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Planning: Introduction

The necessity for planning arises because of the fact that
business organizations have to operate, survive and progress in
a highly dynamic economy where change is the rule, not the
exception. The change may be sudden and extensive, or it may
be slow and almost imperceptible. Some of the important forces
of change may be: changes in technology, changes in
population and income distribution, changes in the tastes of the consumers, changes in
competition, changes in government policies etc. These changes often give rise to
innumerable problems and throw countless challenges. Most of these changes are
thrust on managers thus, managers are forced to adjust their activities in order to tae
full advantage of favourable developments or to minimize the adverse effects of
unfavourable ones. Successful managers try to visualize the problems before they turn
into emergencies. !s pointed out by Terry, "successful managers deal with foreseen
problems, and unsuccessful managers struggle with unforeseen problems. The
difference lies in planning.# Managers charged with the responsibility of achieving
definite targets, do not wait for future. They mae the future. They introduce original
action by removing present difficulties, anticipating future problems, changing the
goals to suit the internal and external changes, experiment with creative ideas and tae
the initiative, attempting to shape the future and create a more desirable environment.
♦ M$!%&%'
! plan is a forecast for accomplishment. &t is a predetermined course of action. &t is
today(s projection for tomorrow(s activity. &n other words, to plan is to produce a scheme
for future action, to bring about specified results at a specified cost, in a specified period
of time. Management thiners have defined the term, basically, in two ways:
♦ Based on Futurity: ")lanning is a trap laid down to capture the future# *Allen+.
")lanning is deciding in advance what is to be done in future# *Koontz+. ")lanning is
informed anticipation of future# *Haimann+. ")lanning is ,anticipatory( decision-
maing# *R.L. Ackoff+.
♦ As a Thinking Function: ")lanning is a thining process, an organized foresight, a
vision based on fact and experience that is re.uired for intelligent action# *Alford and
")lanning is deciding in advance what to do, how to do it, when to do it and who is it
to do it.# *Koontz and O’Donnell+
&t is deciding in the present, what is to be done in the future. &t is the process of
thining before doing. ! plan is specific, documented intention consisting of an
objective and an action statement. The objective portion is the end, and the action
Planning: Deciding
in advance what to
do, how to do it,
when to do it and
who is to do it.
statement represents the means to that end. Stated another way, objectives give
management targets to shoot at, whereas action statements provide the arrows for
hitting the targets. )roperly conceived plans tell what, where and how something is to
be done.
Features of Planning
)lanning has a number of characteristics:

*i+ Planning is Goal Oriented: !ll plans arise from objectives. /bjectives
provide the basic guidelines for planning activities. )lanning has no meaning
unless it contributes in some positive manner to the achievement of
predetermined goals.
*ii+ Planning is a Primary Function: )lanning is the foundation of management.
&t is a parent exercise in management process. &t is a preface to business
activities. !ccording to Koontz, ")lanning provides the basic foundation from
which all future management functions arise.# Terry also supported the view
that "without panning there nothing to organize, no one to motivate and no
need to control#. The idea of primacy of planning emphasizes the fact that
planning taes precedence over other managerial functions lie organizing,
directing and controlling because none of these can come into being until there
is a plan.
*iii+ Planning is All-Pervasive: )lanning is a function of all managers. &t is needed
and practiced at all managerial levels. )lanning is inherent is everything a
manager does. Managers have to plan before launching a new business. They
have to plan whenever things change. $ven when they decide to close down a
plant, they have to plan meticulously to avoid problems from employees. The
scope of planning, however, differs at different levels and among different
*iv+ Planning is a Mental Eercise: )lanning is a mental process involving
imagination, foresight and sound judgment. )lanning compels managers to
abandon guesswor and wishful thining. &t maes them thin in a logical and
systematic manner. )lans are based on a careful study of internal and external
factors influencing business activities.
