Planning and Decision-

Making
Objectives, Policies, Procedures and Methods, Nature and purpose of planning-
Planning process- Types of plans- Objectives- Management by Objective (MBO)
strategies- Types of strategies – Policies – Decision Making- Types of decision-
Decision making process- Rational decision making process- Decision making
under different conditions. Nature and policy, types, process of decision-
making.
 Planning
Koontz and O’ Donnell say
• Planning is the fundamental management function, which involves
• Deciding beforehand,
• What is to be done,
• When is it to be done,
• How it is to be done and who is going to do it.
• It is an intellectual process which lays down an organization's
objectives and develops various courses of action,
• Planning is nothing but thinking before the action takes place.

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Cont….
• Theo Haimann calls planning as the function that determines in advance
what should be done.
• McFarland describes planning as a concept of executive action that
embodies the skills of antici­pating, influencing and controlling the
nature and direction of change.
• M.F. Yarlay, “Planning is deciding in advance what is to be done.
Planning involves
 Determination of objectives of the business,
 Formation of programmes and courses of action for their attainment,
 Development of schedules and timings of action and
 Assignment of responsibilities for their implementation.

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Types of plans
1. Mission
2. Objectives
3. Strategies
4. Policies
5. Procedure
6. Rules
7. Programs
8. Budget

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• Mission
• Identifies the basic function or tasks of an enterprise.

• Objectives
• The ends toward which an activity is aimed.

• Strategies
• Determination of the basic long term objective and
adoption of courses of action and allocation of
resources necessary to achieve these goals.

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• Policies
• General statements or understandings that guide or
channel thinking in decision making

• Procedures
• Plans that establish a required method of handling
future activities.
• Sequence of required actions

• Rules
• Spell out specific required actions or nonaction,
allowing no discretion.

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• Program
• A complex of goals, policies, procedure, rules, task
assignments, steps to be taken, resources to be
employed and other elements necessary to carry out
a given course of action.

• Budgets
• A statement of expected results expressed in numeric
terms.
• Quantified plan

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As the figure below indicates, managers at different levels in the
hierarchy are concerned with different kinds of objectives.

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Nature of Planning
• Planning permits coordinated effort towards the attainment of
predetermined objectives.
• It helps the manager to shape the organization's future.
• Thus, the purpose of planning is to provide rationality to the
organisation.
• Planning is a function of every manager. Every manager plans, irrespective
of the level at which he operates in the organisation.
• Planning, however, precedes all other functions.
• Planning and control go together. No doubt, planning and control are like
the Siamese twins — one cannot survive without the other.

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Characteristics of Planning

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• Managerial function: Planning is a first and foremost managerial function
provides the base for other functions of the management, i.e. organising, staffing,
directing and controlling,

• Goal oriented: It focuses on defining the goals of the organisation

• Pervasive: It is pervasive in the sense that it is present in all the segments and is
required at all the levels of the organisation.

• Continuous Process: Plans are made for a specific term, say for a month, quarter,
year and so on.

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• Intellectual Process: It is a mental exercise at it involves the application of mind,
to think, forecast, imagine intelligently and innovate etc.

• Futuristic: In the process of planning we take a sneak peek of the future. It

encompasses looking into the future

• Decision making: Decisions are made regarding the choice of alternative courses
of action that can be undertaken to reach the goal.

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Importance of Planning
• It helps managers to improve future performance
• Establishing Goals
• It minimizes risk and uncertainty
• It facilitates the coordination of activities
• It provides direction for action.
• It uncovers and identifies future opportunities and threats
• It sets out standards for controlling
• Creating Competitive Advantages

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Steps involved in Planning

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Being Aware of Opportunity
• Managers create a foundation from which they will deve­lop their plans.
• They analyze current state and have a preliminary look at possible future
opportunities.
• They examine organisation’s strengths and weaknesses
• Managers need to determine-
• (a) what threats to achieving the unit’s objectives are developing and
• (b) how changes in the environment present opportunities for greater
achieve­ment of those objectives.

