Unit 4: Planning and Decision Making

Concept of planning
“Planning is thinking in advance about the tasks to be done in the future.”
It is a process of deciding in advance about what to do, how to do it,
where to do it and who is to do it.
It provides ends to be achieved.
Planning is the process by which managers define goals and necessary
steps to ensure that these goals are achieved.
In simple term, planning also can be defined as the process of setting
goals and choosing the means to achieve those goals.
So, planning is the basis for all other managerial functions.
Planning involves selecting missions and objectives and actions to achieve
them.
 “Planning is the process of thinking about and organizing the
activities required to achieve a desired goal.”
planning is that part of management which attempts to define
the organization’s future.
Some of the characteristics of organizational planning are:
• Planning is goal directed.
• Planning is future oriented
• Planning deals with uncertainty created by future environmental
trends and events
• Planning is a thinking process
• Planning is action oriented.
Planning is needed to bridge the gap existing between the
present state and the desired future state.
Figure: A planning model
 Types/level of planning

On the basis of hierarchy, planning may be classified into strategic, tactical

and operational plan.
• Strategic plan:
It is set by the board of directors with the involvement of CEO, GM, ED
and other high ranking managers.
They are responsible for making setting strategic plan including, plan,
policies, goals, mission, vision and budget.
It is prepared after doing environmental scanning and basically set the
long term goal ranging from 5 to 10 years.
Top managers scan the external environment for opportunities and
threat to the organization
match internal strengths and weaknesses to changes in the external
environment in order to create new opportunities.
• Tactical plan:
Plans prepared by middle level management for the mid-
term are refereed as tactical plan.
these tactical plan are prepared on the basis of corporate plans
to achieve organizational goals.
It is prepared for the implementation of the strategic plans set
by the top management and lays the basis of operational
plans.
Under this plan, it hires, train and assign jobs to people to
achieve it’s target.
Tactical plans are generally made for the mid-term time period
ranging from 3to 5 years.
Middle level managers are involved in making it the tactical
plans, they are responsible to determine the specific details
of targets, resource utilization and time frames.
• Operational plan:
It is prepared by the lower level managers including,
supervisors, foreman, frontline manager.
They are responsible for developing and implementing
operational plans.
These plans are derived from tactical plan and deal with
routine tasks.
They are developed to translate the tactical objectives into
specific operational activities to be assigned to individual
and groups.
Activities and resources are allocated to individuals and
groups to carry out their assigned tasks.
They also make day-to-day activity schedules and budgets
for carrying out operational plans.
It is usually a short-term plan ranging up to one year.
Figure: Types of planning
 Planning horizons
“Planning horizon refers to how far the plan is meant to apply.”
Some plans are meant for long-term whereas others are for short-term.
• Strategic plan:
It focuses on strategic plan of the organization.
it is different to business plan related to particular product, service or
program.
It covers a period of more than 5 years
addresses the resource planning and allocation.
aims at environmental adaptation and achievement of sustainable
competitive advantage.
It provides a long term road map to the organization.
It involves the development of vision, mission, objectives and strategy.
• Tactical plan:
developed to implement a particular part of the strategic goal.
formulated for achieving tactical goals.
developed by middle-level managers for a relatively shorter period of time.
usually developed in the area of production, marketing, HR, finance.
It is more specific and focused
it is concerned with getting the things done
developed to bring functional efficiency and support the strategic plan.
 Planning process/steps

