Planning and
Decision Making
Unit - 2:
Content
Planning: Meaning and Nature and Importance of
Planning; Types of Plans; Planning process;
Management by Objective (MBO); Management by
Exception (MBE).
Decision Making: Meaning, Definition and Nature;
Types of decisions; Decision Making Process;
Rational Perspectives and Behavioral Aspects of
decision making.
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Meaning & Nature of planning
Meaning
Planning is thus taken as the foundation for future activities. Newman has thus
defined it as, “Planning is deciding in advance what is to be done; that is a plan is a
projected course of action.”
•Planning is defined as setting an objective for a given time period, developing
various strategies or methods to attain them, and then selecting the best possible
alternatives from the various methods available.
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Nature of planning
1. Planning Contributes to the Objective
2. Pervasive
3. Planning is Futuristic
Nature of Planning
4. Planning is Continuous
5. Planning Involves Decision Making
6. Planning is a Mental Exercise
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Nature of planning
1. Planning Contributes to the Objective:
Planning helps in achieving the objective. We cannot think of achieving any
objective without any kind of planning. Planning is one of the primary functions of
management that contributes immensely to the achievement of predetermined
objectives. Planning is The Primary Function of Management- Planning is the first
step that any manager or anyone adapts to use to move towards any goal.
2. Pervasive:
Planning is universal. Planning is there in every organization, whether it is a small
size, mid-size or large size or at whatever level it is, every manager, every
individual employee plans on at his/her level.
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3. Planning is Futuristic:
We do plan for the future. Hence it is called a futuristic process. We always stay in the
present and plan for the future. Planning is never done in the past.
4. Planning is Continuous:
We plan to achieve any goal. Planning is done for a specific period of time. It may be for a
month, a quarter, or a year. There is always a need for a new plan after the expiry of that
period. Hence it is called a continuous process. The continuation of planning is related to the
business cycle. It implies that once the plan is framed and implemented, it is followed by
another plan and so on.
5. Planning Involves Decision Making:
In planning, function managers evaluate various alternatives and select the most appropriate
way to manage things.
Nature Continued……..
6. Planning is a Mental Exercise:
In planning, assumptions and predictions regarding the future are made by scanning the
environment properly. This activity requires a higher level of intelligence.
Importance of Planning
1. Planning Provides Direction:
Planning provides us with direction. How to work in the future includes planning. By stating
in advance, how work has to be done, planning provides direction for action.
2. Planning Reduces the Risk of Uncertainties: Uncertainty means any events in the
future that change our course of action. Planning helps the manager to face uncertainty. We
cannot remove such uncertainty from our life. However, due to planning, we can work on
such uncertainty. Just like an unforeseen event is going to come in which we are going in
loss. So, if we are already ready, we have made funds for it, then we will be able to use it to
fight that unforeseen situation.
3. Planning Reduces Overlapping and Wasteful Activity:
Overlapping means the working relationship has not been allocated specifically. If we plan,
our time will not be wasted.
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Importance of Planning
4. Planning Promotes Innovative Ideas: If you are planning, then you get feedback from
your senior managers or juniors, from there you can get innovative ideas. Besides, if you
make your employees part of the decision-making, then you can get new creative ideas from
there too.
5. Planning Facilitates Decision: Planning helps in decision-making. The more efficient you
plan, the more right you will be in the decision. With good planning, our decision-making
gets accurate, it becomes feasible and it also gets improved.
6. Planning Establishes a Standard for Controlling : Controlling is incomplete without
planning and planning is incomplete without controlling. If you have done the planning but
you do not know if the thing is happening or not, then the planning is useless. In case, there
is no planned output then the controlling manager will have no base to compare whether the
actual output is adequate or not.
7. Focuses Attention on Objectives of that Company: Through planning, efforts of all the
employees are directed towards the achievement of organizational goals and objectives.
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Types of Plans
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Types of Plans
1. Strategic Plans
Strategic plans define the framework of the organization’s vision and how the organization
intends to make its vision a reality.
It is the determination of the long-term objectives of an enterprise, the action plan to be
1.
adopted and the resources to be mobilized to achieve these goals.
