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MODULE -02

PLANNING
TABLE OF CONTENTS
1. PLANNING- NATURE OF PLANNING- TYPES OF
PLANS.
2. STEPS IN PLANNING- THE PLANNING
PROCESS.
3. 0BJECTIVES- MBO- THE PROCESS OF MBO.
4. STRATEGIES-POLICIES- PLANNING
PREMISES.
5. DECISION MAKING- SEARCH FOR
ALTERNATIVES.
6. EVALUATION OF ALTERNATIVES- SELECTION
OF AN ALTERNATIVE.
7. PROGRAMMED & NON-PROGRAMMED
DECISIONS.
8. MODERN APPROACHES TO DECISION MAKING.
9. DECISION TREE.

MODULE-02
PLANNING
INTRODUCTION:
Planning is the process of determining in advance what should be accomplished
and how it should be realized.
According to KOONTZ O DONNELL, Planning is essentially decision
making since it involves choosing from alternatives.
According to GEORGE TERRY, Planning is selecting and relating of facts
and making use of assumptions regarding the future in the visualization and formulation
of proposed activities believed necessary to achieve the desired results.
NATURE OF PLANNING:
1. IT IS GOAL ORIENTED The planning process is focused on those efforts
necessary to achieve Future objective.
2. IT IS DECISION ORIENTED The planning process involves decision making that
specifies action necessary to achieve future goals.
3. ITS FUTURE ORIENTED The successful manager must plan for future to
determine what needs to be done and how it must be done before the situation
actually Occurs
4. ITS INTELLECTUAL PROCESS Involves rational, fact based procedure.
5. ITS A SELECTIVE PROCESS Goals & standard become standard against which
performance is measured. Rational approach to selected goals.
6. IS AN INTEGRATED PROCESS Involves selecting missions n objective n action
to achieve them.
7. IS FLEXIBLE Changes according to the demand of the situation.
8.

IS DIRECTED TOWRDS EFFICIENCY Better chances of success. Leads to better


performance and efficiency.

TYPES OF PLANS:
SINGLE USE PLAN Plan developed to achieve a specific goal. E.g. Programs,
budgets.
STANDING PLAN Plans designed foe recurring situation. E.g. Policies, procedure.
STRATEGIC PLAN Statement of how the org will be going to utilize its resources
and conduct its Activities in order to achieve strategic goals.

TACTICAL PLAN Plans established to attain medium range goal. E.g.


Master production Schedule.

OPERATIONAL PLAN Plans developed for achieving operational range


goals. E.g.Machine load.

FUNCTIONAL PLANS Production plan, financial plan, market plan,


manpower plan, Process plan, facilities plan etc.
Objectives

Strategies

(For non-repetitive
activities)
Single use plans
Programs and budgets

(For repetitive activities)


Standing plans
Policies, procedures,
methods and rules

Plans are arranged in a hierarchy in an organization


STEPS IN PLANNING PROCESS
Step 1
Step 2
Step 3
Step 4
Step 5
Step 6

Setting organizational objectives

Analyzing and Evaluating the


Environments
Identifying alternative ways of
achieving the objectives
Developing planning premises upon
which each alternative is based

Deciding the planning horizon

Deciding
Evaluating the alternatives and
choosing the best alternative

Step 7
Step 8

Developing plans to pursue chosen


alternative
Implementing the plan

Step 9
Controlling and evaluating the
results

Step 1: Setting organizational objectives


The selection of objectives and the course of action to achieve them are
influenced partly by the organization's mission and values, the strategic plans and goals,
the standing plans, the environmental conditions, the availability of resources and the
philosophies, ethics, accumulated experience and expertise of the managers of the
organizations. The objectives indicate where we are, where do we want to be, and what
do we want to accomplish and when. The objectives must be specific, measurable,
realistic, achievable and probably challenging.

Step 2: Analyzing and evaluating the environment


Once the objectives are established, managers must analyze their present
situations and environments to determine the opportunities in the light of the market,
competition, customer's needs and wants, company's strengths and weakness, resources
available and limiting factors company policies that must be considered as they evaluate
possible courses of acting.

Step 3: Identifying alternative ways of achieving the objectives


Once the environment in which the organization is functioning is analyzed
and evaluated and organizational objectives are clearly stated, the managers should list as
many available alternatives as possible for achieving those objectives.

