Planning and Decision Making

Planning
 Plan
• Why
– Represents objective which the organization wants to achieve, so that
planning is required
• What
– Represents the specific actions that have to be taken to achieve the
objective
• How
– Represents framing policies, rules, budgets, etc to achieve the
objective
• When
– Represents the time frame
• Who
– Represents the people involved
• Where
– has reference to planning for domestic, national, or international
markets.
Planning
• Planning involves forecasting, framing
objectives of the firm, thinking of
different courses of action and deciding
the best course of action to achieve the
goals.
• A plan may be defined as detailed course
of action designed today to do
something tomorrow.
• Thus, planning is an intellectual attempt
by a manager to anticipate the future for
better organisational performance.
• Planning is a primary management
function which every organisation has to
undertake irrespective of its size, nature
and origin.
 Planning
• Planning deals with framing organisational objectives and
devising ways to achieve them.
• Managers plan business activities at all levels top, middle and
lower level. Planning is required more at top levels rather than
low levels.
• While top managers plan for the whole organisation, middle level
managers plan for the respective departments and lower level
managers plan for day to day business operations.
• All sizes of organisations plan their operations while large size
organisation spend more time in planning, small sized operations
spend comparatively less time.
• Planning enables management to command the future rather
than being swept away by future. In a fast changing environment
the need for planning is all the more important because risk and
uncertainty increase.
 Some Definitions
• “Planning is deciding in advance what is to be
done. When a manager plans, he projects a
course of action for the future, attempting to
achieve a consistent, coordinated structure of
operations aimed at the desired results.”
– Theo Haimann.
• “Planning is selecting information and making
assumptions regarding the future to formulated
activities necessary to achieve organizational
objectives.”
– Terry and Franklin
 Some More
• “Planning is fundamentally a mental
predisposition to do things in an oderly way, to
think before and to act in the light of the fact
rather than of guesses.”
– L. F. Urwick.
• “Planning is deciding in advance what to do, how
to do it, where to do it and who is to do it.
Planning bridges the gap from where we want to
go. It makes possible for things to occur while
would not otherwise happen.”
– Koontz and o’ Donnell.
 Nature/Features of Planning
• Primary Function of Management
• Adaptive to Environment
• Future Oriented
• Goal Oriented
• Pervasive
• Intellectual Process
• Efficient
• Flexible
• Planning and Decision Making
• Feedback
• Open system approach
 Purpose/Objectives/ Importance of
Planning
• Achievement of Organizational Objective
• Fulfillment of organizational commitment
• It facilitates Decision Making
• It provides stability to organization
• Optimum Utilization of Resources
• Development of Managers
• Promotes Innovation/Creativity
• Basis for Control
• Reduction of Risk
• Morale Boost up
• Facilitates Delegation
PROCESS OF PLANNING
 Planning Process
• Identification of Goals
• Develop Planning Premises
• Determine alternative Courses of action
• Evaluate the alternatives
• Select a course of action
• Formulate Derivative Plans
• Feedback
 Process of Planning
1. Identification of Goals
• Objectives set must be stated clearly and in
measurable terms example quantity standards,
cost targets and quality specifications are
measurable objectives.
• Objectives should be established in all key areas
where performance affects the health of the
organisation.
• Objectives should be laid down after analysis of
the external and internal environment of the
organisation.
 Process of Planning
2. Develop Planning Premises
• Assumptions about the future environment are known as planning
premises.
• Planning premises lay down the boundary or limitations within
which plans are to be implemented.
• One of the major purposes of premises is to facilitate the planning
process by guiding, directing, simplifying and reducing the degree
of uncertainty in it.
• Planning premises maybe external and internal.
– External premises are those which lie outside the firm. These are general
business environment including economic, technological, political and
social conditions, product market consisting of demand and supply forces
for the product or service and the factor market for land labour capital et
cetera.
– Internal premises refer to the factors within the enterprise. These include
sales forecast, capital investment in plant and equipment, competence of
management personnel, schemes of labour force et cetera
 Process of Planning
3. Determine alternative Courses of action
• Generally there are alternative ways of achieving
the same goal.