Since it is planning the direction of the company’s progress, it is done by the top
2.
management of an organization.
It essentially focuses on planning for the coming years to take the organization from where
3.
it stands today to where it intends to be.
The strategic plan must be forward looking, effective and flexible, with a focus on
4.
accommodating future growth.
These plans provide the framework and direction for lower level planning.
5.
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Types of Plans
3. Operational Plans
Operational plans are short-term (less than a year) plans developed to create specific action steps that
support the strategic and tactical plans.
They are usually developed by the manager to fulfill his or her job responsibilities.
1.
They are developed by supervisors, team leaders, and facilitators to support tactical plans.
2.
They govern the day-to-day operations of an organization.
3.
•Operational plans can be −
Standing plans − Drawn to cover issues that managers face repeatedly, e.g. policies,
procedures, rules.
Ongoing plans − Prepared for single or exceptional situations or problems and are
normally discarded or replaced after one use, e.g. programs, projects, and budgets.
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Types of Plans
3. Operational Plans
Operational plans are short-term (less than a year) plans developed to create specific action steps that
support the strategic and tactical plans.
They are usually developed by the manager to fulfill his or her job responsibilities.
1.
They are developed by supervisors, team leaders, and facilitators to support tactical plans.
2.
They govern the day-to-day operations of an organization.
3.
•Operational plans can be −
Standing plans − Drawn to cover issues that managers face repeatedly, e.g. policies,
procedures, rules.
Ongoing plans − Prepared for single or exceptional situations or problems and are
normally discarded or replaced after one use, e.g. programs, projects, and budgets.
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Process of Planning
Setting up the Objective
Developing Premises
Listing the Various Alternatives for Achieving the
Objectives
Evaluation of Different Alternatives
Selecting an Alternative
Implement the Plan
Follow Up
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Process of Planning
1. Setting up the Objective:
Till the manager does not have an objective, he cannot do the planning, so the goal should
always be clear.
2. Developing Premises:
As we know the future is certain, therefore planning is always made keeping the future in
mind. Hence in the function of management, certain assumptions are required to be made.
These assumptions are known as premises. Premises means making assumptions for the
future. The manager can make the assumption by studying the past decisions, policies,
studying the facts, and existing plans.
3. Listing the Various Alternatives for Achieving the Objectives:
After setting up objectives, the managers make a list of alternatives through which the
organization can achieve its objectives.
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Process of Planning
4. Evaluation of Different Alternatives:
In this step of the planning process, managers evaluate and closely examine each of the
alternative plans. Every alternative will go through an examination where all its pros and cons
will be weighed. The alternative plans need to be examined taking into account the
organizational objectives.
5. Selecting an Alternative:
This is the stage of planning in which the manager has to adopt a decision. Here, the manager
will choose the best and most feasible plan to implement. The ideal alternative that is selected
by the manager should be the most profitable one with the least amount of negative
consequences and is also adaptable to dynamic situations.
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Process of Planning
6. Implement the Plan:
This is the step where other managerial functions are also considered. The step is concerned
with putting the plan into action, i.e., doing what is required. For example, if a manager
makes a plan to increase production, then more labor, and more machinery will be required.
Hence, this step would also involve arranging for labor and the purchase of machinery.
7. Follow Up:
To find out whether plans that are formulated are being implemented and activities are
performed according to schedule is also part of the planning process. To stick with the plan
and follow it in a given time frame is equally important to ensure that organization objectives
are attained.
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Management by Objective (MBO)
The process of setting objectives in the organization to give a sense of direction to the employees is called as
Management by Objectives. It refers to the process of setting goals for the employees so that they know what they are
supposed to do at the workplace. Management by Objectives defines roles and responsibilities for the employees and
help them chalk out their future course of action in the organization. Management by objectives guides the employees
to deliver their level best and achieve the targets within the stipulated time frame.
The term 'Management By Objectives' was first termed by management guru Peter Drucker in his 1954 book, The
Practice of Management.