Step 4: Developing planning premises on which to base each alternative


Planning premises in simpler words is the assumptions that are made about
the various elements of the environment. It is important for all the managers involved in
planning to agree on the premises. Internal premises include sales forecasts and policies
of the organization. External premises are those factors that are out side the organization
such as technological changes, general economic conditions. Tangible premises are the
quantitative measurements such as population growth industry demand. Intangible
premises are the qualitatively measured, for example political stability, business and
economic environment, attitudes.

Step 5: Deciding the planning horizon


Based on the vision of the managers responsible for planning, the planning
horizon can be long term for strategic planning, intermediate term for tactical planning
and short term for operational planning.

Step 6: Evaluating the alternatives and choosing the best alternatives


Each alternative can be evaluated to determine which one alternative or
combination of two or more alternatives is most likely to achieve the objectives
efficiently and effectively. After evaluating each alternative, the managers would be able
to identify any one alternative which is most cost-effective and beneficial to the
organization.

Step 7: Developing plans to pursue chosen alternative


After an alternative has been chosen, the managers begin to develop
strategic and tactical plans. Also supporting plans should be developed.

Step 8: Implementing the plan


Once plans are developed, they must be implemented. The organization
can not directly benefit from the planning process until the plan developed is
implemented.

Step 9: Controlling and evaluating the results


Once the plan is executed, measuring and controlling progress becomes
crucial for the success of planning and to take remedial action if necessary to make plans
work and change original plan if found unrealistic.

Steps in planning: (The process)

Establishing verifiable goals to be achieved:

The first step in planning is to determine the enterprise objectives. These are mostly set
by upper levels or top managers usually after a number of possible objectives have been
carefully considered.

Establishing planning premises:

The second step is to establish the planning premises i.e., certain assumptions about the
future on the basis of which the plan will be ultimately formulated. Planning premise are
vital to the success of planning as the y supply facts and information relating to the future
such as population trends, the general economic conditions, production costs and prices,
probable competitive behavior, capital and material availability, government control etc.
these premise can be, tangible or intangible premises, controllable or non-controllable
premise etc.

Deciding the planning period:

In some instances plans are made for a year while others plan for a decade. Companies
are generally selecting a period, which they can reasonably be anticipated.
The factors, which influence the choice off the period, are:
Lead time in development and commercialization of a new product, (gestation period),
Time required to recover capital investments or the pay back period, length of
commitments already made, etc.
Finding alternative course of action and evaluating and selecting a course of
action:
Next is to search for alternative courses of action, which are feasible solutions to reach
the desired objective and evaluating them in the light of the premises and goals and to
select the best course or courses of action.
Developing derivative plans:
Once the plan has been formulated, its broad goals must be translated into day-today
plans, programs and budgets for their sub- units these are describes as derivative plans.
Measuring and controlling the progress:
The process of control is critical since it is necessary to take whatever remedial action
and the change the original plan if it is unrealistic.

OBJECTIVES:
Objectives are defined earlier as the important end points towards which
organizational and individual activities are directed.
CHARACTERISTICS OF OBJECTIVES:
1. MULTIPLE IN NATURE: Objectives are needed in all areas and functional activities
of business.
2. OBJECTIVES HAVE HIERARCHY: The objectives which are based on a mission or
purpose of the company form a hierarchy from top to the lowest position in the
organization structure.
3. OBJECTIVES MAY BE LONG RANGE OR SHORT RANGE: The objectives may
be of two types : LONG Range objectives such as SURVIVAL & GROWTH and SHORT
Range objectives like Market Standing, Maximization of sales, Product Development,
Productivity, Effective Utilization of Resources etc..
4. OBJECTIVES ARE INTERDEPENDENT: Objectives are interdependent and must
support another so that the may be realized simultaneously.
5. OBJECTIVES ARE EITHER TANGIBLE OR INTANGIBLE: For some of the
Objectives such as in the areas of Productivity, Market Standing, Physical & financial
Standing, there are Quantifiable values available.
6. OBJECTIVES HAVE A PRIORITY: This implies that at a given point of time, the
accomplishment of one Objective is relatively more important than that of others.
7. OBJECTIVES SOME TIMES MAY CLASH WITH EACHOTHER: In an enterprise,
each Department is given a responsibility for attaining a specified objective.

ADVANTAGES OF OBJECTIVES:
1.
2.
3.
4.
5.
6.
7.
8.

