CHAPTER – 2 PLANNING

MEANING:
Planning is deciding in advance what to do and how to do. It is one of the
basic managerial functions. It involves setting objectives and developing
appropriate courses of action to achieve these objectives. The plan that is
developed has to have a given time frame but time is a limited resource. It
needs to be utilised judiciously.

DEFINITION
“Planning is an intellectual process, conscious determination of course of action, the basing of
decision on purpose, facts and considered estimates.”.
Koontz and O‘Donnell
FEATURES OF PLANNING

1. Planning focuses on achieving objectives: Organisations set up with general goals

Plannin
g
focuses
Planning Planning
is a is a
menta primary

FEATUR
ES
Planni
ng OF Planning
involv is

Planning Planning
is is

and specific goals along with the plans and activities to be undertaken to achieve these
goals.

2. Planning is a primary function of management: Planning lays down the base for
other functions of management.

3. Planning is pervasive: Planning is required at all levels of management as well as in

all departments of the organisation. The scope of planning is different at different
levels and for different departments.

4. Planning is continuous: Continuity of planning is related with the planning cycle.

It means that a plan is framed, it is implemented, and is followed by another plan,
and so on.

5. Planning is futuristic: The purpose of planning is to meet future events effectively to

the best advantage of an organisation. Planning involves forecasting future events and
conditions and drafting the plans accordingly.

6. Planning involves decision making: Planning essentially involves choice from

among various alternatives and activities. If there is only one possible goal or a
possible course of action, there is no need for planning because there is no choice.

7. Planning is a mental exercise: Planning requires application of the mind

involving foresight. Planning is an intellectual activity, which requires logical
and systematic thinking rather than guess work.
IMPORTANCE OF PLANNING

2. Planning provides directions: By stating in advance, how the work is to be done

planning provides direction for action. Planning ensures that objectives are clearly stated in
order to develop appropriate course of action. If the plans are set, the department and
individuals can work in coordination.
3. Planning reduces the risk of uncertainty: Planning is an activity, which enables a
manager to look ahead and anticipate changes. Changes or events cannot be eliminated but
by deciding the plans and course of action in advance managers can anticipate it and adjust
the plans according to the situation.
4. Planning reduces overlapping and wasteful activities: Planning serves as the basis of
coordinating the activities and efforts of different divisions departments and individuals. It
reduces useless and redundant activities, avoids confusion and misunderstanding, and
ensures clarity in thought and action.
5. Planning promotes innovative ideas: Planning is the first function of management.
Managers get the opportunity to develop new ideas and new ideas can take the shape of
concrete plans. It guides all future action leading to growth and prosperity of the business.
6. Planning facilitates decision making: Planning involves setting targets and predicting
future conditions, thus helping in taking rational decisions from alternative courses of action.

7. Planning establishes standards for controlling: Planning provides the standards

against which the actual performance is measured. Therefore planning is a prerequisite for
controlling
LIMITATIONS OF PLANNING

1. Planning leads to rigidity: In an organisation, a well-defined plan is drawn up with

specific goals to be achieved within a specific time but managers may not be in a position to
change it. As the business environment is dynamic managers need to be given some flexibility
to cope up with the changed circumstances.
2. Planning may not work in dynamic environment: Planning is based on anticipation of
future happenings and since future is uncertain and dynamic so the organisation needs to
adapt itself to changes. However planning cannot foresee the future events effectively.

3. Planning reduces creativity: Top management does planning and middle management does
implementation of plan but they are not allowed to deviate from plan and thus creativity of
these managers get reduced.
4. Planning involves huge costs: Huge costs are involved in the formulation of the plan.
Detailed plans require scientific calculations to a ascertain data. Sometimes costs incurred on
planning doesn’t justify the benefits derived
5. Planning is a time consuming: Many aspects need to be considered while formulating a
plan, hence it is a very time consuming process.
6. Planning does not guarantee success: The success of an enterprise is possible only
when plans are properly drawn and implemented. Managers tend to apply the previously
tried and tested plans but a plan successful before may not be successful for all situations.
PLANNING PROCESS

Follow Up Setting
Action Objectives

Implementing Developing
The Plan Premises
PLANNING PROCESS

Selecting The Identifying

Best Alternative
Alternative Courses Of
Action

Evaluating
Alternative
Courses Of
Action

1. PROCESS OF PLANNING (STEPS INVOLVED IN PLANNING / STAGES INVOLVED

IN PLANNING)
1. Identifying business opportunities: it is necessary to make an analysis of both the internal
and external environment to know the trends in the near future. Business activities are
influenced by internal as well as external factors, regulations, technological changes,
competition etc. the businessmen therefore have to look for opportunities always by observing
the business environment.