*v+ Planning is a !ontinuous Process: )lanning is continuous. &t is a never-
ending activity. /nce plans for a specific period are prepared, they are
translated into action. !t the end of that period, there is a need for a new plan
to be drawn based on new situations and conditions. )lanning is, thus, an
ongoing process of adjustment to change. There is always need for a new plan
to be drawn on the basis of new demands and changes in the circumstances.
*vi+ Plan "nvolves !hoice: )lanning essentially involves choice among various
alternative courses of action. &f there is one way of doing something, there is
no need for planning. The need for planning arises only when alternatives are
available. )lanning presupposes the existence of alternatives. 0rom out of these
alternatives, a manager would select the best alternative, after careful analysis
and evaluation.
*vii+ Planning is For#ard $ooking: )lanning means looing ahead and preparing
for the future. &t means peeping into the future, analyzing it and preparing for
it. Managers plan today with a view to flourish tomorrow. 1ithout planning,
business becomes random in nature and decisions would become meaningless,
adhoc choices.
*viii+ Planning is Flei%le: )lanning is based on a forecast of future events. Since
future is uncertain, plans should be reasonably flexible. The onset of colour
television sets forced many a manufacturer in the 1est to abandon production
of blac and white television sets long bac. 1hen maret conditions change,
planners have to mae necessary changes in the existing plans. !ccording to
Koontz and O’Donnell, "effective planning re.uires continual checing on
events and forecasts and the redrawing of plans to maintain a course towards a
designed goal.#
*ix+ Planning is an "ntegrated Process: )lans are structured in a logical way
wherein every lower level plan serves as a means to accomplish higher level
plans. They are highly interdependent and mutually supportive.
*x+ Planning "ncludes E&&iciency and E&&ectiveness 'imensions: )lans aim at
deploying resources economically and efficiently. They also try to accomplish
what has been actually targeted. The
effectiveness of plans is usually dependent
on how much it can contribute to the
predetermined objectives.
Features o& a Good Plan
According to L.F. Urwick, a good plan should:
• Have a clear goal.
• Be simple.
• Be an amenable for proper analysis and
classification of actions.
• Be flexible.
• Be balanced.
• rovide for optimum use of resources.
Planning Questions
)lanning is deciding in advance what to do, how to do it, when to do it and who is to do
it. &t bridges the gap from where we are to where we want to go. &t is the function that
answers four basic .uestions, as shown in figure 2.3.

4. 'ap5
6. 7ow to bridge the gap5

*8urrent Status+ *0uture &mage+

3. 1here we are now5 9. 1here we want to be5
0igure 2.3
)lanning :uestions
3. 1here are we now5: This .uestion is concerned with maing a realistic
assessment of the current situation and forecasting how the picture may change in
the future.
9. 1here do we want to be5: This is concerned with finding out the desirable
objectives, eeping the present as well as the future re.uirements in mind.
4. 'ap5: 1hat is the amount of difference between where we are now and where we
want to be5
6. 7ow can we get there from here5: This is a .uestion of deciding in the present
what has to be done in future. )lanning is concerned with future implications of
current decisions, not with decisions to be made in the future.
Steps in the Planning Process
)lanning is a vital managerial function. &t is intellectually demanding. &t re.uires a lot of
time and effort on the part of planners. They must adopt a systematic approach so as to
avoid pitfalls, errors and costly mistaes which may upset the whole business later on.
Such a systematic approach may consist of the following steps:
*i+ Esta%lishing O%(ectives: The first step in the planning process is to identify
the goals of the organization. The internal as well as external conditions
affecting the organization must be thoroughly examined before setting
objectives. The objectives so derived must clearly indicate what is to be
achieved, where action should tae place, who is to perform it, how it is to be
undertaen and when it is to be accomplished. &n other words, managers must
provide clear guidelines for organizational efforts, so that activities can be
ept on the right trac.
