PLANNING AND DECISION MAKING = —_ LEARNING OBJECTIVES After comprehensive study of this chapter, you will be able tc be familiar with the concept and types of planning, kuiow the hierarchy of planning, explain the process and importance of planning, be familiar with the concept of strategic planing, know the concept of environmental scanning and methods for sc be able fo formulate and implement the strategic planning, be familiar with the various quantitative tools for plans, know the concept and approaches of decision making, describe various types of decisions explain decision under certainty and uncertainty, Jntow the types of problem and of problems solving, Jatow the problem solving strategies, describe the concept of crisis handling, acquire the skills for decision making proc be familiar with the concept of group decision ma 3S vyvyvyvy a vy S, aking and its benefits.110 FOUNDATION OF BUSINESS MANAGEMENT CONCEPT OF PLANNING _Planning is a process of setting future courses of actions regarding what to do, how ¢, “when to do, who will to do to attain the organizational. goals and_so.on. It is one of Management functions that concern with setting organizational goals and action, , achieve them. Planning sets the future goals of organization and selects the course “ actions to attain the goals effectively and efficiently. In this regard, planning can i described as the process of setting actions plans to direct activities of the organization , guarantee its success. If planning process which sets various goals, objectives and course ink in an advance aboy actions to attain these them. It is an intellectual process as to th the things to be done in future. In organizations, planning is a management function that defines the goals for futur direction and determines the missions and resources to achieve the targets. To meet the goals, managers may develop different plans such as a business plan, operating plan o, functional plan. It is well said that ‘a well designed plan is half completion of the task’. It means that if we of the total tasks get completed effectively and efficiently. Planning resources as well plan appropriately, half is the blue print of organizational goals, actions to accomplish the goals, For the organizational success, there must be specific, as employee motivation. Such plan helps tackle the measureable, attainable, realistic and focused plan. environmental uncertainty. Koontz and Weirich - "Planning involves selecting missions and objectives ond the actions to achieve them." Henry Fayol - "Planning Is deciding the best alternative, among others to perform different managerial operations in order to achieve the predetermined goals.” Stephen P. Robbins - "Planning is deciding in advance about what to do, how to do, when to do it and who is to do it It provides the ends to be achieved." Koontz and O'Donnell - "Planning is an intellectual process, the conscious determination of courses of actions, the basis of decisions a purpose, facts and considered estimates.” Louis Allens - "Management planning involves the development of forecasts, objectives, policies, programs, procedures, schedule and budget and budgets - it is trap laid to capture the future.” In conclusion, planning is the process of determining organizational goals, objectives and course of actions to be followed in future. It is intellectual process in which managers formulate and select one best course of action ensuring the effective and efficient functions. Planning represents the vision, wisdom, and foresightedness of managers. Planning needs to be flexible as it requires addressing the dynamic business environment. Thus, planning is the means for organizational success.CHARACTERISTICS OF PLANNING planning is one of the basic management functions det ands rategies. Managerial planning consists of sever: 1 5. Bia TANNING AND DECISION MAKING O Gurmes) 1 fining organizational goals, objectives ‘al characteristics as described below: Primary function Intellectual function Goal focused Characteristics of Planning |] {_fowe oiented Guidelines for actions Flexibility =| Basis of existence Planning is one of the primary functions of management, Organizational activities are the result of managerial plans. Each function of the organization is initiated along with plans. All other functions like organizing, staffing, directing, leading, coordinating, motivating, communicating as well as controlling are conducted on the basis of plans. Primary functio Intellectual function: Planning is an intellectual function as plans are prepared by managers with rigorous thinking and analysis. Planning requires creativity, imagination, evaluation and analysis. Managers should have adequate skills, knowledge and experience to prepare effective plan, Plan is the output of mental work with much exercise. Goal focused: Planning focuses on achieving the predetermined goals of organization. Course of actions are prepared defining what to do, when to do, how to do and who will to do. Plans are prepared for optimal use of available resources so that goals of the organizations can be attained effectively. Thus, planning is goal focused function. Future oriented: Plans are prepared for future courses of actions for optimal utilization of available resources to attain organizational goals effectively and efficiently. Action plans, strategy, directions, guidelines, ete. are prepared to guide future actions of organizations. Planning process uses different tools and techniques to estimate the future action that could be the best. Guidelines for action: Plans are prepared to guide the actions of the organization to attain the predetermined goals. Effective plans should be realistic and feasible so that it can be implemented easily. Plan includes strategic actions and specific directions for each goal. Employees can easily accomplish their responsibilities with Proper guidelines.m2 FOUNDATION OF BUSINESS MANAGEMENT 5. Flexibility: + xibility: As we know, business environment is dynamic, There might be changes in the components i i i ip changes in the components of business environment Pans may be affected by qu ae st ‘anges. To cope with the change, plans need to be changed or moses ee e neet 7 Thus, planning should possess adequate flexibility so that acti, . ions and guidelines can be adjusted according to the environmental changes, = 6. Continuous process: Plans are prepared to attain the objectives of organizatio, Organization sets next goal and objectives if the first goal is attained or itt confirmed not attainable. In both conditions, management must set new eat Sometimes, goals need to be adjusted. In all the above conditions, a set of new plans working continuously, ney, need to be prepared. To make the organization alive ie. set of plans need to be prepared either changing the existing plans oF by modification in existing plans, Continuity in planning process makes the organization continuous, Thus, planning is a continuous process. is the means of efficiency and economy of the organizational activities. Appropriate and real plan based on detailed analysis of business environment provides the directions for actions. Appropriate plans reduce the cost of production as well as the risk of failure, Proper plan ensures that the desired result can be attained within the standard. Best plan helps for optimal utilization of available resources. Thus, planning is the function to make the organization existing. IMPORTANCE OF PLANNING to attain goals as planning provides organization in order ing the activiti fferent resourc g is essential function fo 1 Basis of existence: Plan ‘es cannot be systematic. Plans help .es like human resources, natural x each and every Planning is required for every direction for each activity. Without planni in proper utilization and mobilization of di resources, capital resources ete. Plannin organization due to the following reasons: Forecasting and environmental scanning hel to think ahead, anticipate change and develop planning helps reduce risk and ps anticipate 1 Uncertainty reduction: future uncertainty. It forces managers or the change. Thus, appropriate response f uncertainty through pre- determined activities. 