Week 04: Lecture Notes CONCEPT OF PLANNING 1

❖ Planning is a blueprint of the course of action to be

followed in the future. It is also a mental exercise that
requires imagination, foresight and sound judgment. It is
thinking before doing. It is a preparatory step and it refers
to detailed programs regarding the future course of action.
❖ Planning is a cognitive activity that requires a manager to
engage in thoughtful consideration before taking action. It
is proactive. Managers in an organization use planning to
determine tasks, timing, and methods, and assign
responsibilities.
❖ “Planning is deciding advance what to do, how to do it,
when to do it, who is to do it. It bridges the gap between
where we are, where we want to go. It makes it possible
for things to occur which would not otherwise happen.” –
---Koontz and O’Donnel
 NATURE OF PLANNING 2

• Planning is primary function of

management

• Pervasive in nature

• Planning is futuristic/forward looking

• Planning is continuous process

• Planning involves decision making

• Planning contributes to objectives

 IMPORTANCE OF PLANNING
3

Forms Goals

Gives Direction

Tackles Uncertainty

Minimizes Duplication and Wasteful Activities

Facilitates Coordination

Supports and Promotes Innovative Ideas

CHARACTERISTICS OF SOUND
4

BUSINESS PLAN

Objective oriented

Clear, logical, and simple

Controllable

Flexible

Stable

Complete and integrated

STEPS IN PLANNING 5

Setting
objectives

Planning
Follow up
premises

Alternate
Implementing
course of
plan
action

Evaluating
Selecting best
alternate
alternate
course
LIMITATIONS OF PLANNING 6

Planning leads to rigidity

Planning may not work in

dynamic environment

Planning reduces creativity

Planning involves huge cost

Planning is time consuming

Planning does not guarantee success

Week 04: Lecture Notes
TYPES OF PLAN 1

Standing or multi-use plans: A standing plan is a

recurring strategy implemented consistently over
an extended duration. It serves as a comprehensive
manual for both thought and behavior. A standing
plan is a permanent or long-term solution to
reoccurring issues.

Single-use or ad hoc plans: A single-use plan is

utilized once and subsequently abandoned. It is
tailored to meet the requirements of a certain
scenario or objective and is depleted once the goal
is accomplished or the situation concludes.
 TYPES OF PLANS
2

Objectives Programmes

Single Use Plans

Standing Plans

Policies
Budgets
Strategies
Schedules
Procedures
Rules Projects
 COMPARATIVE VIEW OF TYPES OF PLANS
3
Types of Plans Definition Characteristics Example
Objective Offers a focal point for Concerned with future Grow profits by 10%
steering and orienting the activities-Comprehensive annually
company's operations. plan

Policy Sets boundaries for Aids in predicting actions Employees will be

overall activity within the and decisions promoted from within.
firm
Procedure Outlines the necessary More detailed than Each salesman will send a
actions to achieve a task policies, these guidelines sales report every week
in alignment with are designed for and
existing policies and customized to particular
towards set goals. tasks. Facilitates the
uniformity of work.
Strategy Offers guidance on Interpretive plan focusing A price cut by
allocating resources to on the exterior competitors will be faced
address environmental surroundings. by advertising the quality
opportunities and risks. of the product.
Types of Plans Definition Characteristics Example
4
Rule States what to do or not Rigid plan no scope for No Smoking in the
to do in a given situation judgement factory

Budget Outlines achievable A specific timeframe To produce and sell goods

financial goals for the customized for a certain worth Rs. 5,50,000 in the
company and specifies company should involve next year.
the necessary resources. contributions from all
departments or sections
of the organization.
Programme Lays down action, steps Combination of policy, An advertising campaign
and methods of work. procedure to execute to introduce a new
steps in procedure product
Schedule Explains the time Starting and finishing Release new product on
sequence of events. dates for specific work. 1st January 2017 after
Time sequence, part of inception on 1st June,
action plan. 2016.
Project Identifies a cluster of An investment plan with Development of a new
activities as an specific start and end product.
independent unit dates
 5

DECISION MAKING
➢ According to Haynes and Massie,
“Decision-making is a process of selection
from a set of alternative courses of action
which is thought to fulfill the objective of
the decision problem more satisfactorily
than others.”