MBO follows the mnemonic S.M.A.R.T while setting objectives. ‘SMART’ objectives are-
Specific - Target a specific area for improvement.
Measurable- Quantify or suggest an indicator of progress.
Assignable - Specify who will do it.
Realistic - State what results can realistically be achieved, given available resources.
Time-bound - Specify when the result(s) can be achieved.
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Management by Objective (MBO)
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Management by Objective
(MBO)
1. In the first step, MBO emphasizes measurable, tangible, and achievable goals,
keeping the organizational mission in mind.
2. The second step is to set and align these objectives with the employees.
3. In the third step, the employees are allowed to plan their objectives.
4. In the fourth step, the progress of the employees is monitored.
5. The fifth step is to evaluate and reward employees. Honest feedback is given,
and also new strategies for goals not achieved are established.
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Management by exception (MBE)
Management by exception (MBE) is a management tactic is where managers will only take a step in
when there are significant deviations from strategic results. These would be operational or financial
outcomes.
Management by Exception, shortly called as MBE is a management style or philosophy that empowers
the manager to concentrate on the exceptionally important or critical matters and taking important
decisions while facilitating the front-line workers to complete the day-to-day activities
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Management by exception (MBE)
1. Measurement: Assignment of values to the past and present performances, so as
to easily recognize an exception.
2. Projection: Forecasts that measurement which is relevant to the organizational
objectives and extends the same, to future expectations.
3. Selection: Determines the parameters used by the management to pursue
organizational objectives.
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Management by exception
(MBE)
4. Observation: Measurement of existing performance so that the managers are
having the knowledge of the existing state of affairs of the organization.
5. Comparison: Compare the actual and planned performance and indicating the
exception which needs managerial action and reports the variances.
6. Decision Making: Prescription of the course of action which needs to be taken so
as to ensure that the performance is back in control or to adjust expectations, which
represents the changing conditions.
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Meaning of Decision Making
According to the Oxford Advanced Learner’s Dictionary the term decision making
means - the process of deciding about something important, especially in a group of
people or in an organization.
Trewatha & Newport defines decision making process as follows: “Decision-making
involves the selection of a course of action from among two or more possible
alternatives in order to arrive at a solution for a given problem”.
George Terry defines decision-making “as the selection of one behaviour alternative
from two or more possible alternatives.”
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EXAMPLE – CARBON FOOT PRINT
A carbon footprint is the total amount of greenhouse gases
(including carbon dioxide and methane) that are generated
by our actions. The average carbon footprint for a person in
the United States is 16 tons, one of the highest rates in the
world.
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decision making [Link]
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Nature of Decision Making
1. Decision making is an intellectual process, which involves imagination, reasoning, evalu
ation and judgement.
2. It is a selection process in which best or most suitable course of action is finalized from a
mong several available alternatives. Such selected alternative provides utmost help in the a
chievement of organizational goals. The problems for which there is only one selection are
most decision problems.
3. Decision making is a goal oriented process. Decisions are made to attain certain goals. A
decision is rated good to be extent it helps in the accomplishment of objectives.
4. It is a focal point at which plans, policies, objectives, procedures, etc., are translated into
concrete actions.
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Nature of Decision Making
5. Decision making is a continuous process persuading all organizational activity, at all level
s and in the whole universe. It is a systematic process and an interactive activity.
6. Decision making involves commitment of resources, direction or reputation of the enterpr
ise.
7. Decision making is always related to place, situation and time. It may be decision not act
in the given circumstances.
8. After decision making it is necessary and significant to communicate its results (decisions
) for their successful execution.
9. The effectiveness of decision‐making process is enhanced by participation.
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Types of decisions
Decision making and problem solving is a continuous process of analyzing and
considering various alternatives in various situations, choosing the most appropriate
course of action and following them up with the necessary actions.
There are two basic types of decisions −
[Link] Decisions
[Link]-programmed Decisions
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Types of decisions
1. Programmed Decisions
Programmed decisions are those that are made using standard operating procedures
or other well-defined methods. They are situations that are routine and occur
frequently.