*ii+ 'eveloping Premises: !fter setting objectives, it is necessary to outline
planning premises. )remises are assumptions about the environment in which
plans are made and implemented. Thus, assumptions about the liely impact
of important environmental factors such as maret demand for goods, cost of
raw materials, technology to be used, population growth, government policy,
etc. on the future plans are made. The demand for fuel efficient vehicles in the
late agreements with foreign manufacturers from ;apan, 'ermany, <S!, etc.
)lans should be formulated by the management, eeping the constraints
imposed by internal as well as external conditions in mind.
*iii+ Evaluating Alternatives and )election: !fter establishing the objectives and
planning premises, the alternative courses of action have to be considered.
=iberalization of imports and the use of high technology in recent times has
encouraged manufacturers to produce colour television sets, electronic sets,
electronic e.uipments, videos, computers, fuel-efficient vehicles, etc. Thus,
changes in government policy, technology, competition, etc. pose several
alternatives before manufacturers, from time to time, regarding the product
they should manufacture. Such alternatives have to be carefully evaluated
against factors lie costs, associated riss involved, benefits liely to arise,
availability of spare capacity, etc. The pros and cons as well as the
conse.uences of each alternative course of action must be examined
thoroughly before a choice is made.
*iv+ Formulating 'erivative Plans: !fter selecting the best course of action, the
management has to formulate the secondary plans to support the basic plan.
The plans derived for various departments, units, activities, etc., in a detailed
manner are nown as ,derivative plans(. 0or example, the basic production
plan re.uires a number of things such as availability of plant and machinery,
training of employees, provision of ade.uate finance, etc. To ensure the
success of a basic plan, the derivative plans must indicate the time schedule
and se.uence of performing various tass.
*v+ )ecuring !o-operation and Participation: The successful implementation
of a plan depends, to a large extent, on the whole-hearted co-operation of the
employees. &n view of this, management should involve operations people in
the planning activities. Suggestions, complaints and criticisms from operating
personnel help management rectify the defects in plans and set things right in
the beginning itself. &nvolvement of subordinates in planning has the uni.ue
advantage of getting a practical view of those closer to the scene of
operations. !ccording to Koontz, "plans have to be in an atmosphere of close
participation and a high degree of concurrence.# )articipation enables
employees to give their best to plans. They are also motivated to carry out the
plan to the best of their ability.
*vi+ Providing For Follo# *p: plans have to be reviewed continually to ensure
their relevance and effectiveness. &n the course of implementing plans, certain
facts may come to light that were not even thought of earlier. &n the light of
these changed conditions, plans have to be revised. 1ithout such a regular
follow-up, plans may become out-of-date and useless. Moreover, such a step
ensures the implementation plans along right lines. Management can notice
shortcomings in time and initiate suitable remedial steps. ! continuous
evaluation of plans also helps to develop sound plans in future, avoiding
mistaes that have surfaced while implementing the previous plans.
Approaches to Planning
Managers follow various approaches to planning based on the extent of participation,
authority delegation and competency level of managers woring at various levels,
3. Top-'o#n Approach: &n most family-owned enterprises, authority and
responsibility is centralised at the top. The top management defines the mission, lays
down strategies, and specifies action plans to achieve the stated goals. The blueprint
is then passed on to the people woring at lower levels, who have very little to
contribute to the process of planning. The success of this approach is wholly
dependent on the .ualifications, experience and capability of people woring at the
top level.
9. Bottom-*p Approach: Thining and doing aspects in the planning process are
two sides of the same coin. So, if lower level managers are drawn into the preparation
and implementation of plans, their loyalty and commitment would go up
automatically. )articipation enables them to give their best to the plan document.
4. !omposite Approach: &n this approach, a middle path is chosen to facilitate the
smooth implementation of the plans. 7ere the top management offers guidelines, sets
the boundaries and encourages the middle and lower level executives to come out
with tentative plans. These are put to discussion and debate. /nce approved, such
plans gain acceptance readily since everyone has been drawn into the exercise.