2. Establishment of objectives: planning process is to establish the organization objectives in

tune with the opportunities identified, taking into account the resources available. The overall
objective of the organization must be stated along the specific objectives of departments

3. Determination of Planning Premises: planning premises are the assumptions about the
future happenings. As planning is for future and future is uncertain, certain assumptions about
the future become necessary Eg. Employee attitude technology uses, managerial decisions
making process etc. are some of the factors influencing the internal environment of business.
The external environment is like demand, buyer behavior, competitors action, government
regulations, suppliers actions
 4. Identifying the alternative course of action: there are always alternative ways of carrying
out any task just as here are different routes to reach a destination point. To attain the objective
of a business different course of action may be available. Eg. To maximize profits any of the
following method used. 1. large scale production 2. curtailing the cost of production and
distribution 3. maximizing sales 4. Increasing the market share and so on.

5. Evaluating alternative courses of action: once the alternative courses of action are
identified, the next step is to evaluate the same. Evaluating means studying the merits and
demerits of each alternative should be examined carefully to decide on its suitability.

6. Selecting the best course of action: once the alternative course of action has been evaluated
the next step is to select the best. The one finally selected should help the organization in
making an optimum use of the available resources and help to attain the objective.

7. Formulation of derivative plans: after the basic plan of the organization has been
determined the next step is to prepare the subsidiary plans to support the basic plan.

8. Periodic evaluation and review: once the implementation of the plan starts it becomes
necessary to evaluate performance of periodic intervals to ensure that the activities of the
originations precede in the right direction and as laid down in the plan

TYPES OF PLAN

A plan is a commitment to a particular course of action for achieving specific results. Plans can
be classified into several types depending on the use and the length of the planning period. These
plans can be classified into single-use plans and standing plans.

1. SINGLE USE PLAN

 A single use plans are specific plans which are meant to solve a nonrecurring particular
problem. It was developed for a one-time project or event that has one specific
objective.

 Such plan is developed to meet the needs of a unique situation in hand.

 The duration of a single use plan differs depending upon the type of project, as a single
event plan may last for one day while a single project may last for one week or
months.

 For example, an outline for an advertising campaign. After the campaign runs its course,
the short term plan will lose its relevance except as a guide for creating future plans.

2. STANDING PLANS
 Standing plans are used for those activities, which occur regularly over a period of time.
  It is designed once and retain their value over a period of time while undergoing revisions
and updates.
 It is developed once but modified from time to time to meet business needs.
 Standing plans include policies, procedures methods and rules

Based on what the plans seek to achieve, plans can be classified a

I. Objectives:
Objectives are the end results, which the management seeks to achieve, by its
operations.They may be designed as the desired future position that the management
would like to reach. The first and foremost step of the planning process is setting
organizational objectives.Objectives need to be expressed in specific terms i.e., they
should be measurable in quantitative terms, in the form of a written statement of desired
results to be achieve within a given time period.

E.g. Getting 20% return on Investment, increase sales target by 10% etc.
Objectives should be clear and achievable.

Advantages of Objectives
 Objectives give focus to the activities of the organization.
 Planning depends on the objectives of an organization
 Integration of the activities of an organization is based on objectives
 Objectives provide the necessary yardstick for measurement of
performance.
Disadvantages of objectives:
 Certain objectives cannot be measured quantitatively Eg. employee attitude
 In the name of objective there may be a tendering to exploit
its workers this results frustration among the workers.

II. Strategy:
 Strategy refers to future decisions defining the organisations direction and
scope in the long run.Are those plans which an organization prepares to face
various situations, threats and opportunities. When the managers of an
organization prepare a new strategy for the business it is called internal strategy
and when some strategies are prepared to respond to the strategies of the
competitors, then such strategies are called external strategies.
 E.g. selection of the medium of advertisement, selection of the channels of
distribution etc.

III. Policy:
Policies are general statements that guide thinking or channelize energies towards a particular
direction. It provides a basis for interpreting strategy.A policy serves as a valuable guide to the
managers when they take certain important decisions, policies provide ready answers to question
pertaining to certain issues. They prescribe the limits within which the decisions have to be made.
1. Eg: employee promotion whether seniority or merit or both.
2. E.g. selling goods on cash basis only, purchasing decisions etc.

