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Chapter 2 Palnning

Chapter 2 Palnning

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management and entrepreneurship
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Management and Entrepreneurship

Subject Code:06AL51


Chapter – 2 PLANNING
“Successful managers deal with foreseen problems and unsuccessful managers struggle with unforeseen problems”….Terry

SYSTEM APPROACH TO MANAGEMENT Goal inputs of claimants 5. 1. Employees Governments 6. 2. Consumers Community 7. Other 3. Suppliers 4. Stock holders

EXTERNAL ENVIRONMENT Managerial Knowledge, Goals of claimants and use of inputs(Part1 The Basis of Management Theory and Science)

1.Human 2.Capital 3.Managerial 4.Technologica l


PLANNING (Part 2) Organizing (Part 3)

Reenergizin g the system

Staffing (Part 4)

Leading (Part 5)

Controlling (Part 6)

Facilitated by communicatio n that also link the organization with the external environment (Part 1 & 7. Domestic and internal environment)





• • • • • • • • Nature of planning Importance & Purpose of Planning Objectives Types of Plans Decision Making Steps in Planning Planning premises Hierarchy of plans

• To provide the students with an overview of planning process in organizations. • To give a snapshot of various plans that are generally put to use in organizations. • To provide an insight into the decision making process and the various types of decisions. • To enable students understand the decision making process under states of certainty, risk and uncertainty.

What is Planning?
• Deciding in advance what to do, how to do it , when to do it and who to do it. • A forecast for accomplishment. • Predetermined course of action. • To produce a scheme for future action and to bring about specified results at a specified cost in a specified period of time.


• Defined in to directions by management thinkers.
– Based on futurity – As an intellectual function

• Based on futurity:
– – – – “Planning is a trap laid down to capture the future” (Allen) “Deciding in advance what is to be done in future” (Koontz) “Informed anticipation of future”( Haimann) Anticipatory decision making” (R L Ackoff)


• As an intelligence function:
– “Planning is a thinking process, an organized foresight, a vision based on fact and experience that is required for intelligent action”( Alford & Beatty) – “Deciding in advance what to do, how to do it, when to do it and who is to do it” ( Koontz & O’ Donnell) Planning focuses on future and it involves all the activities that determine objectives for the future and the appropriate means for achieving those objectives. Outcome of planning is a plan, which is a document that specifies the course of action the organization will take.


Nature of Planning
• Provides basic foundation from which all future management functions arise. • Goal oriented • All pervasive • Intellectual exercise • Continuous process • Futuristic • Integrated Process

Planning- A bridge

Where we are


Where we want to be


Importance of Planning
• • • • • • • • Provides direction Creates a unifying frame work Leads to economical utilization of resources Reduces the risks of uncertainty Facilitates decision making Encourages Innovation & Creativity Improves morale Facilitates control


Planning & Control – Siamese Twins
Controlling: comparing plans with results No undesirable deviations from plans


Implementati on of Plans

Undesirable deviations Corrective action

Types of Plans
• Long range Vs Short range • Strategic Vs Operational • Corporate Vs Functional • Proactive Vs Reactive • Standing Vs Single Use

Long range Vs Short range
Long range plan Point of Short range plan distinction Covers less than one year and is more specific & detail Up to one year Linkage with various parts of an organization Covers many years & Meaning affects many departments of an organization 5 yrs or more Time

Organizations linkage with Primary external factors focus Mission ,long term goals and strategies Top management

Deals with Current operations of organization Prepared by Lower level executives

Strategic Vs Operational
Strategic Plan 5 years or more Adapt to external environment based on internal strengths Total institutional performance Top management Primarily judgmental
Point of distinction Time horizon Purpose

Operational Plan Under one year Implement internal goals

Activity controlled Level involved Basis for planning

Internal tasks & Operations Middle & lower level Exact data & Standards used

Corporate Vs Functional
• Corporate Plan:
– A comprehensive plan that outlines the broad objectives of a company as a whole and develops plans to achieve those objectives – Holistic and Unified focus – Focus on organizational performance

• Functional Plan:
– Is unit planning and deals with different departments in an isolated manner. – Focus on departmental performance