2, Goals focus: Planning helps organizations to focus their attention on certain selected actions to achieve the desired state. It eliminates the alternative activity and ‘es the means and ends. It fixes the procedures and rules of action to achieve classifi the short-term and long-term goals. Planning facilitates effective coordin: efforts throughout the organization. Activities departmental coordination and cooperation. It ation and allocation of 3, Better coordination: resources, It can manage integrated are pulled together for achieving inte’ helps avoid confusion.Po: PLANING AND DicisionMaxinc O Supreea) | 113 jnoreases efficiency: Planning facilitates effective use of resources, It is a tational 4 Jpproach for goal achievement which minimizes the cost of production, reduces wastage rate and avoids duplication in activity. It helps doing the job correctly which “peolutely inereases the productivity, ; gnvironmental adoption: Planning identifies environmental opportunities and * treats. It helps to manage the changes. Planning anticipates the future events and develop action plans to suit those events. Planning encourages innovation and creativity to minimize the negative impacts of changes. pasis for control: Planning provides the standards against which the actual performance is compared. Tt measures the deviations and helps to identify the vrrective actions. Planning makes the control more effective and meaningful. Avoid random activity: Planning makes the activities more systematic, integrative and orderly which avoids the random activity. It avoids the need for snap decisions pased on impulse and intuition. Planning provides order and rationality to the different activities in organization, It avoids the overlapping efforts. Increase commitments: Planning ensures the commitment of managers and employees towards the goal and the process of actions. It facilitates the internalization of individual goals with organizational goals which~encourages the sense of involvement and team spirit. LEVELS OF PLANNING / Business organizations prepare different plans to achieve their goals. Top level management for long term plans, middle level of the organization prepares department level plan and the operation level prepares operational plans. In this way, plans of the organization form different levels in a hierarchy. Higher level plans are represented by nission, goals, strategies and policies whereas lower level plans are procedures, rules, programs and budget. Levels of the plans are discussed below in brief. Mission ‘Strategy Policy Procedure Rules Programs UU Budgetm4 FOUNDATION OF BUSINESS MANAGEMENT Mistiog: Mission of an organization defines its business which served as a bagi planning. It reflects the long term commitment of an organization. It provides 4 reasons of existence of organization. 2 2. : ion i inthe Goals: Goals are the result to be achieved by organization in certain period of time, y, developed to achieve mission. It provides the direction to the activities op a organization and state about how mission will be accomplished over the years. 3. Strategy: Strategy reflects to grand plan and broad objectives. It is designed by ., anning. » level management which represents broad choice made for pl ion making to achieve goals * It 4, Policy: Policy refers to general guideline for decisi d specifies general response to problem situation, It can be rational and set for differen, functional levels like production, marketing, research, ete- activities systematically. They ay 5. Procedure: Procedures are the steps for handling : r also known as standing operating procedures (SOP). It helps in evaluation ang control the performance according to policies an‘ d overall plans. 6. — Rules)Rules are guidelines to carry out specific activities. Rules specify the system or guidelines or regulations for work performance. Proper rules must be developed ig achieve the pre- determined goals and objectives within disciplined manner. Rules are related to law and can't be rational or person specific. ion plans as large set of activities. Program grams are set in order heir importance. Prot 7. Programs: Programs are integrated acti nization should allocate all its and activities are ranked in the order of # ‘0 set priorities of activities to be executed. Orga’ resources on the basis of such order and priority. 's an instrument for allocating resources on the basis of priority. Budgets are prepared for a specific period like monthly, five years, ete. Budget is considered as the whe expenses or cost of production 8. Budget: Budgets are financial plans. It i quarterly, one year, three years, controlling tool for the activities which assure 4 remains within the scope of expenses. PLANNING HORIZON n prepares plans almost every day for ‘As discussed in previous sections, every organiza different purposes. Few plans are made for short time (may be for only one time) while few to be reactive while some other plans are prepared for long time. Some organizations used become proactive. Based on the time for how long the plan is prepared, organizations define their planning horizon. Thus, planning horizon is the time for which the plan is prepared. fo make the business successful, organizations should first define planning horizons to natch the pace of the business change, changes in business environment. Planning depend on the nature of business, business cycle, consumers’ preferences and horizon vorizons schnological changes. Organizations can choose long-term horizon, medium-term nd short-term horizon.1 PLANNING AND DicisionMaxinc O Sires) 18 yong-ter™ horizon: et term plans are formulated for long time specially for ae be years, isi and strategies of organization are long term plans. plans aye | esipally Prepared to attain the organizational success. These » prepared by top level of the organization, Generally, for the long term ‘eying HOF following dimensions are important to reviews. pla ‘ pemand/product review: To be long horizon, business organizations should estimate the future demand at an aggregated level. Under this process, organization should analyze the competitors and general market conditions, and any new product lines and markets are discussed. In the long term horizon, organizations should be clear for the questions ‘we change the product/market mix? and ‘what would this do to our overall supply chain cost ‘and profitability?” Supply review:'To be long horizon, business organizations should plan for supply chain for long range for grown organization. Thus, in this phase, business organizations should concentrate and plan to answer the questions ‘How are our suppliers performing?’, ‘Should we sign up new or alternative suppliers?’ and, ‘Are more profitable supply options available?’ Capacity review: Business organizations should continuously review their capacity at different demand and capacity scenarios so that they can improve the profitability, organizations’ image and growth potentiality. For this, business managers should focus on the questions - ‘Considering the demand review, do we need to change anything production-wise?’ ‘Do we need to add a production line?’ ‘What kind of productivity improvements should we introduce and what would be the cost?’ ‘Should we outsource part of the production?” ‘Should we build another warehouse?’ ‘Should we consolidate warehouses, and if'so, where?’ Medium-term horizon: For the medium-term horizon, organizations prepare medium-term plans specially for two to four years. Department level management takes initiation for medium-term horizon and finally the top management finalizes them. Medium-term horizon concentrates in the following issues. + Gross profit plan: Main focus of all the plans (integrated business plan, IBP) is the profit maximization. Thus, main focus of medium-term horizon will be in profit review. Frequent meetings are called for review of demand, revenues, and supply chain costs for the entire planning horizon. This is necessary to get a proper rolling profit view. + Demand plan: All the departments concentrate in whether they are fulfilling current demands or not. They focus on current business constraints, supply chain challenges, and prepare the plans for increasing demands. + Produet plan: Product design, quality, and customers’ changing preferences are the major factors for profitability of any organization. So, management focuses on reviewing products to solve the problem regarding product qualitya 6 FOUNDATION OF BUSINESS MANAGEMENT and design. Managers collect the market information and plan for Prody, development and customization, : . Inventory plan: For regular supply in the market, organization Shout, maintain inventory. Inventory management not only regulate the Products ; the market but also regulates the cost of production and supply. Thus, ung jected inventory prop le, the middle-term horizon, management plans for proj expiry date issues, stock level, sales opportunities, running Promotions, ¢o.,' effectiveness, optimizing safety stock. * Operations plan: On-time production is one of the competencies of y,, tive operations in each organization. So, management should plan for effec the business units, For this, management should concentrate on lead-time Ps capacity issues, For example, what could be the ideal number of shifts for u,, next planning period’ and, ‘are we optimizing the utilization Of resources ang assets?” and physical distribution i, Supply chain managemen tion to provide the products at marker supply chain and distribution tes for optimizing logistic, 7 Supply chain plan: the most important management funet regularly. Management reviews current level of 8 system and plan to optimize it. Plan concentra' between supply points regulate the supply batches. Short-term horizon: Short term plans are prepared to take the short-term horizon, specially for less than one year. Budgets and operational plans are short term plans, Under the short-term horizon, business organizations focus on operational plans. The same focus as in long-term, medium-term are given in the short-term horizon also, But, the focus on time horizon will be for short period. Following focus will be placed under this planning horizon. it reviews the market Demand plan: As in medium-term plan, management nce within one year. Main focus will be demands at current time and influel sidering the current constraints, are we meeting all demand?" placed just as ‘con: and, Tf not, what should we drop to maximize profit?’ Inventory plan: Similar as in medium-term plan, under short-term plan also business managers focus on projected inventory profile’, ‘expiry date issues’, ‘additional sales opportunities’ and, ‘in-store promotions’ to meet. short-term demand. Operations plan: Under the short-term operations plan, managers plan for lead-time vs. capacity just like ‘do we need to prepare for overtime?’,’ what are the optimal production batch sizes for the next few months?’ and, ‘what is the optimal number of shifts we should run over the next planning period?’ANNE PLANNING AND Dra : eenoies oN O Sareea) | 1 ization prepares organization prepares own plans. All organizations are engaged in planniny svities but no two organizations plan inexactly the same waged in planning NM e . way, T' i il a bose thought of a generic activity, tlanaleg saris ‘ay. The planning process itself 8 involves series of activities or ables Tdentifying the 0 ~~} planning premises -—4 Identifying alternatives Developing the Selecting v5 lecing the best | derivative plons |__| Gltematives movaina ie | a alternatives Establishes goals: Goal setting is the first step in planning process. Goals of whole organization, departments and every units of organization should be clearly stated. Goals must be specific, measurable, accessible, realistic and with time frame. Only quantified goals can be measurable. fachapfaspech= Identifying the planning premises: The second step in planning process includes identifying the planning premises in which plans depend. Premises are the assumptions of future condition in which the current plan is to be implemented. It is simply forecasting about internal and external environmental’ factors, market conditions, availability of resources, sales, incomes of organization, socio-economic condition ete. Identifying alternatives: There can be many alternatives to attain the goals in various specific situations i.e. premises. So while planning, each alternative should be identified in order to analyze in terms of cost, quality and contribution to goal achievements. Most suitable and important alternatives are short listed in this step. Evaluating the alternatives: After identifying alternatives, planners must evaluate the positive and negative aspects of each short listed alternative. Each alternative should be examined on the basis of strong and weak points like payback period, cost of production, cost of implementation of plan, cash flow, profitability, availability of resources, ete. Organization can use quantitative techniques and computer software for effective evaluation of alternatives. Selecting the best alternatives: ‘The next step in planning process is the selection of one best alternative plan with reference to the quantitative and qualitative evaluation. Organization can select single alternative or suitable combination of more alternatives. The selected alternative will be the main part of plan. It should be clearly spelled out. ‘This is the real point of decision making for announcing the final plan.6. FOUNDATION OF BUSINESS MANAGEMENT Developing the derivative plans: Derivative plans are the supporting plans the main plan. Policies, rules, schedule, budget, human resource plans, ete. are », derivative plans. Such plans are formulated on the basis of main plan. ‘TYPES OF PLAN ————————————— OS ifferent situations. This mean, Different plans are prepared for different purposes at 4 there can be different types of plans depending 4! can be classified into different types on various bases 2s 1 pon situation, purpose and nature. Plan, discussed below : y and authority ‘As there are three different levels of management i.e. corporate level, departmen; level and operational level, each level prepares plans for different es Within their responsibility area. Depending upon the level of management, plan; plans cay Plans on the basis of managerial hierarch be classified into corporate plan, departmental plan and operational plan. n, goals and strategies of the * Corporate level plan: Overall vision, missio! i organization are prepared by top level i.e. corporate level which are called the Jans prepared to justify the existence corporate plans. They are the long term P P . ete and growth of organization. Such plans set the actions to ottais greene goals and objectives. Corporate plans are also called strategic plans. Corporate plans are the basis of department level plans. partment level plans are prepared by middle leve] wnt for their respective activities. Such plans goals and plans into specific goals and plans sibilities. Department level plans are ach department such as marketing plan for marketing department, financial plan for finance department, human resource plan for human resource department, production plan for production department and so on. These plans are prepared on the basis of strengths and s of that particular division or department. Main purpose of | plan is to determine the specific details of utilization and time target = Department level plan: De} ie. department level manageme! translate strategic i.e. corporate according to departmental respon: prepared by department managers to ¢: weakn formulating the department level targets for department, resource allocation, resource for the activities. Department plans are also