Introduction to Management Mgt 111

CHAPTER - THREE
MANAGERIAL PLANNING
1.1. What is planning?
The Meaning of Planning
Planning is preparing for tomorrow today. It is the activity that allows managers to determine
what they want and how to get it. Planning answers six basic questions with regard to any
intended activity:
 What? (the goal or goals)
 When? (the time frame in which it will be accomplished),
 Where? (the place or places where the plans or planning with reach its conclusion),
 Who? (Which people will perform the tasks), how? (the specific steps or methods to reach
the goals), and
 How much (resources to reach the goals).
Characteristics of Planning (Features)
The planning function is characterized by the following important features.
1) Primacy: - planning is the primacy function of management out of which the other functions proceed.
2) Pervasiveness: - planning is universal to all types’ levels and nature of the organization & managers.
3) Efficiency and accuracy: - planning facilitates the optimal use of resources for the
organization success.
4) Goal orientation:- planning is targeted to achieve specific objectives an organizations looks for.
5) Continuity, dynamism & flexibility: - planning is future oriented and it should allow an
organization to adopt changes in environment situation ally.
6) Decision making: - planning is a choice of the best alternative among available choices.
7) Forecasting:- planning is the scientific forecasting process under certainty, uncertainty and risk.

The Elements of Planning

Planning is Made Up of the Following Elements
1) Objectives - specify future goals
2) Action - specific, preferred means to achieve objective
3) Resources - constraints on course of action. Budgeting identifies the resources and resource limits.

Mulugeta G.
Introduction to Management Mgt 111

4) Implementation - assigning and directing personnel to carry out the plan.

The Importance of Planning
In spite of the fact that managers recognize the value of planning, many fail to plan properly
because of various types of fears. The best way to overcome the fear of planning is to recognize
the many benefits of planning. These benefits are the following:
- Planning facilitates professional growth.
- Plans provide the framework for the organization
- Plans aid in delegating authority
- Plans help to motivate people
- Planning aids communication flow
- Planning helps to shape the future
- Plans help to monitor work
- Planning builds confidence.

Mulugeta G.
1.2. Skill Required in Planning
The two fundamental skills required in planning process are forecasting and decision
making.
A) Forecasting
Forecasting is a major planning tool. It involves making predictions of future behaviors
based upon present behavior. Forecasting techniques are valuable since they enable
mangers to look a head with a degree of certainty, based upon predictable trends or
directions. Forecasts require making the assumption that present trends will continue in
the future. While there is no certainty that a particular trend will continue, it does offer
the planner some degree of predictability.
Forecasting takes two form:
i) Predicting the consequences of a planned course of action &
ii) Predicting about potential environmental events that affect the moves toward goals.

Following are brief descriptions of a variety of statistical and mathematical forecasting

techniques which may be used.
1) Computers:- The computer is a useful tool in forecasting. A mathematical model is
constructed which shows the relationships of the elements which are to be forecast.
For instance, a manager may know that an increase in sales generally results from an
increase in advertising and promotional expenditures. He/she may then construct a
mathematical model in which the computer prints out expected sales upon a finite
series of advertising and promotional expenditures.
2) Time series analysis:- Time series analysis uses charts or groups which delineate a
trend over time. This may show increase or decrease of activities.
3) Quantitative Techniques:- Mathematics is a powerful quantitative tool for
forecasting. Mathematical formulas, such as linear regression analysis, are useful in
extrapolating trends and projections. Given a set of numerical data representing a
firm's historical performance, regression analysis can forecast future performance
with a high degree of certainty. For example, a manger way gather numeric
information and data on sales performance of several retail out lets. They can then
use a mathematical technique which can project future sales, based upon past
performance.
 Thus they may find that the addition of four more sales representatives may increase
sales by forty percent, but the addition of six representatives may increase sales by
only fifty percent.
4) Lead and Lag indicators:- Lead and log indicators are forecasting tools which rely
upon reporting data from indicators which historically lead or lag present trends. A
lead indicator shows a change or lead in a trend before other more widely based
indicators. A lag indicator shows a change after an occurrence or trend is reported by
other indicators. Some of the key consumer indicators are the disposable personal
income of families. Real growth in disposable income, rate of savings, and housing
starts. An upturn in a lead indicator, such as a housing starts, is reasonably sure
predictor that other, housing related spending will follow. Once the homes are built,
it can be expected the real estate sales will increase, as will sales of furniture, garden
equipment, fencing, and other related items.
B) Decision Making: - Decision making is the process by which one systematically
studies a problem, analyzes it, and selects the most appropriate alternative to reach a
desired end. The heart of a decision making process is the systematic search for
alternative and the analytical selection of the most promising course.

Approaches to Decision Making

Managers use a variety of approaches to decision making. These range on continuum
from unstructured and highly unscientific means to systematic, sophisticated computer -
assisted decision making techniques.
i) Qualitative Decision Making
In this approach, decisions are reached through an intuitive process. People, particularly
experienced managers, are continually weighing alternatives and making decisions. They
use the "computer of mind," which relies upon less quantifiable and more subjective
factors. For example, a manager may rely upon inner feelings to reach a decision
regarding the introduction of new product.