Proactive Vs Reactive
• Proactive Planning: – Managers challenge the future, anticipating future contingencies and get ready with alternative routes for unforeseen circumstances • Reactive Planning: – Organizations react to events as and when they arise


Standing Vs Single Use
• Standing Plans – Developed for activities tat recur regularly over a period of time • Ex:
– Objectives, Policies, Procedures, Methods, Rules

• Single Use plans – Developed to carry out a course of action that is not likely to be repeated in future • Ex:
– Programmes, Schedules, Projects, Budgets

Hierarchy of Plans
Purpose or Mission Objectives Strategies Policies: Major or Minor Procedures Rules Programs: Major or minor and supporting Budgets: numberized programs


Purposes / Mission
• Terms used interchangeably • Identifies basic function or task of an enterprise or any part of it. • Ex: – Business : production and distribution of goods – State highway dept:design,building and operation of a system of state highways – University:Teaching & Consultancy – Court : Interpretation of laws and their applications.

Purpose Vs Mission
• Business: – Purpose is to produce goods and services. – Mission : Producing certain line of products. • Ex: – Du Pont : Better things through chemistry – Hallmark: The social expression business


Objectives / Goals
• • • • • Ends toward which the activity is aimed. Results to be achieved Endpoint of planning Clash of objectives amongst departments Ex:
– objective of a business is to make a certain profit by producing a given line of home entertainment equipment,while the goal of the manufacturing dept is to produce required no. of tv’s of given design and quality at a given cost.

Characteristics of Objectives
• Are multiple in number • Either tangible or intangible • Have a priority • Arranged in a hierarchy • Some time clash with each other


Requirements of Sound Objectives
• • • • Must be both clear and acceptable Support one another Precise and measurable Should always remain valid


Advantages of Objectives
• • • • • • • • Basis for planning Act as motivators Eliminate haphazard action Facilitates coordinated behavior Basis for managerial control Facilitate better management Lessen misunderstanding& conflict Provide legitimacy

Relationship of objectives and the organizational Hierarchy
1. Socioeconomic purpose 2. Mission 3. Overall objectives of the organization (long-rage, strategic) 4. More specific overall objectives (e.g, in key result areas 5. Division objectives 6. Department and Unit objectives 7. Individual objectives • Performance • Personal development objectives Lower-level managers Board of directors

Top-level management

(Some) (Some)
Middle – level managers


Hierarchy objectives

organizational Hierarchy

• General programs of action and deployment of resources to attain comprehensive objectives • Determination of long term objectives of an enterprise and the adoption of courses of action and allocation of resources necessary to achieve the goals. • Don’t attempt to outline how to accomplish objectives,but provides a framework for guiding thinking and action • Includes major policies • Ex: GM’s Strategy:Marketing directly rather than through
distributors,Concentrating on proprietary products,or having full line of autos.


Vision/Purpose/Mission /Objectives
• Vision is the dream that management creates for the organization’s preferred future.
Ex: Become world leader in health care field in a decade

• Purpose is the primary role of the organization defined by the society in which it operates
Ex: Hospital-Provide health care

• Mission is the unique aim that sets an organization apart from the others of its type
Ex: Hospital –to treat heart disorders only

• Objectives are the ends( specific targets)toward which enterprise activities are aimed
• Ex: Hospital –admit certain number of indoor patients


• General statements which guide in decision making • All policies need not be statements.( practice over a period of time can be interpreted as policy) • Define an area within which a decision is to be made and ensure that the decision will be consistent with and contribute to ,an objective
• Ex: Recruiting only through campus for the post of probationary officers.

• Establish a required method of handling future activities. • Guides to action ,rather than thinking • Detail the exact manner in which certain activities must be accomplished. • Procedures and Policies are related
– Ex:Company policy of granting vacations, Procedures established to implement this policy will provide for scheduling of vacations with out disrupting the work, determining rates of vacation pay,spelling out the means for applying vacation

• Spell out specific required actions or non actions, allowing no discretion. • Are different from procedures in that they guide action without specifying a time sequence. • Procedure can be Sequence of rules ,but a rule may or may not be part of procedure
– Ex:

• “No Smoking” is a rule quite unrelated to procedure.