called tactical plans. Operational level plan: Operational level plans are the plans prepared for operational units to set their goals and specific actions. Such plans are prepared by operational units to attain plans of their department. Operational plans are normally prepared daily i.e. routined activities or for short time. Such plans identify the specific procedure and process required for the operational units of an organization. Packaging unit prepares the responsibility allocation in absence of employees for five days, sales unit prepares plan for shipping goods to Pokhara and Bhairahawa from Kathmandu, operation unit sets plan2 PLANNING AND DEcIsion Mi ’ ff machinery mainten sat wKNG O Giarreea) TE of aRnaT ke" ae within three days, etc. are some examples of beste : n. Such plans are prepared by operating level managers i. Se in coordination of employees. Operational plan should be consistent with strategic and tactical plans, plans on the basis of frequency of use Some of the plans are used constantly for long time while some others may have short time use and few plans have only one time use. On the basis how frequently the plans can be used, they can be classified into two categories as single use plan and standing use plan, + Single use plans: Single use plans are prepared just for one time use. This means that single use plans are not repetitively used. Such plans are developed to solve particular problem in particular situation, They are prepared to fulfill requirements of non-programmed decisions. For instant, plan prepared to conduct any ceremonial functions like annual day, plan prepared to conduct terminal examination in college, overtime work plan in case of mechanical failure, job rotation plan in the absence of employees are some examples of single use plan. Singly use plans have no use after using it once, + Standing use plans: Standing use plans are prepared for long time use i.e. repetitive activities like mission, strategy and goal of the organizations. Such plans are suitable for programmed decisions and routine functions. In order to make the decisions fit for the changing situation and environmental context, there must be frequent adjustments in such plans. Standing plans are prepared for long run like growth of the organization, like innovation, consumer care, ete. to serve the existing goal of organizations. Plans on the basis of flexibility Some plans can be modified according to the situations while some others cannot easily be done so. On the basis of the extent of flexibility i.e. provision of change, amendment or modification, plans can be classified into flexible plan and specific plan. + Flexible plans: If the plans can be modified or changed according to the needs of situation, then the plans are called flexible plans. Flexible plans provide general guidelines to perform the activities. Such plans cannot provide specific objectives and procedures. It can be changed or modified according to the changing situations. They are also known as directional plans. Such plans have no effects on long term goals and objectives of the organization. * Specific plans: If the plans are more specific and can be used for long time without any change, or modification then the plans are called specific plans. Specific plans are clearly defined and have specific long term objectives. There is no ambiguity and no chance for miss-interpretation of such plans. Organizational vision, mission and goals are the specific plans.a FOUNDATION OF BUSINESS MANAGEMENT On the basis of Time Horizon Plans are usually prepared for Specific time period. Some plans become useless a that time. Thus, plan can be classified on the basis of the time period to Which Plans are prepared into Jong term plans, medium term plans and short. term Plan, below: th, Sa 5 Long term plans: Long term plans are formulated for long time Specially 4, more than five years, Mission and strategies of organization are long te, Plans, Long term plans are basically prepared to attain the orBanizAtion, Success. ‘These plans are prepared by top level of the organization. * Medium term plans: Medium term plans are prepared for isha ter, Specially for two to four years. Such plans are the Mean Plans whic, are prepared by department level management of the organization. * Short term plans: Short term plans are prepared for less bea one year. Budget, and operational plans are short term plans. Operational plans are prepared jy respective work unit. Contingency plan Contingency plan is the alternative course of action prepared in case the intendeg plan of action is unexpectedly disrupted or found inappropriate. In few cases, the wel) set plan does not work or gets failed during implementation, management needs tg formulate another plan either to correct that plan or replace the plan in emergency, Such plan prepared in an emergency instead of continuous of organizational activities uninterrupted is called the contingency plan. For instance, a contingency plan occurred during the late 1990s in anticipation of what was popularly known as the “Y2K bug’ in order to solve the concern problem possibly created because of change in date system i.e. internal clock changing in computer system from 1999 to 2000. For the purpose, many airlines corporations, hospitals, banks, etc. created additional backup system because of probable loss because of the reason. They also planned additional employees. Likewise, Nepal Government sets contingency plan every year for quick action in case of flood and landslide during the rainy season. Contingency plan is implemented in four action points as shown in the following figure. At action point 1, management develops the basic plans of the organization. These may include strategic, tactical and operational plans as other normal plans. During this phase, in many organizations, managers usually consider various contingency events (called devil's advocate) asking ‘but what if ...’ about the each course of action. In simple terms, contingency plan is prepared by thinking in negative ways i.e. ‘if not happens what to do”. For each course of action, varieties of contingencies are considered,PLANNING AND DECISION MAKING O ‘CHAPTER 4] as *F pction point 1 Action Ela 2 Action point 3 Action point 4 # oereon al fbwaly ee ra Specify indfeators ‘Successfully complete pst caveat selinbeig tins a ebay By bid or contingency dvelopcontingency ‘Monitor contingency event indicaters ond jmplement contingency plan if necessary. ‘At action point 2, developed plans at action point 1 are implemented. During this action point as well, most important contingency events are defined and plan is prepared. Based on likelihood i.e. most probable contingency variable whose impact tend to be substantial is used in contingency planning process. At the action point 3, company specifies certain indicators or signs that suggest that a contingency event is about to take place. For instance, a car seller may consider 10 percent increase in down payments may consider a contingency variable for decrease in sales. Finally at the action point 4, plan implementation is evaluated. If the chosen action plan is successfully implemented, no need to implement the contingency plan. If there will be obstacles in implementation of chosen plan, contingency plan is implemented. ¢, Derivative plans Derivative plans are the sub-plans which are prepared for achieving facilitating main plans. For example, if the market growth is a main plan of a business organization, it prepares derivative plans as policies, procedures, programs, budgets, and schedules. Thus, derivative plans are also called supporting plans. Derivative plans are prepared only after formulation of main plan, Business policies are formulated to make the expectations clear, to articulate required steps in business, to establish the performance measure, to maintain consistency, to design trainings, to develop human resources pool, to design supply chain, to develop promotional campaigns, etc. Similarly, business