➢ Decision-making is the act of selecting a

particular course of action among various
options to accomplish a specific objective.
It involves the tasks a manager carries out
to reach a decision.
CHARACTERISTICS OF DECISION-MAKING 6

Goal-oriented process

Choice or selection of the most appropriate course of

action

Continuous process

Intellectual process

Dynamic process

Situational

Pervasive
TYPES OF MANAGERIAL DECISION 7

Programmed
& Non
Programmed
Decision

Individual & Types of Strategic &

Group Managerial Routine
Decision Decision Decision

Administrative
Decision
 8

PROCESS OF DECISION-MAKING
Identify the Problem

Diagnose the Problem

Discover alternatives

Discover alternatives course of actions

Evaluate the alternatives

Choose the best alternative

Implement & Follow up

Week 04: Lecture Notes 1

RATIONALITY IN
DECISION-MAKING
➢ A sensible decision is made after carefully
comparing and evaluating the consequences
of different possible actions. It is rational and
unbiased.

➢ Rationality refers to the capacity to utilize a

systematic, logical, and comprehensive
strategy in making decisions.
MODELS OF DECISION MAKING 2

Decision Making
Rational Economic Man

Models
(Perfect Rationality)

Administrative Man
(Bounded Rationality)
 THE RATIONAL ECONOMIC MAN 3
MODEL-PERFECT RATIONALITY
Adam Smith and other classical economists suggested that managers are always
rational and choose the alternative that provides maximum gain. Therefore, the
classical theory of economics is based on the goal of profit maximization.

This model is based on the following assumptions:

I. The decision maker has a distinct and clearly stated objective that he aims
to maximize.
II. He is completely objective and rational, unaffected by emotions.
III. The decision maker can clearly and exactly define the problem.
IV. He is aware of all the potential options and the repercussions of each one.
He possesses comprehensive information and can examine it astutely.
V. The decision maker can prioritize all implications based on preference and
identify the best consequence.
VI. He has complete autonomy to select the alternative that most optimally
fulfills the decision. The economic man model is prescriptive.
 THE ADMINISTRATIVE MAN 4

MODEL-BOUNDED RATIONALITY
➢ Prof. Herbert Simon, a renowned economist, and Nobel
laureate, proposed the concept of bounded rationality to
explain decision-making behavior in real-world circumstances.

➢ His administrative man model is a descriptive model of

decision-making behavior. This model acknowledges that
managers cannot make completely rational decisions owing to
various constraints.

➢ In reality, managers often make tolerable or reasonably

excellent decisions rather than ideal ones.

➢ Simon's model is also known as the 'satisficing model' of

decision-making.
CAUSES OF BOUNDED RATIONALITY
5

Inadequate goal formulation

Vaguely defined problems

Limited time and resources

Imperfect knowledge

Human limitations

Power politics

Environmental dynamics
 COMPARISON BETWEEN 6

ECONOMIC AND
ADMINISTRATIVE MAN MODELS
OF DECISION-MAKING

Economic Man Model Administrative Man Model

1. Perfect Rationality Bounded rationality
2. Normative Descriptive
3. Perfect knowledge Incomplete knowledge
4. Exhaustive search for all the Limited search for a few feasible
alternatives alternatives
5. Optimal or ideal decisions Satisfying decisions
Week 04: Lecture Notes BARRIERS TO DECISION-MAKING 1

Bounded Rationality

Commitment

Uncertainty

Personal Biases

Conflict

Time
 MIS AND DECISION MAKING 2

• MIS may be defined as a formal system of gathering, processing, storing, and supplying the information
needed by managers for taking and implementing effective decisions to achieve goals.