This method is some times called intuitive decision making. There is less emphasis on
system or structure, and more an experience and subjective factors. It is based upon past
performance and previous experience with similar problems. The assumption is that the
can be made based on historical patterns. However, the current problem may have little
resemblance to previous situations, or there may be no historical experience on which to
base decision.

Trail and error is another method of making decisions. In this unscientific method, many
alternatives to solving a problem are attempted. A given course of action is followed for a
period. When it fails, another is selected. Trail - and - error decision, makers hope to find
the correct cause by a process of elimination.

ii) Quantitative Decision Making

In this process, the decision maker uses the scientific method. The method requires
quantifying the problem, and uses logic or mathematics to reach a decision.
Some managers reject the emphasis put on quantitative decision making. They believe it
does not give adequate credit to human experience, opinions, and feelings. Many
problems can not be reduced to quantitative terms, and yet decisions must still be made.
The scientific method is characterized by close attention to detail. The decision maker
must be objective and use precision in analyzing data and reporting results. The scientific
method may use mathematics and statistical techniques and a systematic plan of attack.
Finally, it requires an objective evaluation of results and an attempt to readjust a system
to bring the out put in line with the objectives.

Scientific Approach to Decision Making

Around the turn of the century John Dewey, a noted educator, outlined a series of steps
for problem solving. This procedure has had a profound influence on management
decision making. Dewey's work underlies much of quantitative decision making now
used by managers

Recognize
problem

Define
problem
 Evaluation &
Develop
readjustment
alternatives

Select best
course of action

Implement best
course of action

Scientific decision making process

1) Recognize the problem:- The first step in scientific decision making (problem -
solving) method is to become aware of the problem. Unless the manager is aware
that a problem exists, he/she can not solve it. In this first step, the manager under
takes a careful investigation of the facts to determine the exact nature of the problem
and its causes.
2) Define the problem in quantitative terms:- In this step, the decision maker defines the
problem in numerical or specific terms. A statement of the problem is made which
reduces variables to measurable quantities. Unless this is done, one can not measure
performance and results. A quantitative statement is necessary to determine if the
problem has been completely solved.
3) Develop alternatives:- During this phase of decision-making process, the manager
systematically discovers as many alternative courses of action as possible. This may
be done by brainstorming, observing others, reading, or study.
4) Select the best course of action :- During this phase, the manager looks carefully at
each alternative and select the one which promises to solve the problems. "If - then"
reasoning is applied. If I do this, then this will result; if I do that, then that will result.
After careful scrutiny, the best alternative is selected for implementation.
5) Implement the chosen course of action:- Next, the manager puts in to action the
chosen alternative. This may require weeks or months of effort, installation of
machines, hiring of people, or modification of the plant. The method chosen may or
may not solve the problem. This leads to the last step.
6) Evaluate and readjust:- In this step, the decision maker measures the results to see if
the alternative selected has in fact solved the problem. If it has not, then other
solutions are tried or perhaps a redefinition of the problem is made. A problem is not
solved until there has been an objective evaluation. It is this last step which is of ten
overlooked by management. Some managers carefully define a problem, and analyze
and implement an alternative. But they do not evaluate results. Thus, they have no
assurance that the problem is solved.

Advantages of Scientific Approach to Decision Making

i) Accuracy - Scientifically based decisions result in greater accuracy and precision.
ii) Predictability:- The scientific method lends a greater degree of predictability and
certainty to decisions.
iii) Greater reliability:- Decision reached through the scientific method are more
reliable and less subject to errors.
iv) Reproducibility of results:- Decisions reached through the scientific method can
be reproduced and duplicated.
v) Ability to document results:- Since the scientific method relies upon objectivity
and starting facts in a precise manner, the result of the process can be
documented & put in writing

Qualitative and Quantitative Decision Making Compared

Qualitative Quantitative

- Based on experience - Precise definition of problem

- Methodology vague and not definable - Use of logic and scientific method
- Use of hunch and guess - Systematic gathering of data
- Reliance on trial & error - Reliable results
- Results not reproducible - Reproducible results

Types of Decisions
1) Programmed Vs non Programmed Decision
a) Programmed decisions: - Programmed decisions are the repetitive and routine
decisions made by managers. As a rule, there is a predefined procedure worked out
for making these decisions. Each decision is not treated as a new situation
The preparation of a company's payroll is a good example of a programmed decision.
Suppose a firm use ten pay checks at the end of each week. A number of decisions must
be made. A payroll clerk must determine the number of hours each employee worked, the
pay rate, and the deductions in order to draft the pay checks. This decision may be made
by habit, clerical routine or organizational structure.
Programmed decisions allow for orderly decision making. The result is consistent,
routine decisions, which can be made by low-level employees. The guidelines for
programmed decisions are stated in company manuals, rules and regulations. They are
worked out in advance and show how each decision will be handled.
b) Non programmed decision:- The second category is decisions of the non
programmed, non routine type. In this kind of decision, there are no predefined rules
or guidelines. Instead, the manager must rely upon basic scientific problem - solving
techniques.
Non programmed decisions require the ability to work in an unstructured capacity. Each
problem is new, and no guidelines or rules exist for solving it. A problem such as
selecting the site to locate a new office building or freight yard is an example of a non
programmed decision.