procedures and schedules facilitates for action plans and their coordination in different activities. Budget for each plan is necessary to fulfill the financial obligations. ITFALLS AND THEIR IMPROVEMENT IN PLANNING With increasing economic uncertainty, business companies must have effective business plans. It is the responsibilities of business planners to formulate adequate plans so that they can be translated into profitability. But, the result will not be as planning because of various reasons, Business planners follow rigorous process in planning; they estimate the scope and Problems, develop alternative solutions and analyze before setting the final plan, But, there122 could be several chances for failing plans to achieve th problems or mistakes in the plan which increase ; pitfalls in planning. Following are the most common pitfalls in th L FOUNDATION OF BUSINESS MANAGEMENT e long-term business goaly, the chance of failing plans are ey he planning. Overlooking the planning process: Planning requires enough time of the executives but some executives do not spend enough time for planning for short. ang long-term. ‘They overlook the importance of sincerity and passion because o experience, lack of time, absence of formal procedures, oF rapidly changing Marke conditions, such problem, manages must develop 4, i ions. Mi system of acknowledge for the better ideas and SE la’ aaa. = to develop and discuss the agenda for effective planning, Bh time foy setting alternatives and discussion with stakeholders. For updated, Bae Sufficient organization should establish informatio, Solution for improvement:'To remove environment related information, management system. y ‘A ort. and long-term planning: For the be sufficient derivative plans. Because of inefficient short-term planning, it becomes difficult to identify anette fru on the company's immediate goals and challenges. Thus, either focu a only, By long. term plans or only focusing short-term i.e. lack of proper balance in planning horizon, plan becomes fail. Failing to distinguish between sh effective long-term plans, there should Solution for improvement: In this problem, organization should balance the long. term and short-term plans effectively. ‘There should be streamlined and simplified n. For this, it is suggested to build a strong, lanning process in the organization Pasa f 4 ni 1! sense of roles and responsibilities. dedicated team of strategy planners with ful Picking wrong team: Plans become more effective with participation of different people in planning process in different stages e.g. idea generation, idea development and finalizing the plans. Thus, quality and interest of the participants determines how effective plans can be. Picking wrong members for assembling planning team result in wrong decisions and wrong plans. Specially, in Nepal, there is a practice of including people based on nearness and dearness rather than the experience, specialization, and capacity which results in ineffective plans. Solution for improvement: To solve the chance of being ineffective plans, members in the planning teams should be selected based on experience, ability and specialization Planning meetings poorly: There should be frequent and adequate meetings for developing the plans. Different stakeholders i.e. managers of different level and employees, may be shareholder and regulators (if any). All the people participated should get equal and adequate opportunities for discussion in the session. But, in general, we find that participant attend the meetings without preparation or theyr PUSNING aNDDecisios Maxine O Sirens) ce : to be domi i eotings used ominated by seniors. Such practices decreases the quality of pane to which each employee does not take the ownership of the plan. jution for improvement: To improve this problem, organizations should establish setear set of ee an Procedures for pre-meeting preparation and participation of fhe decision makers Participation of different level managers, supervisors and employees facilitate for better ideas for effective planning. For making the meetings ore effective, managers should set a clear agenda for the meeting and making sure het all the participants are prepped well in advance. Neglecting the follow-up process: In most of the organization, management formulates plans but do not pay due concern for follow-up the effectiveness of the jans, With the follow-up feedback, plans can be improved to make them effective to freet the changes in business environment. But, ignoring follow-up process, getting es and scope of changes in plans make the plans failure. solution for improvement: To improve this problem, organization should prepare @ structure for follow-up of plans, identification of scope of change or improvement, communication of changes and changes in respective areas. Each unit, department and whole organization should be ready for accepting the necessary changes in plans. Mixing up strategic and operational follow-up. In general, strategic issues tend to be more complex, require more time for analysis and their results take more time to become clear. Operational plans are prepared for short term while strategic plans are prepared for long term. If organization fail to distinguish strategic and operational plans and follow-up, employees get confusion, and become frustration. Cost of production will be high and organization will be failed in goal attainment. ‘Thus, failing distinguishing strategic and operational plan and follow-up or mixing different plans makes the plans ineffective. Solution for improvement:To protect the probable failure from mixing the strategic and operational plans, organizations should be clear about the level of plans and their scope. It is better to have clear responsibility for plan implementation in different level of the organization, e.g. operational plans need to be implemented at the operational decisions while top level and middle level managers should be for strategic plans. Overcomplicating the process. Sometimes, the plans become failure because of too many indicators or more complicated process for plan implementation and monitoring. Such complicated process with difficult and long list of indicators make more expensive and create unnecessary pressures, leading to employee stress and frustration. This situation make the plan ineffective and failed. Solution for improvement: To make the plan effective, implementation process and indicators should be simple, logical and scientific. Key performance indicators (KPIs) should be clear and appropriate. Keep the process as simple as possible, focus on just the key business metrics and reduce cumbersome paperwork to a minimum.124 FOUNDATION OF BUSINESS MANAGEMENT STRATEGIC PLANNING Strategic planning is an important component of strategic management. Straja,. management is a comprehensive and ongoing management Process, aimed at formulay, and implementing effective strategies. It is the way of approaching business opportune and threats. Strategic planning is an organization's process of defining its strategy direction, and making decisions for allocating its resources to pursue the given stra; Strategic management is that set of managerial decisions and actions which determines the long-run performance of an organization. Strategic planning is the process that involves the review of market condition, custome, needs, competitive strengths and weaknesses, external factors of business and the availability of resources that lead to the specific opportunities and threats. ane focus of x strategic plan is usually on the entire organization, while the focus of a business plan jg usually on a particular product, service or program. Tt is a process of determining organization’s long term goal and identifying the best approach for arene thoes goals, is a tool for organizing the present on the basis of the projestons of t A esired future ‘Therefore, strategic planning is a road map to lead an organization Tom