6. Team Approach: The team approach is slightly different from the the composite
approach. &n this, the job of planning is assigned to a team of managers having
re.uisite experience in various functional areas. They prepare the draft plans, taing
internal as well as external factors into account. The tentative plans are forwarded to
the top management for approval. The expertise, experience, and capabilities of
functional heads is executed into action in such a participative climate.
Principles of Planning
To be useful, planning should try to incorporate some of the time tested and inter-related
principles, beautifully summed by Koontz thus:
3. Principle o& !ontri%ution o& O%(ectives: $very plan should help in the
achievement of organizational objectives.
9. Principle o& Primacy o& Planning: )lanning precedes all other managerial
functions. &t is the first and foremost function to be followed in the process of
4. Principle o& Pervasiveness o& Planning: )lanning is an all-pervasive function. &t
is important to all managers regardless of their level in the organization.
6. Principle o& Flei%ility: >y flexibility of a plan is meant its ability to switch
gears, change direction to adapt to changing situations without unnecessary cost.
2. Principle o& Periodicity: )lans should be integrated and interconnected in such a
way as to achieve the stated objectives economically and efficiently. ! manager
should review events and expectations regularly? refine and redraw the plan and
eep it on trac.
@. Principle o& Planning Premises: $very plan is based on carefully considered
assumptions, nown as planning premises. "The more the individuals charged
with planning, understand and agree to utilize consistent planning premises, the
more coordinated enterprise planning will be#.
A. Principle o& $imiting Factor: 1hile choosing an appropriate course of action
among different alternatives, the limiting or critical factor *such as money,
manpower, machinery, materials, management+ should be recognized and given
due weightage. 1hen ignored, the critical factor would seriously impact the
process of planning and mae it impossible to achieve goals.
Importance of Planning
)lanning is an essential activity carried out in all organizations in the modern world. %o
organization can achieve its goals without planning. )lanning helps in determining the
goals of an organization and the activities needed to satisfy these goals. &f organizations
are operating on a day-to-day basis with no feel of where they are heading, the results
will be haphazard. &t is lie sailors lost at sea in a rowboat. They feel helpless just sitting
there, so they row, not having any idea where their rowing will tae them. )lanning helps
an organization in the following ways:
3. Planning Provides 'irection: )lanning provides direction and a sense of purpose
for the organization. 1ithout plans and goals, organizations merely act to daily
occurrences without considering what will happen in the long-run. )lans avoid
this drift situation and ensure that short-range efforts will support and harmonize
with future goals. &t helps an organization decide what to do and when to do it. &t
reduces aimless activity and maes action more meaningful.
9. Planning Provides a *ni&ying Frame#ork: )lanning forces people to
continually address their efforts to the most important wor rather than the least
important. &n the absence of a plan, unifying focus on company objectives may be
missing. ! plan tells everyone what the organization hopes to achieve and what
the contribution of each department must be, and who is to utilize resources to
achieve the goals. )lans serve as the basis of coordinating the efforts of different
divisions, departments and people. &n the absence of a plan, the organization
would be pulled in different directions, creating confusion and misunderstanding
at various levels.
4. Planning is Economical: $ffective plans coordinate organizational wor and
eliminate unproductive effort. 'uess wor is banished. 0acilities are employed to
the best advantage. 1aste motions and idle facilities are removed. &n the words of
Koontz and O’Donnell, ")lanning substitutes jointly directed efforts against
uncoordinated, piecemeal activity, an even flow of wor for an uneven flow, and
deliberate decisions for snap judgments#. >y focusing attention on what is to be
done, how and when it is to be done, plans help an organization in an economical
way. This, ultimately, leads to efficiency of operations.