Essentials if a good policy

 It should be clear and definite; it should not give scope for misinterpretation.
 The policy should be logical.
 The policy based on ethical and moral values.
 Should be fair to all the employees.
 policy should be revised periodically

Merits of policies
 Policy guide managers to take bold decisions
 They save time by providing a ready solution to certain problems
 They ensure consistency in decision making
 Policies prevent the managers from misusing their authority
Limitations of policies
 Policies cannot provide solutions to all organizational problems
 Policies provide guidelines not solutions.
 It is necessary to review the policy periodically otherwise it becomes outdated.
 We cannot blindly apply the policies.
 Policies do not allow the managers to think originally
TYPES OF POLICIES
1. Formulated Policy: A formulated policy is one which is specified by
the organization for providing guidelines to its members. Every
organization formulates various policies on different aspects. This
policy flows from higher level to lower levels in an origination.
2. Implied Policy: sometimes policies may not be clearly stated and the
actions of managers particularly at the higher levels provide
guidelines for actions at lower levels. These actions might constitute
the policy. Sometimes the organization has clearly expressed policies
for its image, but it is not able to enforce these. In such a case the
action of a decision maker depends on his own guidelines and
prejudices.
3. Imposed Policy: This arises from the influence of some outsider
 agencies. Such agencies may be government which provides policies
for all public sector organizations. These agencies may either provide
complete guidelines on a subject matter or provide a broad framework
for devising specific policies. For Eg. in public sector commercial
banks recruitment and selection is done by banking service
commission and individual banks do not have and control.
4. Appealed Policy: An appealed policy arises from the appeal made by
a subordinate a manger to his superior for deciding an important case.
The need for such an appeal may arise because the particular case
has not been covered by any policy. The appeal is then taken

upward and the decision is made on the case sets precedent which
becomes policy providing guidelines for deciding similar cased in
future.

PROCEDURES
A procedure will lay down the manner in which certain work has to be
performed. It prescribes sequence of operations to be carried out to
completer a given task.
Advantages
1. It prescribes the sequence of operations to be performed.
2. They facilitate systematic performance of the work.
3. They ensure that the work proceeds in the right direction.
4. Procedures ensure consistency and uniformity of action
5. It secures proper coordination.
Disadvantages
1. The procedural formalities make delay in the performance of the work.
2. A few procedures result in confusion.
RULES
Rules are the do`s and don’ts. They are always rigidly enforced. There is
always a fine or penalty for the violation of rules. Eg. no smoking in the
workplace, Wear uniform while in the factory.
STRATEGIES
Strategies means plan of action to counter the opponents attack. It is a
tactics adopted to counter competitor’s actions. Organization adopts
strategy when they are in crisis.
1. Fall in sales.
2. Competitive pressures
3. Trade union demands etc.

SINGLE USE PLANS

These plans are meant for a specific purpose as soon as that purpose
has been served the plan becomes useless and given up.

PROGRAMMES
it specifies the date and time by which the activities of the organization will be carried
out.
Eg: To produce 5000 color television sets by 31st march 2010. To sell
10000 motorcycle before 31 Dec 2009

Advantages
 It ensures commitment
 No wastage of time
 Employees work with motivation
 They coordinate the work

BUDGETS
A budget is the financial plan of a business. It is expressed in numerical
terms. A budget is a statement of projected activities of a business in the
near future.
Advantages
 It helps to determine its future course of action.
 A budget is always prepared for a specific period of time.
 Before preparing the budget the past happenings the present
needs and future trends are taken into account.

DECISION MAKING

DEFINITION OF DECISION-MAKING
A decision may be defined as "a course of action which is consciously
chosen from among a set of alternatives to achieve a desired result." It
 represents a well-balanced judgment and a commitment to action.
According to Trewatha & Newport, "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".