As planning is an intellectual task, it consists of systematic

procedure or steps. The following steps are generally involved
in planning process.
• Analysis of environment
• Setting objectives
• Developing planning premises
• Identification of alternatives
• Evaluation of alternatives
• Selecting the best alternatives
• Formulating supporting plans
• Implementing the plans
The aforementioned points are briefly explained.
• Analysis of environment:
The first and foremost of planning is analysis of
environment both internal and external.
The internal environment is related within the
business environment, i.e. policies, plans, strategies,
employees, machines, materials, among others.
It helps to know the strength and weakness of the
organisation.
External environment is related to outside factors of
the organisation, i.e political, economical, social,
technological and legal.
It helps to know the opportunity and threats of the
organisation, concerned with SWOT analysis,
it is done for the planning at the first.
• Setting objectives:
the objectives must be clearly specified and measurable as.
The goal must be SMART (specific, measurable, attainable, realistic
and timely) for the successful future.
• Developing planning premises:
It is an assumptions about the future internal and external
environment.
planning premises forecast about the prospective market, tax rate
prospective environment changes, wage rate etc.
It provides basic information necessary for effective planning.
• Identification of alternatives:
Once the planning premises are developed, the next step is to identify
the alternative course of action to attain those objectives.
for this, different sources may provide information for instance;
newspaper, experience of the managers, competitors analysis etc.
• Evaluation of alternatives:
the cost-benefit ratio should be considered while evaluating
alternatives.
• Selecting the best alternatives:
the best alternative which helps to achieve the organizational goals at
the minimum cost and effort should be selected.
• Formulating supporting plans:
different types of plans such as long term, mid-term and short term
that are associated with each and every department should be
formulated.
But, while formulating plan it should not contradict with the main
plan.
• Implementation of plans:
Plans should be implemented to achieve the desired goals set by the
organization.
 Standing use plans and single use plans:
Standing plans are intended to handle recurring situations
and remain unchanged for fairly long periods of time.
It is used in situations in which programmed decision-
making is appropriate.
when the same situation occurs repeatedly, managers
develop policies, rules and operating procedures to control
the way employees perform their tasks.
The following are the examples of a standing plan.
Policy: It is a general statement, which serves as a guide to
management practice.
Procedure: It is a written instruction describing the exact
series of actions that should be followed in specific situations.
Rule: It is a formal, written guide to action, based on policy.
Standing use plans are formulated for programmed decision-making
situations in an organization.

Some of the use of standing use plans are as follows:

• They help to maintain coordination over all the activities of the
organization.
• They bring consistency, uniformity and unity to organizational activities
• They involve rules, procedures and regulations so managers can delegate
their responsibility to subordinates
• They support making quick decisions based on the nature of problems
• They help to maintain better administrative control over the activities of
the organization.
• They help in achieving goals even if they are complex or multidimensional.
 Single use plans
are developed to handle non-programmed decision-making in
unusual situation.
Single use plans are short-term and used only once and then
discarded.
Some examples of single-use plan are as follows:
Programme: It is an integrated set of plans for achieving
certain goals.
It integrates goals, policies, procedures, and rules
to achieve a certain purpose.
Project: It is a specific action plan created to complete various
aspects of a programme.
Budget: It is a single-use financial plan that allocates
resources.
Single use plans are specific plans which are formulated for a specific
purpose in non-programmed situation.

Some of the use of single-use plans in the organization.

• They help to solve unique types of problems and issues
• They guide managers to develop a creative solution to a specific problems
• They support the managers in the introduction of new products and
services in the market
• They can provide an impact on the long-term functioning of the
organization
• They bring consistency, uniformity and unity to organizational activities
• They help in achieving goals through a solution to a specific problem or
issue.
 Contingency plans

Contingency plans is defined as a course of action designed to help an

organization respond to an event that may or may not happen.
Main objective of contingency plan is to prepare an organization to respond
well to an emergency situation.
It is developed to response in advance for various situations that might
impact on business activities.
It basically respond to three situations:
• How environmental factors are changing?
• How changing environmental factors are affecting business?
• What managers are prepared to adopt business activities in changing
environment?
It is formulated to respond coherently to unplanned events and issues.
 Contingency planning is usable to cover the following threats:
• Crisis management:
i.e. natural disaster, terrorist attacks, fires in the warehouse, on-the-job injuries.
• Continuity plan:
covers a range of situations i.e. death of an executive manager,
involve insurance policies that provide for the cost of keeping the institution in
operation.
• Asset security plan:
essential to save intellectual property i.e. trade secrets, computer programs,
equipment from theft or destruction.
• Mismanagement plan:
take necessary measures to save the enterprises from crisis i.e. fraud, theft,
operational errors, personal scandal.
• Reorganization:
it is required when the present system is unable to function effectively.
deals with negative events.
 Derivative plans