Unified Planning.
Individual Motivation.
Co-ordination
Standards for Control.
Basis for Planning.
Elimination Haphazard Action.
Better Management.
Reduce Misunderstanding and Conflict.

MANAGEMENT BY OBJECTIVES (MBO)


Management By Objectives as comprehensive managerial system that integrates
many key management activities in a systematic manner and is consciously directed
towards the effective & efficient achievement of organization and individual objectives.
The philosophy of management that emphasis the setting of agreed on objectives
by managers and the use of these objectives as the primary bases of motivation,
evaluation and control efforts.

THE STEPS IN MBO PROCESS:


1. TOP MANAGEMENTS SUPPORT AND COMMITMENT:
MBO to be effective requires participative approach to management requiring
active involvement of managers at all the levels and enthusiastic support of top
management and their commitment.
2. ESTABLISHING LONG RANGE OBJECTIVES AND PLANS:
Long range objectives or overall goals are based on the mission or basic purpose
of the organization.
3. ESTABLISHING THE SPECIFIC SHORTER TERM ORGANISATIONAL
OBJECTIVES: Determining specific short term objectives which support the
over all long term range objectives and expressing the shorter- term objectives as
specific and quantifiable targets such as productivity, sales volume and
profitability. These specific goals are set for individual departments, sections and
individuals in key result areas.

4. ESTABLISHING INDIVIDUAL PERFORMANCE OBJECTIVES AND


STANDARDS OF PERFORMANCE FOR INDIVIDUALS:
(FORMULATING ACTION PLANS): Challenging but attainable objectives and
standards are established through interaction between superiors and subordinates.
Action plans indicates: (a) What specially is to be accomplished?
(b) When it is to be accomplished? (c) How, Where and By Whom t is to be
accomplished?
5. APRAISING RESULTS:
(a) IMPLEMENTING AND MAINTAINING SELF-CONTROL:
Individuals should be given considerable latitude in carry out their activities
as per their action plans. Individuals in managerial positions must be able to
exercise Self- Control and self evaluation and judge their progress against set
goals.
(b) REVIEWING PROGRAM PERIODICALLY:
Periodic reviews by superiors are important to ensure hat plans are being
implemented as expected and that goals ultimately will be met.
(c) APPRAISING PERFORMANCE:
Managers appraise their sub-ordinates at the end of the goals setting Cycle
(usually one year).
(d) TAKING CORRECTIVE ACTIONS:
Managers must take the corrective actions when results are not as planned.
STRENGTHS AND WEAKNESS OF MBO:
STRENGTHS:
1. Aids Co-ordination of goals or objectives and plans.
2. Helps clarify priorities and expectations.
3. Facilitates vertical and horizontal communication.
4. Fosters employee Motivation.
WEAKNESS:
1. Tends to fail if strong commitment from the top management doesnt exist.
2. Necessitates considerable training of managers.
3. Can be Misused as a punitive device.
4. Over emphasis of Quantitative goals or objectives.

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STEPS IN MBO:

TOP MANAGEMENT

Establish Specific LONG term Objectives and


Plans

Establishing Specific Short term organizational


Objectives
Superior

Establish individuals performance objectives


and standards (Action Plans)

Subordinates

Appraise Results

Take Corrective Actions

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POLICY:
An operational definition of policy may be as follow a policy is the statement or general
understanding which provides guidelines in decision making to members of an
organization in respect to any course of action.

Characteristics of sound policy:


1. Relationship to organizational objectives.
2. planned formulation.
3. Fair amount of clarity.
4. Consistency.
5. Balanced.
6. Written.
7. Communication.

STRATEGY:
Strategy is the determination of organizational objectives in the
light of environmental variables & determination of course of action & commitment of
organizational resources to achieve these objectives.

Features of strategy:
1.
2.
3.
4.
5.

Strategy is the action of relating the organization with its environment.


It is the relative combination of actions.
It may involve even contradictory action.
Strategy is forward looking.
It is the right combination of factors both external & internal.

PLANNING PREMISES
Planning is undertaken under certain planning premises. Premises are the assumptions on
which plans are formulated. A major source of premises is forecasting which indicates
what is to be expected in the future & thus provides a frame work on which plans are
developed. But not all premises are forecasts.
Factors of planning premises:
1. External premises.
2. Internal premises.