CHARACTERISTICS OF DECISION MAKING

 Decision making implies choice: Decision making is choosing
from among two or more alternative courses of action. Thus, it
is the process of selection of one solution out of many
available. For any business problem, alternative solutions are
available. Managers have to consider these alternatives and
select the best one for actual execution. Continuous
activity/process:Decision-making is a continuous and dynamic
process. It pervades all organizational activity. Managers have
to take decisions on various policy and administrative matters.
It is a never ending activity in business management.
 Mental/intellectual activity: Decision-making is a mental as well as
intellectual
activity/process and requires knowledge, skills, experience
and maturity on the part of decision- maker. It is essentially a
human activity.
 Based on reliable information/feedback: Good decisions are
always based on reliable information. The quality of decision-
making at all levels of the Organisation can be improved with
the support of an effective and efficient management
information system (MIS).
 Goal oriented process: Decision-making aims at providing a
solution to a given problem/ difficulty before a business
enterprise. It is a goal-oriented process and provides solutions
to problems faced by a business unit.
 Means and not the end: Decision-making is a means for
solving a problem or for achieving a target/objective and not
the end in itself.
  Time-consuming activity: Decision-making is a time-
consuming activity as various aspects need careful
consideration before taking final decision. For decision
makers, various steps are required to be completed. This makes
decision-making a time consuming activity.
 Pervasive process: Decision-making process is all pervasive.
This means managers working at all levels have to take
decisions on matters within their jurisdiction.
ADVANTAGES OF DECISION MAKING
 Decision making is the primary function of management:
The functions of management starts only when the top-level
management takes strategic decisions. Without decisions, actions
will not be possible and the resources will not be put to use. Thus
decision-makingis the primary function of management.
 Decision-making facilitates the entire management process:
Decision-making creates properbackground for the first
management activity called planning. Planning gives concrete
shapeto broad decisions about business objectives taken by the top-
level management. In addition, decision-making is necessary while
conducting other management functions such as
organizing,staffing, coordinating and communicating.
 Decision-making is a continuous managerial function: Managers
working at all levels will have to take decisions as regards the functions
assigned to them. Continuous decision making is a must in the case of
all managers/executives. Follow-up actions are not possible unless
Decisions are taken.
 Decision-making is essential to face new problems and challenges: Decisions
are required to be taken regularly as new problems, difficulties and challenges develop
before abusiness enterprise. This may be due to changes in the external environment.
New products may come in the market, new competitors may enter the market and
government policies may change. All this leads to change in the environment around the
business unit. Such change leads to new problems and new decisions are needed.
 Decision-making is a delicate and responsible job: Managers have to take quick
and correctdecisions while discharging their duties. In fact, they are paid for their skill,
maturity and capacity of decision-making. Management activities are possible only when
suitable decisions are taken. Correct decisions provide opportunities of growth while
wrong decisions lead to loss and instability to a business unit.
STEPS INVOLVED IN DECISION MAKING PROCESS
Decision-making involves a number of steps which need to be taken in a logical manner. The
scientific method of decision-making involves the following six steps:
a. Defining / Identifying the managerial problem,
b. Analyzing the problem,
c. Developing alternative solutions,
d. Selecting the best solution out of the available alternatives,
e. Converting the decision into action, and
f. Ensuring feedback for follow-up.
The figure given below suggests the steps in the decision-making process:-
 Identifying the Problem: Identification of the real problem before a business
enterprise is the first step in the process of decision-making. It is rightly said that a
problem well- defined is a problem half-solved. Information relevant to the problem
should be gathered so that critical analysis of the problem is possible. This is how
the problem can be diagnosed.
 Analyzing the Problem: After defining the problem, the next step in the decision-
making process is to analyze the problem in depth. This is necessary to classify the
problem in order to know who must take the decision and who must be informed about
thedecision taken. Here, the following four factors should be kept in mind: (i) Futurity
of the decision, (ii) the scope of its impact, (iii) number of qualitative
considerations involved, and (iv) uniqueness of the decision.
 Collecting Relevant Data: After defining the problem and analyzing its nature, the
next step is to obtain the relevant information/ data about it. There is information flood
in the business world due to new developments in the field of information
technology. All available information should be utilized fully for analysis of the problem.
This brings clarity to all aspects of the problem.
 Developing Alternative Solutions: After the problem has been defined,
diagnosed on the basis of relevant information, the manager has to determine
available alternativencourses of action that could be used to solve the problem at hand. Only
realistic alternatives should be considered. It is equally important to take into account time and
costconstraints and psychological barriers that will restrict that number of alternatives
 Selecting the Best Solution: After preparing alternative solutions, the next step
 in the decision-making process is to select an alternative that seems to be most
rational for solving the problem. The alternative thus selected must be communicated
to those who are likely to be affected by it. Acceptance of the decision by group
members is always desirable and useful for its effective implementation.
 Converting Decision into Action: After the selection of the best decision, the next
step is to convert the selected decision into an effective action. Without such action,
the decision will remain merely a declaration of good intentions. Here, the manager
has to convert 'his decision into 'their decision' through his leadership.
 Ensuring Feedback: Feedback is the last step in the decision-making process. Here,
the manager has to make built-in arrangements to ensure feedback for continuously
testing actual developments against the expectations. It is like checking the
effectiveness of follow-up measures. Feedback is possible in the form of organized
information, reports and personal observations. Feedback is necessary to decide
whether the decision already takenshould be continued or be modified in the light of
changed conditions.