6. Planning +educes the +isks o& *ncertainty: )lanning helps an organization to
cope with an uncertain future. &t helps management to anticipate the future and
prepare for the riss by maing necessary provisions to meet the unexpected turn
of events. )lanning enables a manager, in the words of Drucker, to affect rather
than accept the future. &n the absence of a plan, the organisation is much more
liely to sit bac and let things happen and then react to these surprises because
objectives, policies and strategies are formulated after a careful scrutiny of
internal as well as external environment. )lanning, thus, sees to minimize ris
while taing advantage of opportunities. &t eeps management alert to
environmental changes, and manage the uncertain future in a useful way.
2. Planning Facilitates 'ecision Making: Becision maing involves searching of
various alternative courses of action, evaluating them and selecting the best one.
)lanned targets serve as the criteria for the evaluation of different alternatives so
that the best one may be chosen. &f there are no plans for the future, there are few
guidelines for maing current decisions. 0or example, decisions have to be made
in present for a product to be introduced three years in the future. 1hen future
plans exist, decisions consistent with the future plans are made. 0urther, without
plans, people will mae decisions according to their own preference rather than
those of the organisation.
@. Planning Encourages "nnovation and !reativity: )lanning involves looing
ahead and preparing for the future. The process of looing ahead, forces an
organisation to be alert of opportunities and threats in the environment. &t forces
managers to find out new and improved ways of doing things in order to remain
competitive and avoid the threats in the environment. &t compels the managers to
be creative and innovative all the time. )lanning helps managers to visualize
problems early and tae suitable remedial steps. &t helps them encash
opportunities and come out as ,winners( in a competitive world.
A. Planning "mproves Morale: /nce members now what is expected of them, can
contribute better. 1hen goals are properly defined, wor assignments can be fixed
and everyone can begin to contribute to the achievement of these goals. This
produces improvements in morale. 0urther, planning permits employees to
participate in the thining process. This helps them develop a broad mentality.
!lso, when the plan is actually translated into action, they feel that it is their own
plan. )ositive attributes are, thus, developed. There is less friction between
departments and there is greater personal involvement and commitment to the
plan. )lanning improves the behavioural climate in the organization.
C. Planning Facilities !ontrol: )lanning and controlling functions are set to be
,Siamese twins( *inseparable twins+. There is nothing to control without planning
and without proper control.
Objectives and Goals
Definitions of Objectives:
3. /bjectives are goals established to guide the efforts of the company and each of
its components.
9. /bjectives indicate the ,end point of a management programme(.
4. !n organizational goal is a desired state of affairs which the organization attempts
to realize.
Definitions of Goals:
3. ! future target or end result that an organization wishes to achieve is nown a
9. !n /rganizational 'oal is a desired state of affairs which the organization
attempts to realize.
Similarities beteen Objectives and Goals
3. The terms objective and goal indicate an end result to be sought and
9. >oth have value orientations and indicate conditions considered necessary to
improve the overall performance of the organization.
Importance of Objectives
/bjectives are essentials to organizations. They affect the size, shape, and design of
the organization, and they are important in motivating and directing personnel. /bjectives
serve the following functions:
• =egitimacy
• Birection
• 8oordination
• >enchmar for success
• Motivation
,i- $egitimacy: /bjectives describe the purpose of the organization, so that
people now what it stands for and will accept its existence and continuance.
Thus, 0ord ,sells !merican transportation(, Chryler ,sells nowhow( and
'odrej ,sells .uality(. /bjectives help to legitimize the presence of the
organization in its environment. The organization can, then emphasize its
uni.ueness, identity and its raison d(Dtre.
,ii- 'irection: /bjectives provide guidelines for organizational efforts. They
eep attention focused on the common purpose. /nce objectives are
formulated, they become the )olar Star by which the voyage is navigated.