Derivative plans are the sub-plans or secondary plans which help in the
achievement of main plan.
These are meant to support and expedite the achievement of basic plans i.e.
policies, procedures, rules, programmes, budget, schedule etc.
For example, if profit maximization is the objective of main plan then derivative
plans include product maximization, sales maximization, cost minimization.
Some of the uses of derivative plans are as follows:
• They are the basis of implementation of basic plans
• They involve policies, programs, procedures, budget of action plan
• They help to maintain coordination over the different stages of plan
implementation.
• They are consistent with the basic plan to achieve the defined objectives.
• The elements and dimensions of derivate plans can be amended based on
necessity.
 Pitfalls of planning
“Planning provides roadmap to organizational functioning to achieve its goals.”
However, it may be disadvantageous if not formulated, implemented and controlled
properly.
The following are some pitfalls or drawbacks of planning that are likely to occur in
organization.
• Prevents action
• Leads to complacency
• Inhibits creativity
• Prevents flexibility
• Time consuming
• Expensive activity
• Lack of control
• Incomplete information
• Resistance to change
• Prevents action:
planning may prevent action due to lack of resources or failure on
implementation.
this situation is called “death by planning”
• Leads to complacency:
it’s a feeling of satisfaction with one’s ability and prevents from trying
further.
planning can make the managers complacent i.e. they think plan depict
where the organization is going and it will get there.
managers need to understand planning is a dynamic process.
• Inhibits creativity:
planning determine future course of action,
employee performance is evaluated on the basis of achievement
plans are focused on plans which may prevent creativity and innovation.
• Prevents flexibility:
plan may prevent flexibility, employees have to follow plan even if it is
ineffective or need modification
leads to rigidity within the organization.
• Time consuming:
planning is a time consuming process.
it involves the collection, analysis, evaluation and interpretation of data
and information.
planning is irrelevant during an emergency or crisis where quick decisions
are required.
• Expensive activity:
it’s an expensive effort i.e. requires collection, evaluation, interpretation
of data and information.
• Lack of control:
some of the factors are not under the control of managers.
i.e. natural disasters, strikes, bandhs, change in government rules and
regulations.
these factors may not behave as expected and plans may be implemented
properly.
• Incomplete information:
difficult to collect all required data and information due to time, resource and
capability issues.
planning with incomplete information may be counterproductive to an
organization.
• Resistance to change:
planning bring some type of changes within the organization.
employees perceive planning to be challenging and threats to their existence
in the organization i.e. job security.
 Improving planning
“Planning is a continuous process.”
The planning process should be constantly improved, some of its ways are enlisted:
• Setting specific goals
• Developing realistic plans
• Proper understanding
• Management information system
• Comprehensive
• Involvement of top management
• Flexibility
• Dynamic managers
• Careful premising
A aforementioned points are briefly explained below:
• Setting specific goals:
main goal should be set out first, then departmental and unit goals
must be consistent with main goal
• Developing realistic plans:
plans shows direction and path for doing organizational activities
plans must be formulated by considering the objectives of organization.
• Proper understanding:
mutual understanding between managers and subordinates help for
effective implementation of plan.
• Management Information System:
helps to avail all relevant facts, figures, data and information
supports for formulation of plan and effective implementation
• Comprehensive:
plan must be comprehensive and cover all functional areas i.e. production,
marketing, human resource, finance, research and development among others.
• Involvement of top management:
top-level managers have authority and resources
they should involve in formulation and implementation of plans
when top-level managers review performance, it naturally stimulates
planning throughout the organization.
• Flexibility:
some elements of flexibility must be introduced in the planning process
business operates in dynamic environment that change on time and
situation.
scope to make addition, deletions, or alternatives in plan, as per
requirement.
• Dynamic managers:
take required initiative to make business forecasts and develop
planning premises.
formulate rational plan and implement such plan through environmental
adaptation.
• Careful premising:
planning premises should be set up carefully i.e. internal/external or
tangible and intangible.
premises are framework within which plan is formulated.
they are assumptions regarding what is likely to happen in the future.
 Decision making—definition

“A decision is defined as “an act of making choices.”