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Establishment of objectives
• Planning requires a systematic approach.
• Planning starts with the setting of goals and objectives to be achieved.
• Objectives provide a rationale for undertaking various activities as well as
indicate direction of efforts.
• Objectives focus the attention of managers on the end results to be achieved.
• Objectives provide nucleus to the planning process. Therefore, objectives
should be stated in a clear, precise and unambiguous language.
• As far as possible, objectives should be stated in quantitative terms. For
example, Number of men working, wages given, units produced, etc.
• Objectives should be practical, acceptable, workable and achievable.
• Objectives should be SMART

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SMART
• Specific: Goals are precise, describing particular
behaviors and outcomes.
• Measurable: Desired results can be quantified.
• Attainable (but challenging): Goals can be achieved,
but challenging.
• Relevant: Contribute to the organization’s overall
mission and be consistent with its values, including
ethical standards.
• Time-bound: Specify a target date for completion.
Establishment of Planning Premises
• Planning premises are the assumptions about the lively shape of events in
future.
• Establishment of planning premises is concerned with determining where
one tends to deviate from the actual plans and causes of such deviations.
• It is to find out what obstacles are there in the way of business during the
course of operations.
• It is concerned to take such steps that avoids these obstacles to a great
extent.
• Planning premises may be internal or external. Internal includes capital
investment policy, management labour relations, philosophy of
management, etc.
• Whereas external includes socio- economic, political and economical
changes.

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Choice of alternative course of action
• When forecast are available and premises are established, a number
of alternative course of actions have to be considered.
• For this purpose, each and every alternative will be evaluated by
weighing its pros and cons in the light of resources available and
requirements of the organization.
• The merits, demerits as well as the consequences of each alternative
must be examined before the choice is being made.
• After objective and scientific evaluation, the best alternative is
chosen.
• The planners should take help of various quantitative techniques to
judge the stability of an alternative.

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Selecting the Best Alternative

• This is the point at which the plan is adopted – the point of decision making.

• Selecting the most appropriate alternative involves choos­ing the plan.

• Normally, managers will select the alterna­tive that, in their judgement

• Sometimes, the manager may de­cide to follow many viable, feasible or

sufficient realistic courses rather than the one best course.

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Formulation of derivative plans
• Derivative plans are the sub plans or secondary plans which help in
the achievement of main plan.
• Secondary plans will flow from the basic plan. These are meant to
support and expediate the achievement of basic plans.
• These detail plans include policies, procedures, rules, programmes,
budgets, schedules, etc.
• Derivative plans indicate time schedule and sequence of
accomplishing various tasks.

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Follow up/Appraisal of plans
• After choosing a particular course of action, it is put into action.
• After the selected plan is implemented, it is important to appraise its
effectiveness.
• This is done on the basis of feedback or information received from
departments or persons concerned.
• This enables the management to correct deviations or modify the plan.
• This step establishes a link between planning and controlling function.
• The follow up must go side by side the implementation of plans so that in the
light of observations made, future plans can be made more realistic.

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Planning Objectives
• Reduces uncertainty
• To provide specific direction
• Brings co-operation and co-ordination
• Economy in operation
• Anticipates unpredictable contingencies
• Achieving the pre-determined goals
• Reduce competition

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Steps to Make Plans Effective
• Create Suitable In-House Systems
• Encourage Wider Participation in Planning
• Ensure Effective Communication of Planning Information
• Integrate Long-Term and Short-Term Plans
• Make Plans Flexible

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 Planning – Types
• Corporate Planning
• Strategic Planning
• Tactical Plan/Functional Planning
• Operational Planning

• Long-Term Planning
• Short-Term Planning

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Figure shows a
generalized approach
to a process of
corporate planning

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Strategic Planning

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Strategic Planning

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Operational planning
• This level of planning focuses on the day-to-day execution of the
functional plans and includes detailed annual, semi-annual or
quarterly plans.
• Operational planning (OP) is the process of planning strategic goals
and objectives to technical goals and objectives

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Tactical Plan (Functional Planning)
• A tactical plan is concerned with what the lower level units within
each division must do, how they must do it, and who is in charge at
each level.
• A tactical plan is used to define goals and determine how they will be
achieved through actions and steps
• Tactics are the means needed to activate a strategy and make it
work.
Difference between strategic and Tactical plans
 A strategic plan supports the organization's vision and mission
statements by outlining the high-level plan to achieve both.
 A tactical plan answers "how do we achieve our strategic plan?"

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Difference between strategy and tactics: What and
how of strategic planning

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Management by Objective (MBO)
• Management by objectives (MBO) is a strategic management model
• It aims to improve the performance of an organization by clearly defining
objectives that are agreed to by both management and employees.
• Major benefits of MBO are that it improves employee motivation and
commitment
• It allows for better communication between management and employees.
• Critics of MBO, such as W. Edwards Demming, argue that setting particular
goals like production targets leads workers to meet those targets by any
means necessary, including short-cuts that result in poor quality

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Five Steps Organizations use to implement MBO

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Management by Objectives in Practice
• Management by objectives outlines five steps, they are:
• The first step is to either determine or revise organizational objectives for
the entire company.
• The second step is to translate the organizational objectives to employees. In
1981, George T. Doran used the acronym SMART
• Step three is stimulating the participation of employees in setting individual
objectives.
• Step four involves monitoring the progress of employees.
• The fifth step is to evaluate and reward employee progress.