• For example in order to increase sales, an
enterprise may launch advertising campaign or
reduce prices or improve the quality of products.
• Therefore alternative courses of action should be
deter mind.
• This requires imagination, foresight and
ingenuity.
 Process of Planning
4. Evaluate the alternatives
• Once the alternative courses of action has
been deter mind, they must be evaluated.
• Alternative courses of action can be evaluated
against the criteria of cost, risks, benefit and
organisational facilities.
• The strong and weak points of every
alternative should be analysed carefully.
 Process of Planning
5. Select a course of action
• The best alternative should be selected and
implemented.
• The ideal plan is the most profitable one with
the least amount of negative consequences
and is also adaptable to dynamic situations.
• The choice is obviously based on scientific
analysis and mathematical equations. But a
managers intuition and experience should also
play a big part in this decision.
 Formulate Derivative Plans
• The final step in planning process is to develop sub-
plans.
• In order to give effect to and support the basic plan,
several sub plans are required.
• Once a choice is made and the master plan is adopted,
functional and tactical plans and action programmes
are decided.
• The breakdown of master plan into departmental and
sectional plan provides a realistic picture of the actions
to be taken in future.
• A time sequence of activities should also be decided
 Feedback
• Feedback means Response
• When Plans are selected and implemented
managers must receive information about
how effectively the plan has been
implemented
 Principles of Planning
• Principle of Contribution to Objective
• Principle of objectives
• Principle of Primacy of Planning
• Principle of Efficiency of Plans
• Principle of Planning premises
• Principle of Strategy and Policy Framework
• Principle of limiting factor
• Principle of commitment
• Principle of Flexibility
• Principle of Navigational Change
 Features of a Good Plan
• Integration
• Market Research
• Economy/Financial Constraint
• Co-ordination
• Consistent
• Flexible
• Acceptable
• Participative
• Based on Planning Premises
• Effective Communication system
DECISION MAKING
 Decision Making
• Decision making means selecting a course of action out of
alternative courses to solve a problem.
• Unless there is a problem, there is no decision making. Decision-
making and problem-solving are interrelated.
• It is the process through which managers identify organisational
problems and solve them.
• Decisions maybe major or minor, strategic or operational, long-term
or short-term. They are made for each functional area at each level.
• Importance of decisions, however varies at each level. Long-term,
major and strategic decisions are taken at the top level and
relatively short term, minor and operational decisions are taken at
level levels.
• Decision-making precedes every managerial function.
 Decision Making
• Decisions regarding :
– what goals and ways to achieve them,
– design of the operation structure and span of management,
– number and types of employees required,
– sources of recruitment,
– method of selection,
– training and development methods,
– best match between job description and job specification,
– incentive system leadership styles and
– communication channel and
– techniques of control are taken for smooth running and growth
of business operations.
 Decision Making
• Decision making is a modest attempt to match
environmental opportunities with organisational strengths.
• It is based on forecasts and assumptions about
environmental factors.
• Decision-making is the selection of a course of action from
among alternative, it is the core of planning.
– Knootz and Weilhrich
• A decision is a conscious choice to behave or to think in a
particular way in a given set of circumstances. When a
choice has been made, a decision has been made.
– J.W Duncan
 Process of Decision Making
1. Identify the problem/decision
2. Diagnose the problem
3. Establish Objectives
4. Collect Information
5. Generate Alternatives
6. Evaluate Alternatives
7. Select the Alternative
8. Implement the Alternative
9. Monitor the Implementation
 1. Identify the problem/decision
• Problem is any deviation from a set
of expectations. It is the gap between
the present and the desired state.
• Managers scan the internal and
external environment to see if
organisational operations conform to
environmental standards. If not there
is a problem.
• Managers use their judgement,
imagination and experience to
identify the problem as wrong
identification leads to wrong
decision.
• Situations that call for Decision
making Fall into four categories.
– Deviation from past
– Deviation from plans
– Deviation noticed by others
– Perception about competitors
 2. Diagnose the Problem
• Diagnosis involves identifying the problem through its symptoms.