where it is now t where it would like to be in certain years of time. "strategie planning [s the process of formulating ang it involves icientifying the major oblectver ‘of an organization, 1d to achieve them, creating plans f° implementthe strategies John R. Schermerhorn, Jr. implementing strategic plans. choosing the strategies neede and then doing the required work.” Ricky W. Griffin: "Strategic plan is a gen’ priorities and action steps necessary to reat eral plan outlining decision of resource allocation ch strategic goals.” ian which is prepared with analyzing d threats. In strategic planning ions for the activities to attain priorities of activities For our purpose, strategic planning is the pl organizational strengths, weaknesses, opportunities an proper, steps are identified so that they provide directi organizational goals. It includes the best way of allocating resources, and necessary activities to attain goals. FUNDAMENTAL ELEMENTS OF STRATEGIC ulation of strategy of any organization. For be included in a strategic plan: PLANNING Strategic plans are the top level plans for form the effective strategic plan, following key components are to . Vision, mission and value of the business: Where do the organization currently stand? And where do the organization want to be in the future? Objectives: What would the organization like to achieve? Directly responsible individuals (DRIs): Who's responsible for these goa! . 1s? 1. _ Vision statement: Vision statement of an organization is a statement of a principal ambition or target regarding what it wants to achieve or to become. A company vision statement reveals, at the highest levels, what an organization of hopes to be andPLANNING AND Di ; CISION Maxi © jeves in the long term. Vision j, CHAPTER 4) eS Vision is a broad description of the value an organization n org ides to become in th ti Lan Sh an ‘ture. It is a visual image of what the organization is ot ation. Vision state OF to be known for. It inspires people chleouls to the organiz . Statements should be clear and concise. It provid di to . It provides roadmap to reach to its target j aati company ‘get Le. destination. 4 ort popula ongeiiization, : Here are examples of vision statement Nike - Bring inspiration and innovation to every athlete inthe world 4 world. MeDonald’s - To be the best quick service resta providing outstanding quality, service, every restaurant smile Standard Chartered Bank - We have © key role to play in stimulating i 1g economic and social development through the services we provide and by being a force for good, The success of our business depends on this. . CG Group Nepal - To be five : wurant experience. Being the best means Cleanliness and valve, so that we make every customer in dollar enterprise by 2020, Mission: Mission is the statement of reasons for the organizational existence. It tells what the organization is providing to society: service, like hospitality or a product like physical goods. So, a mission statement can be defined as a fundamental, unique purpose or philosophy that established a company and identifies the scope of company operation in terms of product offered and markets served. It may also include the company’s philosophy about how it does business. Simply, mission statement tells about why the organization is established and wishes to continue its operations. In combination, these components of a mission statement answer a key question about an organization: “What is our business”? A good answer to this question makes strategy formulation, strategy implementation, and strategy evaluation activities much easier. Organizations formulate the mission statement for the following seven reasons. To ensure unanimity i.e. harmony of purpose within the organization. ii, To provide a basis of motivation for the optimal use of organization's resources. iii, To develop a basis, or standard, for allocating organizational resources. iv. ‘Toestablish organizational climate. y. To serve as a focal point for those who can identify with the organization's purpose and direction, and to determine those who cannot participate further in the organization's activities. vi. To facilitate in translation of goals and objectives into a work structure involving the assignment of tasks to responsible elements within the organization. vii, To specify organizational purposes and the translation of these purposes into goals in such a way that cost, time and performance parameters can be assessed and controlled.128 FOUNDATION OF BUSINESS MANAGEMENT Mission statement Organization We believe our first responsibility is to the doctors, nurses, and patients, mother and all others who use our products and services, To touch the hearts of Nepalese and friends of Nepal through satey television ensuring quality programs to accommodate the inter satisfaction of every viewer. ‘nt to national priorities has ensured that the compan, roots level, making difference to Nepal an Nepalese- in depth, in width and in size. Nepal Lever has always identifieg| itself with the nation’s priorities: Employment generation, development background area, agricultural linkage, export, contribution to exchequer, ete jug of our shareholders’ investment, wa 1s, and wise investment resources, W,, n offering quality and value to oy, ucts that are safe, wholesome, nd; and providing a fair return dards of integrity. Johnson and Johnson gl cot ang Channel Nepal Nepal Lever's commitme is a part of people's lives at the grass Nepal Lever Limited Pepsi Co.'s mission is to increase the val do this through sales growth, cost contro! believe our commercial success depends upo consumers and customers; providing prod economically efficient, and environmentally sou) to out investors while adhering to the highest stan‘ Pepsi Cola Co. Mission statements should have following elements : Mission should be feasible, realistic and achievable Mission should be precise but explanatory Mission should be clear to lead the actions Mission should motivate the members of the organization and its society Mission should be distinctive Mission should indicate major components of strategy 1 objectives are to be accomplished. principles that lie behind the organization's ‘and behavior standards in the organization, licit and can only be understood by t behavior. Values Mission should indicate how and when Value: Values are the beliefs and moral culture. Values give meaning to the norms In many organizations, corporate values are not exp) ving the philosophical rationale that lies behind managemen just as strong as strategy. percei can provide a rationale for behavior that is Objectives: Objectives are the end results of planned activity. It states what is to be accomplished by when, and should be quantified if possible. The achievement of corporate objectives should result in the fulfillment of the corporate mission. We define objective as a measure of efficiency of resources conversion process. An objective contains three elements: the attribute that is chosen as a measure of efficiency, the yardstick or scale by which the attribute is measured and the goal- the particular value on the scale, which the firm seeks to attain.Yr Pusarne ano Dicisow Manne O Giapeea) orms, tives i \ genet torms, objectives and goals are interchangeably used but they have some in e in terms of specificity. Objectives are not fate, they are direction. They nre not jer are itmer aif nds, they are commitments. They do not determine the future, they are means to ot povilize nications © Hy be as follows : could the resources and energies of the business for making of the future. Business an formulate variety of objectives. Some of the common areas for objectives Net Profit or Profitability Continuity of profit (stability) Efficiency (lowering cost) Employee satisfaction Employee development Growth (increase in total assets, sales) Utilization of resources (return on equity, return on assets) Quality product and services (quality assurance) Market leadership (market share) Technological leadership (innovations, creativity) Maximization of dividend or increasing share price (shareholder's wealth maximization) Social responsibility (contribution to society, such as paying high tax, supply of quality products, participating in development activities, employment generation, etc.) Reputation or increasing organization's image (being considered ‘top organization, prestigious organization) Survival (avoiding bankruptcy), etc. Features of good'objectives Tobe much clear about objectives, objectives should have following features: Objectives may be one or more than one at a time Priorities among objectives Long-term and short-term objectives Objectives are measurable Objectives are not strategies Social sanction of objectives Objective should be challenging Hierarchy of objectives128 FOUNDATION OF BUSINESS MANAGEMENT FORMULATION OF STRATEGIC PLANNING Sooo ————=_ rv 0 SS Strategie planning process consists of following steps: Step 1. Step 2. Step 3. Step 4. Step 5. Step 6. Step 7. Identify the mission, goals, objectives: While formulating Heatogle Plans, §, of all organizational mission, goals and objectives must be ‘Wentifiod. Plan, should have the clear idea about what purpose the organization is establisheg ,, what it needs to achieve, The destiny of the organization must be clear a ha, activities to attain that destiny can be easily identified. :E iron i Analyze the external environmental factors: External environment proyiq,. the opportunities and threats to organization. So, Se rir ovat should be analyzed for formulation of strategic plans. For it, ¥e it et economic, soeig, i e done. cultural, technological and environmental scanning’ must Identify the opportunities and threats: Main objective of strategic planning, to grab the opportunities with overcoming the threats. Bo potential opportunities and threats must be identified for formulation of strategic planning. environment of the Analyze the internal environmental factors: Internal organization is composed of strengths and weaknesses of the organization, | provides what can be done and what cannot be, Resources like human: skills, technology, raw materials, etc. are the factors influencing strength and weakness, Identify the strengths and weaknesses: With the analysis of intemal environment of the organization, its strong and weak points need to be listed. Al) the supporting factors like enough capital, skilled and dedicated manpower, easy supply of raw materials, advanced technology, good market position, ete. are the strengths while unavailability of such factors are weaknesses. With identification of strengths and weaknesses, planner can set the targets, prioritize the activities, allocate the resources, and finally attain the goals. So, for formulation of strategic plans, organizational strengths and weaknesses should be identified. Formulation of strategy : After conducting internal and _ external environmental analysis; strengths, weaknesses, opportunities and threats can be identified. On the basis of such information, different strategic plans for the different levels of organization are identified. Alternative plans for setting activities, their hierarchy of priorities and allocation of resources are also formulated at this stage. Plans prepared at this stage are declared as final plans and needs to be communicated as per necessary. Implementation of strategy: Though this is not the step of formulation of strategic plans, it is worthless of formulating strategic plans if it cannot be implemented. This step facilitates for getting feedback to future plans,= PLANNING ANDDecisionMaKiNc O Spee) 128 gvaluate the results: For finding the effectiveness and required ehanges in 8 tion i: 31 " 4 greP>™ plans, its se ‘cunt ee Evaluation helps get the feedback about what extent the a wate ae f0 attain the predetermined goals. This provides sufficient 8°" encment of plans if the activities are deviating from the jain steal MENTATION OF STRATEGIC PLAN rel Je plan must be formulated to achieve the predetermined goals. For this, formulated sat De implemented effectively which is again equally challenging job. Success or pa ofan organization depends on the effective implementation of strategic plan. Unless iene the plan, it is meaningless to formulate them. Therefore, managers should be inl to implement the plan timely and accurately. The following points are important for et {implementation of plan: ihe guccessful implementation depends on organizational structure. Organizational tivities should be properly divided, organized and coordinated. Organizational structure should be matched with strategy, Goals should be determined clearly in qualitative figures as far as possible. {strategy must be institutionalizing, It should be transferred into actions, plans, policies, procedures and rules which will be helpful for decision makers. policies and procedure are powerful tools for implementation of strategic plan. ‘Annual budget and targets should be defined clearly. ‘There must be open and two- way communication system between different levels of management and employees. Performance based rewards and incentives also help implement the plan effectively. Researches and actions should be matched clearly which is an essence of implementation. Maximum number of managers and employees should be involved in formulating and implementing processes. «Working condition and organizational climate should be supportive for suocessfill implementation. 10. Proper technology is essential for implementation of the plans. 11. Leadership plays vital role in effectiveness of the plans. It must be supportive and motivating to the employees. PLANNING AND LEVELS OF MANAGEMEN’ ln nore comprehensive classification of management, there are three levels of management ‘toplevel, middle-level and lower-level management based on functional focus. All these hi of management engage in typical planning process. Types of plan formulation and ‘spent for planning process differ level to level.ite ' 0 FOUNDATION OF BUSINESS MANAGEMENT ‘Top-level management normally engages in formulating strategic plans. As the Strategie» are prepared for long term, so, top-level management engages more in environm, my scanning, analysis and forecasting the future. Top-level management focuses on form, overall plans hence it must coordinate in formulating tactical and operational level plan, 5 ‘ty formulating the strategic plans, top-level management spends more time in comparison @ yy other level managers. Following figure shows the time spent for planning process by Ait level managers. | t Top-level managers Strategie plan ‘Middle-level managers Tine spent for ploning Middle-lovel managers engage in formulating departmental plans i.e. usually the tactic plans. Based on coordination with strategic plans, middle-level management formulates the tactical plans. Usually, they formulate the plans independently though, each tactical plan jg | to coordinate for its success. For instance, marketing managers formulate the marketing | and sales plans while human resource managers formulate the recruitment and selection | plan, training and development plan, performance appraisal and compensation plan, | Middle-level managers engage more time for planning process in comparison to lower-level management and less time in comparison to the top-level management. Middle-level managers need to have vertical as well as horizontal coordination and cooperation for executing their plans. They need to engage in environment monitoring and analysis for | modification and change the tactical plans. Lower-level managers basically prepare the day-to-day business plan i.e. operational plans for execution of tactical plans. For instance, unit manager formulates plan to operate daily | business in case of absence of an employee. Operation manager formulates plan for production in case failure of a machine. Lower-level managers engage for short time for planning as the operating plans