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1. External premises:
Premises external to the organization relate to external constraints & facilitators.
These are events in the organizations environment such as changes in social values &
norms, changes in the economy, changes in resource availability, and changes in
market place so on.
External premises includes two types General business environment
Factor market
Product market.

General business environment:


It includes- Political atmosphere.
- Government approach towards business
- Population trends
- National income & its distribution
- Price levels
- Monetary policy
- Technological innovations

Factor market:
Organization employs many factors of production-land, labour, capital, management.
Etc. forecasting is necessary in respect of the availability of these following factors
affect the operation of a business organization.
- natural resources
- infrastructure facilities
- raw materials & suppliers
- plant & equipment
- Financial facilities.

Production market:
The purpose of determining & developing premises in respect of product market in
the determination of the kind of market is available for organizations products &
services.
-industry demand
- Nature of competition
- Elasticity of demand

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2. Internal premises:
These relate to events occurring within the organization. The basic nature of
these factors is that they can be changed by managerial actions depending on the
time.
- basic policies & programmers
- organization structure
- Sales forecast.

Differences between policy and procedure:


Policies
General guidelines for people at
higher levels.
Help in fulfilling the objectives of
Enterprise.
Generally broad and allow some
Discretion.
Often established without any study
or analysis

Procedures
Procedures are general guidelines usually
for lower ends.
these show us the way to implement
policies.
Procedures are specific and lay down the sequence of
definite acts.
Are always established after through study and analysis of
work.

Decision - Making
Decision-making is an essential part of modern management. A plan cannot exist unless a
decision a commitment of resources, direction, - has been made. Mangers sometimes
see decision making as their central job because they constantly choose what is to be
done, which is to be done, when and where it is to be done. It is necessary and permeated
through all managerial functions such as planning, organization, and direction and
control. In planning it is through the process of decision-making that objectives and
policies are laid down and the manager decides many things such as what to produce,
what to sell where, when and how and so on.
In organizing the decision-making is related to the choice of structure, nature and the
form of organization. It also includes division of work, delegation of authority, fixing of
responsibility and the like. In directing, decision-making relates to determining the
course, deciding the orders and instructions to be given, providing leadership etc. In
controlling the decisions relate tom the laying down the performance standards, strategic
control etc.
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Meaning of decision
A decision is a choice between two or more alternatives. This implies three things.
When managers make decisions they are choosing. (Based on rationality)
Managers have alternatives available when they are making a decision. It does
require a wise manger to evaluate several alternatives and select the best one.
Managers have a purpose in mind when they make decision.

Types of decisions

Programmed and non-programmed decisions

Programmed decisions are those that are made in accordance with some policy, rule or
procedure so that they do not have to be handled new each time they occur. These
decisions are generally repetitive, routine and are obviously the easiest for mangers to
make. E.g. determining salary decisions, recording the performance appraisal etc.
Non-programmed decisions are novel and non-repetitive. If a problem has not arisen
before or if there is no previous experience how to handle it then, deserves a nonprogrammed decision. E.g. How to allocate an organizations resources, what to do about
a failing product line etc require non-programmed decisions.
In the case of programmed decisions service each manager is guided by the same set of
rules and policies, it is not possible for two managers to reach different solutions to the
same problem. But in the case of non-programmed decisions, since each manger may
bring his own personal beliefs, attitudes and value judgments to bear on the decision
process, it is possible for two mangers to arrive at two different solutions to the same
problem, each claiming that he is acting rationally.
The ability to make non-programmed decisions help differentiate between effective and
ineffective managers.

Major and minor decisions: some decisions are considerably more important
than others the relative importance of decisions are bases on degree of futurity of
decisions, impact of the decision o n other functional areas, qualitative factors that enter
the decision, and repetition of decision.

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The steps of Rational decision making:


Mangers act or decide rationally are attempting to reach some goal that cannot be attained
without action. They must have a clear understanding of alternative courses by which a
goal can be reached under existing circumstances and limitations. They need to have
information and the ability to analyze and evaluate alternatives in light of the goal. They
need to select the best solution.
Mangers cannot be completely rational. Therefore, he settles for limited or bounded
rationality. This is because of limitations of information, time and certainty etc.