• Symptoms which indicate deviation from the standard objective or
actions indicate a problem that needs to be solved through
decision-making process.
• Diagnosis involves identifying gap between the present and the
future, identifying reasons why this gap has arisen and then going
to the depth of the problem through decision making.
• Managers collect facts and information to find out the cause of the
problem.
• Diagnosis helps to define the problem its causes, dimensions,
degree of severity, magnitude and origin so that remedial action
can be taken
 3. Establish objectives
• Objective is the end result that managers
achieve through the decision-making process.
• The resolution forms the objective of decision-
making.
• Henry Mintzberg explains three types of
problems that require decision making
– Crisis,
– Non-crisis,
– Opportunity.
 4. Collect information
• In order to generate alternatives to solve the
problems managers collect information from
the internal and external environment.
• Information provides inputs for generating
solutions.
• Information can be qualitative or quantitative
• it should be reliable, adequate and timely so
that right action can be taken at the right
time.
 5. Generate alternatives
• Alternative means developing to a more ways to solve the
problem. Managers develop as many solutions as possible
to choose the best, creative and most applicable alternative
to solve the problem..
• Though the decision maker attempts to generate maximum
information on which he basis his decisions, it may not
always be possible either because of his physical, mental or
time constraints or because of environmental constraints.
• We should generate alternatives on the basis of principle
of limiting factor, that is, factors which limit the Generation
of alternatives should not be part of decision alternatives.
 5. Generate alternatives
Alternatives can be generated in the following ways:
• The decision maker uses his past experience to
deal with the problem situations that have
occurred before.
• He adopts the decision taken by other managers
in the same or different companies if the
outcome of that decision, in a similar situation
was positive.
• He can adopt scientific and creative techniques to
solve problems.
 5. Generate alternatives
Principles which help to generate alternatives
• Do not criticise ideas while generating
possible solutions
• Freewheel
• Offer as many ideas as possible
• Combine on and improve on ideas that has
been offered
 6. Evaluate alternatives
• The alternatives are weighed against each other with
respect to their strengths and weaknesses.
• They are useful if they help to achieve the objective.
• Alternatives are evaluated against the following qualitative
and quantitative criteria:
– Costs: alternatives should not be costly.
– Resources : the alternate should fit into the organisations
resource structure they should be feasible with respect to
budgets, policies and technological set up for the organisation.
– Acceptable: alternatives should be acceptable to the decision
maker and those who are affected by the decisions
– Reversible: decision is reversible if it can be taken back and
other measures can be adopted.
 7. Select the alternative
• Select the alternative after evaluating the
alternatives against excepted criteria
• Managers Screen the non-feasible alternatives
and select the most appropriate alternative to
achieve the desired objective.
• Alternative can be selected through the following
approaches
– Experience
– Experimentation
– Research and analysis.
 8. Implement the alternative
• The selected alternative should be accepted and implemented by
the organisational members.
• Implementation must be planned
• Those who will be affected by implementation should participate in
the implementation process to make it effective and fruitful
• Implementation of the alternative should ensure the following:
– The selected alternative is communicated to everyone in the
organisation
– changes in the organisation structure because of implementation are
communicated to everyone in the organisation
– authority and responsibility for implementation are specifically
assigned
– resources are allocated to departments to carry out the decisions
– Budgets, schedules procedures and controls are established to ensure
effective implementation.
 Monitor the Implementation
• The outcome of decision indicates whether the right
decision is chosen and implemented or not
• The implementation process is monitored to know its
acceptability amongst organisation members.
• The alternative is regularly monitored through
feedback received from the results for outcomes of
decisions, managers take the follow-up action.
• If results Deviate from the objectives, managers try to
find out the reasons responsible for deviations and
make corrections in the implementation process
TYPES OF
DECISIONS
 Programmed and Non-programmed
decisions:
• Programmed decisions are concerned with the problems of
repetitive nature or routine type matters. A standard procedure
is followed for tackling such problems. These decisions are taken
generally by lower level managers.