A choice or a decision is made from among two or more
alternatives or courses of action.
In management term, it can be defined as “the process
by which individuals select a course of action among
several alternatives, to produce a desired results.”
Managers respond to the opportunities and threats
through decision-making.
The main purpose of decision making is thus to direct the
resource conversion process in such a way, as to optimize
the attainment of the objectives.
“Decision making is the act of choosing one alternative
from among a set of alternatives.”
 Decision making process

Decision is a step-by-step process. There are six steps in

the decision making process.
Basically, this process of decision applies to non-
programmed decisions.
Identifying and diagnosing the problem
Generating alternative solutions
Evaluating alternatives
Selecting the best alternatives
Implementing the decision
Evaluating the decision
these aforementioned points are briefly explained:
• Identifying and diagnosing the problem:
Problem identification is the initial step in the decision making process.
problems mean the differences between what is and what should be.
managers must develop complete understanding of the problems,
it’s causes and its relationship to the other factors.
while diagnosing problem, manager should collect information and
analyze it.

• Generate alternative solutions:

There are different alternatives to solve the problems. All the possible
ways should be identified.
managers need to find out more creative solutions by giving enough
time to solve the problems.
• Evaluating each alternatives:
While evaluating the alternatives, manager need to consider
the alternative’s impact on the customers, the firm’s image, and
other elements of the firms.
• Selecting the best alternative:
the selected alternative must be feasible, affordable so that
the objective can be easily achieved.
The alternative chosen must be a realistic one. The strength and
weakness of each of them must be compared.
Sometimes, a single alternative cannot sole the problem, a
combination of two or more alternatives may have to be selected
and implemented.
• Implementing the decision:
the manager must be sure that everyone understands the decision
and his or her part in it’s implementation.
In order to succeed, implementation requires the proper use of
resources and good management skills.
• Evaluating and controlling:
After decisions have been implemented, there progress
must be monitored and their success evaluated.
Proper and timely evaluation of decisions allows
managers to take corrective actions if needed.
Failure to do so may result in serious consequences.
Decision making a very complex process in the
management process and the success and failure of the
organization hinges on the manager’s ability in decisions
making.
There is no definite steps in decision making process,
however managers can use any steps appropriate to the
nature of the organization.
 Types of Problems and Decision Making

“managers face various types of problems and issues in the course of day-to-
day activities”
Some of the problems are repetitive, unique and complex in nature.
Managers need to solve such problems for smooth functioning of
organization.
Problems are broadly studied under the following two headings:
• Well structured problems:
usually technical in nature and occur in a day-to-day activities of org.
easy to understand, clearly defined and occur repeatedly and can be
solved in routine work.
can be solved by considering specific procedures.
• Ill-structured problems:
unique, vague and complex in nature and difficult to understand.
it contains uncertainty about which concepts, rules and principles are
necessary for the solution.
require experience, creativity, innovative skills to study such
problems.
i.e. designing a new product, redesigning a new work process,
developing a new market strategy, strategic alliance with business partners.
 Types of decision making
Managerial decisions may be divided into different types on a different basis, which is
discussed below:
• Programmed and non-programmed decisions:
programmed decision is known as readymade decision.
it is given for repetitive or regular nature of problems
decisions are made using standard operating procedures
deals with frequently occurring situations.
used to handle similar and frequent situations
normally taken by lower and middle level management.
Non-programmed decisions is needed for new and complex types of problems.
it is made in unique and unstructured situations
based on judgment, intuition, and creativity.
deals with extraordinary, unexpected and unique problems
normally taken by top-level management.
• Routine and basic decisions:
Routine decisions are related to day-to-day operation of the org.
decisions are taken promptly and implemented quickly
given by lower-level employees to continue organizational activities
i.e. exchange of work between employees, repair and maintenance of
machines, availability of raw materials.
quite similar to programmed decisions.
Basic decisions are known as strategic decisions.
it is necessary for long-term survival and growth of organization.
top-level managers uses creativity, judgment, intuition, experience to
make decisions
i.e. investment, expansion of business, growth, diversification, recruitment
and selection, replacement of machines,
similar to non-programmed decisions.
• Organizational and personal decisions:
Organizational decisions are formal or official decisions.
uses authority and has to fulfill the official procedures, systems and
formalities while take decisions.
such decisions are taken by considering goals of organization.
it can be delegated to sub-ordinates
Personal decisions: is known as individual decisions taken by
considering individual interests, desire and necessity.
it does not affect regular performance
such types of decisions cannot be delegated to others.
• Administrative decisions:
Administrative decisions maintain a link and
coordination between the strategic and operating
decisions.
• Individual and group decisions:
A decisions taken by an individual who can be held
responsible and accountable for it, is known as an
individual decision.
Whereas, a decisions taken by more than one
person, where accountability rests on a group is
designated as a group decision.
• Operating decisions:
operating decisions are the day-to-day decisions, which
aim at maximizing the efficiency and profitability of the
organization’s current operation.
It basically deals with internal organizational issues such as
production schedules, inventory level, operational
monitoring and control, sales and distribution schedules
among others.
• Strategic decisions:
Strategic decisions focus on issues external to the
organization.
these decisions deals with problems such as the goals and
objectives of the organization, selection of a product- market
mix, strategies for diversification, investment and expansion,
among others.
the ultimate objective of such decisions is to maximize return.
Decision making under conditions of certainty, risk and uncertainty