Rational Decision making process:


The search of alternatives

Evaluation of alternatives

Selecting an alternative

The search of alternatives:

There are almost always alternatives to any course of action. In fact if there seems to be
only one way of doing thing, that way is probably wrong. And may be on has not thought
hard.
The ability to develop alternatives is often as important as being able to select correctly
form among them.
Research and common sense will often reveal so many choices to a problem. Sometimes
a limiting factor, which strands in the way of accomplishing a desired objective need to
be recognized. The principle of the limiting factor is as follows: by recognizing and
overcoming those factors that stand critically in the way of a goal, the best alternative
course of action can be selected.

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Evaluation of alternatives:

This is the point of ultimate decision-making. There are three critical decisions to be
considered in this stage. They are, quantitative and qualitative factors; marginal analysis;
and cost effective analysis.
Quantitative and qualitative factors: Quantitative factors are those, which can be
measured, in numerical terms, such as time or various fixed or variable costs. Qualitative
or intangible factors are those that are difficult to measure numerically, such as quality of
labor relations, the risk of technological change etc.
The manger must recognize these factors in the problem and then determine whether
these can be measured quantitatively. Or he/she must find out as much as possible about
the factors, perhaps rate them in terms of importance, and compare their influence on the
goal and then take a decision.
Marginal analysis: the theory of marginal analysis can be used in evaluating
alternatives. This is to compare additional revenues arising from additional costs.
If the additional revenues of a larger quantity are greater than its additional costs, more
profits can be made by producing more. But if the additional revenues of the larger
quantity is less than its additional costs, a larger profit can be made by producing less.
For example, to find the best output of a machine, inputs can be varied until the
additional input equals additional output. Or the number of subordinates reporting to a
manager might be increased at which additional savings in costs, better communication
and morale and other positive results, equal additional losses in leadership, effectiveness
in control etc.
Cost effectiveness analyses:
This seeks the best ratio of benefits and costs. This means finding the least costly way of
reaching an objective or getting the greatest value for given expenditures.
It is a technique for choosing the best plan with the best cost.
Virtually all decisions are made in an environment of at least some uncertainty. However,
the degree will vary from less to most. And there are certain risks involved in making
decisions.

Certainty: Where managers are reasonably


Selecting an alternative: three approaches:
Experience, experimentation and research and analysis, are the three basic approaches to
select the best alternative.

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Experience: experienced mangers usually believe, often without realizing it. That
things they have successfully accomplished and the mistakes they have made are valuable
guides in the future.
To some extent, experience is the best teacher. The very fact that managers have reached
their position appears to justify their past decisions. But relying on experience can be
dangerous also. Since, most people do not understand the reasons behind their mistakes
or failures and these lessons may be inapplicable to new problems. Good decisions must
be evaluated against future events, while experience belong to the past.

Experimentation: this is a scientific inquiry. This is to try all the alternatives and
sees what happens. It is likely to be expensive. Experimentation can be used in other
ways. A company may test a new product in a certain market before expanding nationally.
Research and analysis: this approach means solving a problem by first
comprehending it. It involves a reach for relationships among the more critical of the
variables, constraints, and premises that bear upon the goal sought. A major step in this
approach is to develop a modal simulating the problem. Using operations Research
techniques this can be done.

Decision making under certainty, uncertainty and risk:

sure about what will happen when they make decisions. The information is available and
is considered to be reliable, and the cause and effect relationship is known.
Uncertainty: here mangers are very unsure and do not know whether data are reliable.
They cannot evaluate the different variables.
Risk: here the information may exist, but it may be incomplete. To improve decision
making one may estimate the probabilities of an outcome by using mathematical models.

Modern approaches to decision making under uncertainty:


Risk analysis
Decision trees, and,
Preference theory.

Risk analysis: all managers who deals with uncertainty like to know the size and
nature of the risk they are taking in choosing a course of action. Every decision is based
on the interaction of a number of important variables, many of which have an element of
uncertainty, but also a high degree of probability. The manager needs to analyze the
probabilities of various factors and its effect on the final objective.

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Decision trees: this is one of the best ways of analyzing a decision. Decision tree
depict in the form of a tree, the decision points, chance events and probabilities involved
in various courses that might be undertaken.

First decision point

Second decision point

Expected value + 0.6(12) + 0.4(2)= 8 lakhs

Probability
High- (0.60)

Build large
plant

Large
expansion

Profit Rs.12
lakhs

Medium
expansion

2
Build small
plant

B
Small
expansion

Probability
Low- (0.40)

Profit Rs.5
lakhs

Outcome
nodes

Choice
nodes

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