• Decisions of this type may pertain to e.g. purchase of raw
material, granting leave to an employee and supply of goods and
implements to the employees, etc.
• Non-programmed decisions relate to difficult situations for
which there is no easy solution for example, opening of a new
branch of the organisation or a large number of employees
absenting from the organisation or introducing new product in
the market, etc., are the decisions which are normally taken at
the higher level.
 Routine and strategic decisions:
• Routine decisions are related to the general functioning of
the organisation. They do not require much evaluation and
analysis and can be taken quickly.
• Ample powers are delegated to lower ranks to take these
decisions within the broad policy structure of the
organisation.
• Strategic decisions are important which affect objectives,
organisational goals and other important policy matters.
• These decisions usually involve huge investments or funds.
These are non-repetitive in nature and are taken after
careful analysis and evaluation of many alternatives. These
decisions are taken at the higher level of management.
 3. Tactical (Policy) and operational
decisions:
• Decisions pertaining to various policy matters of the
organisation are policy decisions. These are taken by the
top management and have long term impact on the
functioning of the concern.
• For example, decisions regarding location of plant, volume
of production and channels of distribution (Tactical)
policies, etc. are policy decisions. Operating decisions relate
to day-to-day functioning or operations of business. Middle
and lower level managers take these decisions.
• An example may be taken to distinguish these decisions.
Decisions concerning payment of bonus to employees are a
policy decision. On the other hand if bonus is to be given to
the employees, calculation of bonus in respect of each
employee is an operating decision.
 4. Organisational and personal
decisions:
• When an individual takes decision as an executive in
the official capacity, it is known as organisational
decision. If decision is taken by the executive in the
personal capacity (thereby affecting his personal life), it
is known as personal decision.
• Sometimes these decisions may affect functioning of
the organisation also. For example, if an executive
leaves the organisation, it may affect the organisation.
The authority of taking organizational decisions may be
delegated, whereas personal decisions cannot be
delegated.
 5. Major and Minor decisions:
• Another classification of decisions is major
and minor. Decision pertaining to purchase of
new factory premises is a major decision.
Major decisions are taken by top management
• Purchase of office stationery is a minor
decision which can be taken by office
superintendent.
 6. Individual and group decisions
• When the decision is taken by a single individual, it is
known as individual decision. Usually routine type
decisions are taken by individuals within the broad
policy framework of the organisation.
• Group decisions are taken by group of individuals
constituted in the form of a standing committee.
Generally very important and pertinent matters for the
organisation are referred to this committee. The main
aim in taking group decisions is the involvement of
maximum number of individuals in the process of
decision­- making.
DECISION MAKING TECHNIQUES
MODERN TECHNIQUES FOR
MAKING PROGRAMMED DECISIONS
 Breakeven Technique
• It helps to determine the level of
output at which total cost and
total revenue are same.
• Total profit at this volume, called
the breakeven point, is zero.
• It helps managers analyse
economic feasibility of a
proposal.
• For any level of output, the
amount of profit can be known
which serves as
acceptance/rejection criteria of
the proposal
 Inventory models
• Firms carry buffer inventory to avoid running out of stock.
Though this ensures regular supply of goods to customers,
they incur costs to carry inventory like handling cost,
storage costs, insurance cost, opportunity cost of money
tied in the inventory et cetera.
• These are known as carrying costs. In order to reduce these
cost, firms keep minimum inventory in store and order
fresh inventory when they need.
• This reduce the carrying cost of inventory but the ordering
cost goes up. These are the cost of placing an order which
includes the cost of preparing the ordering, cost of
receiving , and inspecting goods.
• Sophisticated inventory models are available for
management of inventory. They help in placing order for
goods at a point of total of ordering cost and carrying cost
is at the least.
 Linear programming
• It is a technique of resource allocation that maximises output or
minimises cost through optimum allocation of resources that is
time money material et cetera.
• It is applied when resources are scarce and have to be optimally
utilised so that output can be maximised out of limited resources.