2) Group Vs Individual Decisions

a) Individual decision making:- It is said that a committee of one gets things done. This
is often the case with alone decision maker. One person in charge of making a
decision can act quickly and responsively, since there is no need to consult others or
gain the consensus of a group.
However, single individuals do not draw up on the resources of others. Decisions reached
by one person lack the depth and broad character of those made by groups or committees.
Further, these decisions are not so readily accepted by subordinates because they reflect
one individual's thinking rather than the ideas of the peer group.
b) Group decision making:- Large and small groups and committees make decisions. As
a rule, these decisions are arrived at by a consensus. They draw upon the resources of
many people. Group decision making may be time - consuming, expensive, and
require compromise. Many people must be given the facts to study and alternatives to
review, and must be involved in the selection process.
Decision Making Under Different Conditions
Another labeling scheme for decision making is to classify decisions according to the
likelihood of the outcome, which often is determined by existing conditions. This
approach distinguished three different types of decisions:
a) Decisions under certainty:- are those in which the external conditions are identified
and very predictable. Decision making under certainty seldom occurs, however,
because external conditions seldom are perfectly predictable and because it is
impossible to try to account for all possible influences on any given out come.
b) Decisions under risk:- are those in which probabilities can be assigned to the expected
outcomes of each alternative. These probabilities are determined either objectively or
subjectively. The assignment of an objective probability is derived through historical
data or past experience. Subjective probability is derived through general knowledge
of the subject.
c) Decisions under uncertainty:- are those in which we have only a manager data base,
we do not know whether or not the data are reliable, and we are very unsure whether
or not the situation may change. Moreover, we can not evaluate the interactions of the
different variables.
1.3. The Planning Process
Like other managerial activities planning involves a series of steps. These steps are
interrelated and there is no rigid boundary between or among these steps, and one is the
base for the other.
The planning process is consists of the following steps:
1. Setting objective:- establishing short-and long-manage targets.
2. Analyzing and evaluating the environment :- analyzing the present position and
resources available to achieve objectives.
3. Determining alternatives:- constructing a list of possible courses of action that will
lead you to your goals.
4. Evaluating the alternatives:- listing and considering the advantages and
disadvantages of each of your possible courses of action.
5. Selecting the best solution:- selecting the course of action that has the most
advantages and fewest disadvantages.
6. Implementing the plan:- Determining who will be involved, what resources will be
assigned, how the plan will be evaluated, and the reporting procedures.
7. Controlling and evaluating the results:- making certain that the plan is going
according to expectations and making necessary adjustments.
1.4. Types of Plans
Basically, plans may be classified on three bases: duration, specificity, and
organizational level.
1. On the Basis of Duration
Plans are frequently classified according to their duration as,
a) Long-range-plans - plans covering five years or more
b) Medium-range-plans - plans covering from one year to five years and
c) Short-range-plans - plans of less than one year
2. On the Basis of Specifity
In terms of their specifity, plans may be classified as:
a) Single - use plans:- which are developed to prescribe predetermined courses for
unique, non recurring situations. This plans are the following:
i) Schedule:- is a single - use plan that commits worker/machine resources to a
given activity.
ii) Strategy:- is a single - use plan formulated in contemplation of actions that
competitors may undertake.
iii) Budget:- is a single - use plan that commits resources to an activity over a given
period.
iv) An objective:- or goal, is a single - use plan that specifies the end toward which
business activity is directed.
b) Standing plans:- which consist of predetermined course action developed for
repetitive situations. The various types of standing plans are:-
i) Policy:- is a standing plan that channels the decision making of subordinates.
ii) Procedure:- is a standing plan that establishes a specific method for handling
activities.
iii) Program:- is a standing plan composed of policies, procedures, rules, and task
assignments necessary to carry out capital and operating budgets.
iv) Rule:- is a simple standing plans that dictates action that must or must not be
taken in a given situation.
3. On the Basis of Level
Perhaps the most useful method for classifying plans is based on where they are
formulated in the organization. In this system of classification, plans are classified as:
a) Strategic planning:- strategic plans or top management planning, includes the
development of overall company objectives and is primarily concerned with solving
long - term problems associated with external, environmental influences.
b) Administrative planning:- is the process that structures a firm's resources to achieve
maximum performance
c) Tactical planning:- is concerned with the efficient day-to-day use of resources
allocated to a department manager's area of responsibility.

Compared to strategic planning, tactical planning tends to be shorter in its effects and
easier to reverse, narrow in scope, and tied to the accomplishment of goals specified by the
strategic plan.