely know where company stands in light of its strength and weaknesses, understand what problems it has to solve and why, and know what it can expect to gain.

ESTABLISHING OBJECTIVES : The second step in planning is to establish objectives for

the entire enterprise and then for each subordinate work unit. This is to be done for a long term as well as for the short range. Objectives specify the expected result and indicate the end points of what is to be done, where the primary emphasis is to be placed. Enterprise objectives give direction to the major plans, which, by reflecting these objectives of every major department. Major departmental objectives, in turn, control the objectives of subordinate departments, and so on down the line .In other words objectives from a hierarchy.

DEVELOPING PREMISES: Premises are assumption about the environment in which

the plan is to be carried out. It is important for all managers involve in the plan to agree on the premises. In fact, the major Principle of planning premises is this: the more thoroughly individual charged with planning understand and agree to utilize consistent planning premises, the more coordination enterprise planning will be.

DETERMINING ALTERNATIVE COURSES: The forth step is planning is to research for and examine

alternative courses of action. The more common problem is not finding alternatives but reducing the number of alternatives so that the most promising may be analyzed. The planner must usually make a preliminary examination to discover the most fruitful possibilities.

EVALUTATIN ALTERNATIVE COURSES : After seeking out alternative courses and examining their

strong and weak points, the next step is to evaluate the alternatives by weighing them in light of premises and goals.

SELECTING A COURSES: This is the point at which the plan is adopted-

the real point of decision-making. FORMULATING DERIVATIVE PLANS : When a decision is made, planning is seldom

complete. Derivative plans are almost invariably required to support the basic plans.

 QUANTIFYING PLANS BY BUDGETING: After decisions are made and plans are set, the

final step is to quantify them by converting them into budgets. Budget of an enterprise represents the sum total of income and expenses, with resultant profit.

The Steps Of the Planning Process

2 Establishing Objectives.

1 Being aware of Opportunities.

3 Developing Premises.

4 Determining Alternative Courses.

5 Evaluating Alter native Courses.

6 Selecting a Course.

7 Formulating Derivative Plans

8 Budgeting.

OBJECTIVESObjectives are important ends towards which

organizational and individuals activities are directed.

Objectives can be long-term or short-term, broad or specific.

Nature Of ObjectivesObjectives need to be supported by sub-

objectives.Objectives form a hierarchy as well as

network.Managers have multiple goals.Choosing between short-term and long-term

performance and personal interests may have to be subordinated to organizational objectives.

Hierarchy Of Objectives Social purpose such as contributing to

welfare of people by providing goods and services.

Mission of the business. Specific overall objectives such as those in

the key result areas. Divisions, departments and units down to

the lowest level of the organization.

Socio-economic purpose

Mission

Overall Objective Of The

Organization (Long-Range, Strategic)

More

Specific Overall Objective

(e.g. in key

result areas)

Division Objectives

Department And Unit Objectives

Individual

Objective (1) Performance

(2) Personal Development objective

Lower-Level Managers

Middle-Level Managers

Top-Level Managers

Board Of Directors

Organizational HierarchyHierarchy Of Objectives

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Quantitative and Qualitative objectives Nonverifiable objective1. To make a reasonable

profit.

2. To improve communication.

3. To improve productivity of the production department.

Verifiable Objective1. To achieve a return on

investment of 12% at the end of the current fiscal year.

2. To issue a two-page monthly newsletter beginning July 1, 2005, involving not more than 40 working hours of preparation time (after the first issue)

3. To increase production output by 5% by December 31, 2005, without additional cost while maintaining the current quality level.

Management by objective

Management by Objectives (MBO) is a process to accept objectives within an organization so that management and employees agree to the objectives and understand what they are in the organization.

Benefits of Management by objectives:

Improvement of managing through results-oriented planning

ClarificationsEncouragementDevelopment

INPUTS (GOAL INPUTS)

• REENERGIZING THE SYSTEM

STRATEGIC PLANNING

• TRANFORMATION PROCESS

Failure of MBO:

Failure to give guidelines to goal setters is often a problem

Managers need to plan premises and knowledge of major company policies

Goal should be right degree of flexibility

Recommendations for improving MBO:

Organizational commitmentTrainingAdequate time and resourcesTake care of the necessary mechanics

Timely feedbackPolitics

PROCESS OF MBO OBJECTIVE IS:

S - SPECIFICM- MEASURABLEA - ACHIEVABLER - REALISTICT - TIME BASED

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