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

-- Ex: Introducing new product in the market
• Essential ingredients are : Time phasing, Budgeting • Absence of the above ingredients is a hope.


• A statement of expected results expressed in numerical terms. • Referred as numberized program • Expressed in financial terms( Cash flows), labor hours, units of production, etc • Fundamental planning instrument • Control devices


Steps in Planning
Being Aware of Opportunity In light of: The Market Competition What customer want Our strengths Our weaknesses Comparing alternatives in light of goals sought Which alternative will give us the best chance of meeting our goals at the lowest cost and highest profit?

Setting objectives or Goals Where we want to be and what we want to accomplish and when

Choosing an Alternative Selecting the course of action we will pursue

Considering planning premises In what environment – internal or external – will our plans operator?

Formulating supporting plans Such as plan to Buy equipment Buy materials Hire and train workers Develop a new product Numerizing plans by Marking Budgets Develop such budgets as: Volume and price of sales Operating expenses Necessary for plans Expenditures for capital Equipment

Identifying Alternatives What are the most promising alternatives to accomplishing our objectives?


Planning Premises
• Assumptions about the organizations future. • Basis for plan formulation.
– Ex: Information pertaining to population trends, Production costs, material availability, governmental controls.

• Classification of Planning premises
– External & Internal – Quantitative & Qualitative – Controllable & Non controllable


Internal & External Premises
• Internal:
– Sales forecasts, Policies of the organization., skill sets of the employees, values of the management, etc

• External:
– General business & economic environment ,Technological changes, Government policies, population growth, political stability, sociological factors, demand for industry’s product.


Quantitative & Qualitative Premises
• Quantitative: Measurable characters
– Population growth, industry demand, capital and resources invested in the organization, etc

• Qualitative: Not measurable
– Political stability, sociological factors, attitudes, philosophies, etc


Controllable & Non Controllable Premises
• Controllable:
– Company’s advertising policy, skills of work force, availability of resources, attitude and behavior of the management, etc

• Non Controllable:
– Strikes, Wars, natural calamities, emergencies, legislations, etc

Decision Making
• Essential part of management • Taking conscious and sub conscious decisions is every day phenomenon • Permeates all managerial functions
• Ex: In directing – determining the course, deciding the orders and instructions to be given, providing dynamic leadership. • In controlling – laying down of performance standards, strategic control points, procedure for control

Meaning of a Decision
• Choice between two or more alternatives • Implies three things – Choosing, – Availability of alternatives, – Having a purpose


Types of Decisions
• Programmed & Non Programmed • Major and Minor • Individual and Group • Simple and Complex

Programmed and Non Programmed
• Decision made in accordance with some policy , procedure or rule. • Repetitive • Ex: Pricing Ordinary customers’ orders. • Salary payments to employees • Decisions are novel and non repetitive • No cut and dry method available. • Ex: Allocation of resources in organizations • What to do about a failing product line

Major and Minor Decisions
• The relative significance of a decision can be measured in the following ways: • Degree of futurity of decision • Impact of the decision on other functional areas • Recurrence of decisions • Qualitative factors that enter the decision


Routine and Strategic Decisions
• Tactical decisions • Supportive in nature, rather than central • Relate to present • Require little deliberations • Ex: Deputing employees to attend conferences • Require lengthy deliberations • Influence the organization in a major way • Ex: Changing the product line.


Individual and Group Decisions
• Problem is of routine nature • Analysis is simple • Definite procedures to deal with problem exists. • Strategic decisions • Influence will be across the departments • Ex: Dialectic method • Devils advocacy


Simple and Complex Decisions
• Variables to be considered for solving a problem are less -----Simple decision – Ex: When taking decision based on rules • Variables to be considered are many for solving a problem------Complex decision – Ex: When taking decision to arrest the sales decline.

Rational Decision Making
1. Recognizing the problem 2. 3. 5. 6. Deciding priorities among problems Diagnosing the problem Measuring and comparing the consequences of alternative solutions Converting the decision into effective action and follow-up of action.