Data collection
What, from whom, how often, who, how

Data Management
Data processing, storage, retrieval,
dissemination, evaluation

Characteristics of MIS
Management Oriented
Wholistic
Planned

Common Data Flow

Flexibility
Objectives of MIS Advantages of MIS 3

Right information Availability of data

Right time Better access of data

Right form Speed and accuracy

Right cost Secured data

Updated Secrecy

Secured Flexibility
LIMITATIONS OF MIS 4

Qualitative data

Quality of data

High cost

Right cost

Rapid change

Only an aid to decision

 INDIVIDUAL AND GROUP 5

DECISIONS
➢ Individual decisions are made by one person. These typically
address routine issues that can be resolved using established
policies. When making such selections, analyzing different variables
is pretty simple. However, in some cases, essential decisions may be
taken by a single person.

➢ Group decisions are made by a specific group of individuals

assembled for that reason. Decisions made by the Board of
Directors or a committee represent group decisions. These
decisions are typically important to the organization.

➢ Group decision-making typically leads to more pragmatic and well-

rounded decisions and promotes participatory decision-making.
However, it causes delays and complicates the process of assigning
responsibility for those decisions.
 ADVANTAGES AND DISADVANTAGES OF
GROUP DECISION-MAKING 6

Advantages Disadvantages
➢ More information and knowledge ➢ Time wasted because of delayed
decision-making
➢ A greater number of alternatives ➢ Groups exert pressure on their
can be generated due to wider members to comply and reach an
experience, variety of opinions, and agreement on the least
more thorough probing of facts objectionable option.
➢ Participation in decision-making ➢ Group dominance by a few
increases acceptance and prominent and influential members
commitment to decisions
➢ People understand the decision ➢ May be costlier than individual
better decisions
➢ Interaction between individuals ➢ Tendency to shift responsibility or
helps to improve team work avoid action and collaboration.
➢ One man control reduced as ➢ Conflict and hatred may arise
authority is shared among group members due to
disagreements.
Week 04: Lecture Notes QUANTITATIVE & QUALITATIVE 1

TECHNIQUES OF DECISION-
MAKING

I need to make Decision!

I need to answer
(THIS QUESTION)
to make the decision
How many? Why?
How much? Motivations
How often? Needs/ Wants?

Qualitative
Quantitative Story,
measurable observation,
numerical thought,
feeling
 QUANTITATIVE TECHNIQUES OF DECISION-MAKING 2

Marginal analysis: to find the point where the cost resulting from
the addition of one more unit (marginal cost) is equal to the benefit
(marginal revenue

Cost-effectiveness: Also known as cost-benefit analysis,

it is used to compare alternatives where the optimum
solution cannot be conveniently reduced to monetary
QUANTITATIVE terms.
TECHNIQUES

Risk Analysis: to determine the nature and size of

the risk involved.

Linear Programming: determining the optimum

combination of limited resources to minimize costs or
maximize profits.
 QUANTITATIVE TECHNIQUES OF DECISION-
3

MAKING

Operations Research: It facilitates decision-making by

supplying quantitative information to the decision-maker. It
provides a scientific and objective basis to reduce intuition.
Probability, game theory, network analysis, queuing theory.

Decision tree: used for identifying the available

QUANTITATIVE alternatives and the risk and outcome associated with each
TECHNIQUES
alternative.

Network Analysis: Involves analysis of a project into small

operations that are interconnected in a logical order. PERT
(Programme Evaluation and Review Technique) and CPM
(Critical Path Method) are the most popular network techniques
that are used for planning and controlling large projects.
 DECISION TREE 4

Decision Point

225000
Chance Event High Sales

Calculations
Possible Outcome

Improve Low Sales

175000

250000
High Sales

Add
Calculations

Low Sales
180000
 QUALITATIVE TECHNIQUES
5

OF DECISION-MAKING

Brainstorming

Delphi Technique

QUALITATIVE
TECHNIQUES

Nominal group technique

Simulation