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Advantages of MBO

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Decision-Making
• Success or failure of an organization mainly depends upon the quality of
decision that the managers take at all levels
• A decision is a course of action which is consciously chosen from among a
set of alternatives to achieve a desired result.
• According to D.E. McFarland, “A decision is an act of choice – wherein an
executive forms a conclusion about what must not be done in a given
situation.
• Koontz and O’ Donnel, “Decision-making is the actual selection from among
alternatives of a course of action.”

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Diagram of the four key decision-making elements: What?
When? How? Who?

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Characteristics of Decision-Making

i. It is a process of intellectual activity.

ii. It is basically a process of choice making.
iii. Decision-making is a goal-oriented process.
iv. It is a dynamic process.
v. It is related to the environment.
vi. It is a continuous on ongoing process.
vii. Decision-making implies freedom to the decision-maker regarding the final
choice.

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Decision-making process

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CONT….
• Step 1: Identify the decision: Try to clearly define the nature of the decision
you must make.
• Step 2: Gather relevant information: This step involves both internal and
external “work.”
• Step 3: Identify the alternatives: As you collect information, you will
probably identify several possible paths of action, or alternatives.
• Step 4: Weigh the evidence: place the alternatives in a priority order, based
upon your own value system.
• Step 5: Choose among alternatives: Once you have weighed all the evidence,
you are ready to select the alternative that seems to be best one for you. You
may even choose a combination of alternatives.

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CONT….
• Step 6: Take action: You’re now ready to take some positive action by
beginning to implement the alternative you chose in Step 5.

• Step 7: Review your decision & its consequences: In this final step, consider
the results of your decision and evaluate whether or not it has resolved the
need you identified in Step 1.

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1. Identify the problem.
2. What are the person’s choices?
3. Gather information: What information should the person gather that would be
helpful to know before making a decision?
4. Consider the outcome. What would be the results of the decision?
5. Make the decision. What should the person do?
6. Evaluate your decision. Why do you think this is the best decision possible?
 

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Case study
Steve is fourteen and has taken piano lessons since he was five. He feels
that he misses out on many fun activities because he has to practice
everyday after school. He wants to quit piano lessons, but his mother will
not allow him to; she says, “If you quit the piano now you’ll be sorry when
you get older.” Steve wants to quit anyway.

What other options could Steve and his mother find? Is there a compromise that
they can make to satisfy both of them?

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1. Identify the problem.
2. What are the person’s choices?
1. -
2. -
3. -

3. Gather information: What information should the person gather that would be
helpful to know before making a decision?
1. -
2. -
3. -

4. Consider the outcome. What would be the results of the decision?

1. -
2. -
3. -

5. Make the decision. What should the person do?

6. Evaluate your decision. Why do you think this is the best decision possible?

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 Types of decision

1. Strategic
Decisions and
Routine
Decisions

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CONT…..
2. Programmed Decisions and Non-Programmed Decisions
• Prof. Herbert Simon an American economist and psychologist has used
computer terminology in categorizing business decisions which we can
categorize as the programmed decisions
• Programmed decisions relate to those functions that are repetitive in nature.
• These decisions are dealt with by following a specific standard procedure.
• EX: granting leave to employees, purchasing spare parts etc
• Non-programmed decisions arise out of unstructured problems, i.e. these
are not routine or daily occurrences.
• For example, opening a new branch office will be a non-programmed
decision.

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CONT….

• Policy Decisions and Operating Decisions

• Ernest Dale was German-born American organizational theorist who has
classified decisions in the business organization.
• Tactical decisions pertaining to the policy and planning of the firm are
known as policy decisions.
• Such decisions are usually reserved for the firm’s top management officials.
• Operating decisions are the decisions necessary to put the policy decisions
into action.
• These decisions help implement the plans and policies taken by the high-
level managers.

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CONT…
• Organizational Decisions and Personal Decisions
• When an executive takes a decision in an official capacity, on behalf of the
organization, this is an organizational decision.
• if the executive takes a decision in a personal capacity, that does not relate to
the organization in any way this is a personal decision.

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CONT…
• Individual Decisions and Group Decisions
• Any decision taken by an individual in an official capacity it is an individual
decision.
• Organizations that are smaller and have an autocratic style of management
rely on such decisions.
• Group decisions are taken by a group or a collective of the firm’s employees
and management.

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Decision making under different conditions

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