4. Developing alternative solutions or courses of action


Flow diagram of Rational decision making process
Recognizing problems Deciding priorities Diagnozing the problem Developing Alternative solutions

Decision implementation & follow up

Measuring and Comparing alternatives

Recognizing the problem
• Deviation from past experience • Ex: Employees’ turnover has grown • Deviation from plan • Ex: Department is exceeding its budget • Other people bringing problems to manager • Ex: Customers complaining about late deliveries • Competitors out performance • Ex: Other companies developing new processes

Deciding priorities
• Some problems can be solved at the subordinate level • Some problems can be referred upwards • Some problems can be deferred and allowed to be solved without any effort • Ex: Napolean’s 3 week delay in looking at mail

Diagnosing the Problem
• Symptoms of problem can mislead • Careful diagnosis is a pre requisite – Ex: Sales Decline • Reasons could be: – Poor selling procedures, sharp competition, saturation of old markets – Real reason---Changes in customers demand

Developing alternative solutions
• For every problem there are alternative solutions. – Ex: Manager considering a proposal to raise production to meet increased demand – Alternatives: build a new plant, buy better equipment, add extra shift, authorize overtime

Measuring & Comparing alternative solutions
• Involves “quality” and “acceptability” of various alternative solutions. • Quality involves assessing tangible and intangible out comes – Ex: Calculating the cost of various alternatives – Good industrial relations in a particular area – Industrial Relations Vs Low local taxes

Measuring & Comparing alternative solutions
• Technical matters –Quality is important – Ex: Engg., Production • Human matters –Acceptability is important – Ex: Working conditions, office layout • Another alternative is Pilot testing

Converting Decision to Action & Follow up
• Translation requires effective communication of decision to employees in clear and un ambiguous manner. • Ensure employee acceptance • Ensure employee participation in the implementation

Decision Making Models
• Economic man model – Developed by classical economists – Selects the alternative which gives the maximum advantage( Rational decision) – Gathers complete information – Mentally stores this information completely – Can recall when required – Rank all alternatives on the basis of merits


Decision Making Models
• Administrative Man model – Also called bounded rationality model – Proponent---Herbert Simon – No ability to “Maximize”, but can only “Satisfice” – No ideal Alternative – Choose the best alternative amongst the available alternatives

Decision Making Models
• Social man Model – Developed by classical psychologists – Proponent ----- Freud – Guided by emotions, feelings, social pressures – Unconscious desires guide decision making – Rational decision making is only a myth.

Environment of decision making
• Certainty • Risk • Uncertainty • Turbulence


• The decision maker can specify the consequences of a particular decision. • Ex: Company has to make shipments to many customers from various warehouses • Least cost distribution pattern • Variables: Types of transport available, Costs per unit for each type from each source to each destination , etc

• Consequences of a particular decision cannot be specified with certainty but can specified with known probability values • Alternative evaluation is done by calculating the expected value of the payoff associated with alternative • Expected payoff is the sum of the value of each possible outcome times its associated probability.

• Exists when the decision maker does not even know
the probabilities associated with the possible out comes • Identifies possible outcomes and their related payoffs • Criteria used to arrive at decisions are Maximin, Maximax, Minimax Regret


• Situation where the environment is itself rapidly changing or uncertain • Decision making under the condition of complete ignorance • Possible outcomes and their payoffs cannot be determined.

The continuum of DecisionMaking conditions
Certainty Risk Uncertainty Turbulence




Difficulties in Decision Making
• Incomplete Information • Unsupporting Environment • Non acceptability by the subordinates • Ineffective Communication • Incorrect timing


• Principles of Management-P C Tripathi, P N Reddy; 3rd Edn.,TMH • Management-Stephen Robbins; 8th Edn.,PHI • Management-VSP Rao, V H Krishna; Excel • Essentials of Management-Koontz,Weihrich;5th Edn.,TMH • Management – James A F Stoner, R Edward Freeman, Daniel R Gilbert;6th Edn., PHI • Principles of management: a modern approach-Henry Albers, 4th Edn,,John Wiley & sons • Fundamentals of management-Donnelly, Gibson,Ivancevich ,10th Edn,.Irwin Mc Graw


Web References
• • • • • • • • • www.12manage.com www.cliffsnotes.com www.swlearning.com www.gutenburg.org www.cheathouse.com www.business.com www.businessmanagement.suite101.com www.greatmanagement.org www.harehall.co.uk

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