are prepared for daily operation. Basically, top-level management should coordinate with middle-level and lower-level management. For effective planning and execution process, there should be vertical and horizontal communication and coordination between and among the different and same level managers.eteae | PLANNING AND DECISION MAKING O (Gaerne) [at §NING APPROACHES : = Bach organization needs to prepare plans regarding various activities to achieve the redetermined goals. ‘There are various methods use for planning. Each planning should fallow a proper Planning process. Mangers follow different approaches for planning on the pasis of their interest and beliefs, organizational culture, situation, need of plans and availability of information. Some of the well known and mostly practiced methods of planning are explained below: J | Top-Down method [>| Bettom-Up method Planning Approaches Caopitalondd | ‘Management by Objectives (MBO) method | Team method Top-Down method: Under this method, plans are formulated by top-level management without or very little consultation with lower level management. Plans formulated are then communicated to middle level and lower level management for its implementation. Usually mission, goals and objectives of organization are developed as plans by Executive officers and Board of Directors by adopting this method. This method assumes that top-level managers possess required knowledge, skill and authority of planning. They can generate enough resources and have adequate knowledge to utilize the resources in centralized planning process. Bottom-Up method: Under this method, lower level managers and operating level employees set the plans for them. During this course, they inform top-level management about what they expect to do. After collecting their opinion, top-level management finalizes the plans. Organizations having decentralization philosophy follow this method which gives high emphasis on the participation of lower levels in planning process. ‘This method helps implement the plan effectively because each and every employee can understand their goals easily. Employees can be motivated easily because of the self formulated plans. The major drawback of this method is that each unit is free to pursue or select the goals that may create the confusion. It takes more time. This method may not be practical in all situations specially at the lack of specialized and dedicated employees. 3. Composite method: This method is the combination of the ideas of top-down and bottom-up methods. Top-level management may set the tentative plan and send each unit and branch of the organization to submit their goals. Middle level and lowerB | FOUNDATION OF Business, MANAGEMENT level management, then, formulate the plan and forward it to top-level managen | Again, top-level management reviews and finalizes to consolidate plans, ‘Thig 7 taken ns the final plan, Plans formulated in this way become easy to imple because of included ideas of employees. 3] 4, Management by Objectives (MBO) method: MBO is very similar to compo, method of planning. The core aim of MBO is the alignment of company goalg , "| — subordinate objectives properly. So, everyone in the organization works achieving the same organizational goal. In order to identify the organizational ».\| the upper management usually follows techniques such as GQM (Goal, Quest, and Metries). ! The core thing is that, in MBO method, there are four phases of planning Process MBO includes setting goals, developing action plans, periodic reviews performance evaluation. This method encourage on self-control and self-motivatiog | pation of maximum employees in planning process. In MBO, thy. | through parti management focuses on the result, not on the activities. The tasks or plang ary delegated through negotiations or common understanding with employees. There jy no fixed roadmap for the implementation. The implementation is done dynamically, and to suit the situation. ‘This method is applicable in modern and larg. organizations. The MBO is most suitable for knowledge-based enterprises where the staff is quite competent of what they do. But, it consumes more time and cost. 5. ‘Team method: Under this method, a team of the experts are hired by from line managers for planning purpose. Job of planning is assigned to that work team to formulate plan, In this method, team may conduct research activities and formulate a draft plan to management. Then, top management reviews it and finalizes the plan. | ‘This method is the best method for planning which can motivate employees of every level of organization. But, for this method employees and line managers need to be expert for planning. QUANTITATIVE TOOLS FOR PLANNING Organizations can use various tools and techniques for effectiveness and efficiency of planning. Managers need to understand qualitative and quantitative tools of planning that helps formulate and implement the plan. Such techniques are generally based on principles of statistics, probabilities, sampling, accounting, finance and broadly econometrics. Managers should understand advantages, disadvantages or limitations of these techniques that help to select suitable method to minimize the risk and uncertainty. The following techniques are important for planning: 1, Forecasting method Forecasting is the general estimation as projections about something like production, sales, expenses, income, profits ete. depending on the past experience and present >»PLANNING AND Decision MAKING O preg) 138 situation. Forecasters use required information thr iy Forecastin, Te ‘ough mi ethod can be qualitative or quantitative, igh many sources. Forecasting Qualitative forecasting: forecasting. 5 There are three main methods of qualitative i, Informed judgments: In this method planners generally meet the elect i istril sele ‘ed customers, suppliers and distributors to collect information and estimates about future on their judgments, ii, Scenario analy: Under this technique, planners collect opinion of experts about the future situations and environment. The experts may provile three scenarios to forecast the situation. They are best case, most likely case and worst case. Planner can predict future targets by using these scenarios, iii, Delphi technique: This method also depends on the survey and experts. Planners should ask a set of questions and collect answers from them. Those answers should be analyzed carefully and reached in a decision of tentative results. b. Quantitative forecasting: There are four types of quantitative techniques that aids for planning as below: i. Single projection method: It is a traditional method under which simply adding to the last year figures makes current years estimation. It can forecast only rough figures. ji, Extrapolation method: This is a projection method based on analysis of more than two years data. Under this method, managers can estimate future projections using the past years data. They can use statistical methods for calculating the values. iii, Time Series analysis: This method is suitable for long-term forecasting on the basis of past year data and information. Statistical procedures can be applied to analyze the past data that help for future projection. Moving average method :This method is used for the estimation of iv. short-term plan that provides a moving average of time series. This point of the time series is the arithmetic or weighted average of a number of preceding consecutive points of the series. Network method ‘This technique is useful to plan and control the activities for complex projects. Under this method, planners should list out all activities, events and time on the basis of their importance. Required time for each activity is estimated and arranged diagrammatically. All the activities should be linked to each other and critical path is determined. PERT (Program Evaluation and Review Technique), Critical Path Method (CPM), Arrow Diagrams ete. are the most usual network methods.