Decision-making takes place under different conditions.

These decision-making conditions can be grouped into
three categories: conditions of certainty, conditions of risk
and conditions of uncertainty.
• Conditions of certainty:
If a manager has all the information he/she needs, and
can predict precisely the consequences of his/her action,
then it is said that he/she is operating under a conditions
of certainty.
Under conditions of certainty, the decision maker
knows the outcome of each alternatives.
The decision maker has access to accurate and reliable
information.
• Conditions of risk:
Decisions cannot be made under the conditions of certainty
all the time.
Risk exists when the probability of an action being
successful is less than 100 percent.
Decision making is risky when it is difficult to predict the
outcomes of the alternatives with certainty.
Even though the manager has information and knows
about the alternatives and their outcomes, some element
of risk is involved.
i.e. if a company wants to add one more item in its product
line—strawberry jam. The mgmt knows that strawberries
are grown in hillside of nearby district. This supply can
meet the demand, however, the supply of strawberry is not
certain as its cultivation depends upon weather,
availability of seeds, fertilizers among others.
• Conditions of uncertainty:
Uncertainty means that managers do not have enough
information about the environment to understand or predict
the future.
Under conditions of uncertainty, little is known about the
alternatives or their outcomes.
Basically uncertainty arises from two sources:
External conditions are uncertain and they are beyond the
control of the management.
Manager may not have access to information.
The decision-makers, thus, need to use their intuition, judgment,
and experience in making decisions under the conditions of
uncertainty.
For decision-making to be effective, reliable information is
necessary.
 Decision making styles
The main focus of decision making is the solution of work-related problems and issues.
The following are the common styles of decision-making in the workplace.
• Directive decision-making
• Analytical decision-making
• Conceptual decision-making
• Behavioural decision-making.
These points are briefly highlighted below:
1. Directive decision-making:
decision-maker use efficiency, logic in decision-making process
make quick decisions by considering limited information, assess few alternatives.
consider autocratic leadership and use their personal experience, knowledge,
judgement
it is appropriate when an org. needs quick decisions, implementation
• Analytical decision-making:
decision-maker examine information before coming to final decision
rely on direct observation of data, information, facts,
get advice from experts and professionals before making decision
analytical managers are more careful decision-maker with ability to
adapt to unique and complex situation.
However, it is a time-consuming process.
• Conceptual decision-making:
focus on long-term objectives and activities of organization
socially oriented and take time to develop great ideas for creative solution
to problem.
they are achievement-oriented and look forward to impact of the decision.
they are experienced in their own business and show creative vision of
how the long-term objectives of org would achieve.
• Behavioural decision-making:
focus on relationships more than the task in the decision-making
process.
they use a brainstorming approach in the decision-making process.
solve problems either through mutual consent or a majority of consent.
decision maker tries to avoid conflict in the decision-making process.