Organizations come up with specific ways to handle them. Programmed decisions
are effective for day-to-day issues such as requests for leave or permissions by
employees. Once the decision is taken, the program specifies processes or
procedures to be followed when similar situation arises. Creating such programed
routines lead to the formulation of rules, procedures and policies, which becomes a
standard in the organization.
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Types of decisions
2. Non-programmed Decisions
Non-programmed decisions are unique and one-shot decisions. They are not as
structured as programmed decisions and are usually tackled through judgment and
creativity.
They are innovative in essence, as newly created or unexpected problems are
settled through unconventional and novel solutions.
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Process of Decision Making
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Process of Decision Making
Step 1: Identification of the purpose of the decision
•In this step, the problem is thoroughly analysed. There are a couple of questions
one should ask when it comes to identifying the purpose of the decision.
•What exactly is the problem?
•Why the problem should be solved?
•Who are the affected parties of the problem?
•Does the problem have a deadline or a specific time-line?
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Process of Decision Making
Step 2: Information gathering
A problem of an organization will have many stakeholders. In addition, there can
be dozens of factors involved and affected by the problem.
In the process of solving the problem, you will have to gather as much as
information related to the factors and stakeholders involved in the problem. For the
process of information gathering, tools such as 'Check Sheets' can be effectively
used.
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Process of Decision Making
Step 3: Principles for judging the alternatives
In this step, the baseline criteria for judging the alternatives should be set up. When
it comes to defining the criteria, organizational goals as well as the corporate
culture should be taken into consideration.
As an example, profit is one of the main concerns in every decision making
process. Companies usually do not make decisions that reduce profits, unless it is
an exceptional case. Likewise, baseline principles should be identified related to
the problem in hand.
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Process of Decision Making
Step 4: Brainstorm and analyse the different choices
For this step, brainstorming to list down all the ideas is the best option. Before the
idea generation step, it is vital to understand the causes of the problem and
prioritization of causes.
For this, you can make use of Cause-and-Effect diagrams and Pareto Chart tool.
Cause-and-Effect diagram helps you to identify all possible causes of the problem
and Pareto chart helps you to prioritize and identify the causes with highest effect.
Then, you can move on generating all possible solutions (alternatives) for the
problem in hand.
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Process of Decision Making
Step 5: Evaluation of alternatives
Use your judgement principles and decision-making criteria to evaluate each
alternative. In this step, experience and effectiveness of the judgement principles
come into play. You need to compare each alternative for their positives and
negatives.
Step 6: Select the best alternative
Once you go through from Step 1 to Step 5, this step is easy. In addition, the
selection of the best alternative is an informed decision since you have already
followed a methodology to derive and select the best alternative.
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Process of Decision Making
Step 7: Execute the decision
Convert your decision into a plan or a sequence of activities. Execute your plan by
yourself or with the help of subordinates.
Step 8: Evaluate the results
Evaluate the outcome of your decision. See whether there is anything you should
learn and then correct in future decision making. This is one of the best practices
that will improve your decision-making skills.
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Rational Perspectives and Behavioural Aspects of
decision making.
Decision Making Models: Rational and Behaviour Model
A manager has to make decisions under different conditions and situations. While
taking a decision how does a manager perceive the things, how does he react and how
does he try to resolve, all this is human behaviour. Two models or approaches explain
the behaviour of the decision maker.
1. Rational or ‘Economic Man Model’:
The classical approach to decision making in economics has used the ‘economic man’
model under conditions of certainty. The economic man is completely rational. It states
how a manager should behave in the process of decision making. This approach,
besides rational, is also idealistic because it cannot be fully applied to a practical
situation. This approach is supported by scientific and logical methods.
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Rational Perspectives and Behavioural Aspects of
decision making.
2. Behaviour Model:
Bounded Rationality, ‘Administrative Man’. Rationality approach may not always
be applicable in practical situations. Management experts have developed
‘behavioural approach’ which is realistic as per the demand of the situation. This
approach is pragmatic and holds the view that a manager is a human being and
cannot be fully rational because he is confronted with many constraints, problems,
limitations and inadequacies.
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THANK YOU
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