• Linear programming is a quantitative total tool for planning how to
allocate limited or scarce resource so that a single criteria, Usually
cost is optimised.
• It aims to maximise profits or minimise costs by combining two
variables which involves best use of resources to variable
dependent and independent must be linearly related that is
increase or decrease in the independent variable should result in a
corresponding increase or decrease in the dependent variable.
 Simulation
• This technique is used to create artificial models of real-life
situation to study the impact of different variables on that
situation.
• A model is prepared on the basis of empirical data and put
to all kinds of influences, positive and negative which may
affect the project, and final results are the predictions of
actual results if the project in question is put to use
• For example if a transportation company wants to make a
road or rail system it will prepare a simulation model to
analyse the effect of all the factors that is traffic signals
flyovers and then heavy and light traffic the new thing on
the road if this model appears to be visible actual
construction of Railroad system shall commence.
 Probability theory
• Probability is the number of times and
outcomes and experiment is repeated.
• What is the probability that sales will increase
if the expenditure on advertisement is
increased is the answer to probability theory.
• These decisions are based on past experience
and some amount of quantifiable data.
 Decision Tree
• Decision tree is a diagrammatic representation of
future events that will occur when decisions are made
under different options.
• It reflects outcomes and risks associated with each
outcome. Each outcome or future event is evaluated in
terms of desired results and the outcome which gives
the maximum value selected out of the alternative
courses of action.
• With increase in decision alternatives and chance
events, it becomes Difficult to make the tree manually.
• There may also be changes in decision points over a
period of time.
 Queuing theory
• This technique Describe the features of queuing situations where
service is provided to people or units waiting in a queue.
• When people or material wait in que (because of limited facilities),
it involves cost in terms of loss of time and unutilized labour
• Queueing theory aims at smooth flow of men and material so that
waiting time is reduced. This involves additional cost also.
• Thus a balance is maintained between the cost of queues and the
cost incurred to prevent the queues.
• Queueing models in software packages have made their
application feasible. This theory is usually followed in banks and
ticket counters. It helps in demand in the number of counters so
that customers have to wait for minimum time.
 Game theory
• Game theory this theory was developed by Von Neumann and
Morgenstern. It helps organizations face their competitors.
• This theory was initially developed to deal with problems related to
wars. It aimed at deciding the actions of army so that it could frame
a counter strategy to sense the action of opposing army.
• This theory does not aim to find the winning strategy to win over
competitors but only an optimum strategy that helps to deal with
competing moves of the competitors.
• The course of action are made by the competing parties
simultaneously assuming that the other party will react in the same
way as he does the decision is not made after the opponents course
of action is already taken
MODERN TECHNIQUES FOR MAKING
NON-PROGRAMMED DECISIONS
• The following techniques promote creativity in
group decision-making.
• Brainstorming
• Nominal group technique
• Delphi technique
 Brain Storming
• All members of the group associated with
decision making think and generate new
ideas of doing a particular task.
• Brainstorming means using brain for
generating ideas.
• The aim is to generate as many ideas or
decision making alternatives as possible.
• Members are not inhabited by financial or
organisational constraints in generating
ideas. There is a free flow of
communication amongst members so that
maximum number of ideas are generated.
• Brainstorming promotes creativity as
members feel enthusiastic and energised to
offer ideas which they feel are important
for decision making.
 Nominal group technique
• Without criticizing the ideas offered by
members of the group, all suggestions are
evaluated against each other and the final
outcome is selected which presents consensus
of the members.
• Nominal group technique restricts
communication amongst members. It resolves
conflicts by allowing group members to run
the ideas in order of their priority.
 Delphi technique
• This technique is useful where respondents are
geographically spread over large areas and do not have
face-to-face interaction with each other.
• The Delphi method is a process used to arrive at a group
opinion or decision by surveying a panel of experts.
• Experts respond to several rounds of questionnaires, and
the responses are aggregated and shared with the group
after each round.
• The experts can adjust their answer each round, based on
how they interpret the "group response" provided to them.
• The ultimate result is meant to be a true consensus of what
the group thinks.