$very activity is directed towards the objectives? every individual contributes
to meet the goals. ,1ithout seeing the target, a manager would be lie
a blindfolded archer E expending useless effort and creating havoc.(
,iii- !oordination: /bjectives eep activities on the right trac. They mae
behaviour in organizations more rational, more coordinated and thus more
effective, because everyone nows the accepted goal to wor towards. &n
setting effective goals managers help members at all levels of the organization
to understand how they can ,best achieve their own goals by directing their
behaviour toward the goals of the organization.(
,iv- Benchmarks &or )uccess: /bjectives serve as performance standards against
which actual performance may be checed. They provide a benchmar for
assessment. They help in the control of human effort in an organization.
,v- Motivation: 'oals are motivators. The setting of a goal, that is both specific
and challenging, leads to an increase in performance because it maes it clear
to the individual what he is supposed to do. 7e can compare how well he is
doing now versus how well he has done in the past and in some instances how
well he is performing in comparison to others.
!anagement b" Objectives #!$O%
! process through which specific goals are set collaboratively for the organization
as a whole and every individual within it, the goals are then used as a basis for planning,
managing organizational activities and assessing and rewarding contributions.
Goal&Setting Process: !odern "iew #!B$%
The organizational goal setting process is not a perfect rational activity. )erfect
rationality implies full nowledge of opportunities, constraints, capacity and willingness
to focus attention on the entire goal setting process. These conditions are rarely satisfied
and in most organizations, goals are mere compromises. !ctual goals are product of the
series of negotiations between internal and external groups.
$ach group will try to influence the goals. This leads to coalition *groups+
formations and these coalitions ultimately decide the goals for the organization. &nstead
of trying to maximize performance the organizations try to accomplish goals in a
,satisficing( manner. Satisficing means that organizations would accept a ,satisfactory(
rather than a maximum level of performance.
Cyert and arch provided this line of reasoning to the goal setting process in the 2Fs
ans is called ,The behavioral theory of organizational objectives(. $ven this theory failed
to tae note of the influence of environmental factors on organizational in a satisfactory
manner. &n 3G26, )eter Brucer had provided a more sophisticated approach to goal
setting in organizations nown as Management by /bjectives *M>/+.
• M>/ *also called ,appraisal by result(, ,planning by objectives(, ,goal
management(, ,wor planning and review(, ,joint target setting(, etc.+ is an overall
philosophy of management that concentrates on measurable goals and end result.
&t provides a systematic and rational approach to management and helps prevent
management by crisis.
• M>/ is based on the assumption that people perform better when they now what
is expected of them and can related there personal goals to the organizational
objectives. &t also assumes that the people are interested in the goal setting process
and in evaluating their performances against the target.
• &n the words of /diorne, M>/ is a ,process whereby the superior and subordinate
managers of an organization jointly identify its common goals, define each
individual(s major areas of responsibilities in terms of results expected of him,
and use these measures as guides for operating the unit and assessing the
contribution of each of its members(.
Features !$O
3. M>/ emphasizes participation in setting goals that are tangible, verifiable and
9. M>/ focuses attention on what must be accomplished *goals+ rather than how it
is to be accomplished *methods+.
4. M>/, by concentrating on ey result areas translates the abstract philosophy of
management into concrete phraseology. The techni.ue can be put into general use
*non-specialist techni.ue+. 0urther , it is a ,dynamic system which sees to
integrate the company(s need to achieve its profit and sales growth with the
manager(s need to clarify and achieve its profit and sales growth with the
manager(s need to contribute and develop himself.(
6. M>/ is a systematic and rational techni.ue that allows management to attain
maximum results from available resources by focusing on achievable goals. &t
allows the subordinate with plenty of room to mae creative decisions on his own.
• $xternal $nvironment
• $stablish
• =ong-Term 'oals
• $stablish Specific
• )erformance /bjectives
• Bevelop
• !ction )lans
• !ppraise
• Hesults
• Tae
• 8orrective !ction
• Top Management )hilosophy
• 8ontinued Support and 8ommitment
• $xternal $nvironment
• Superior
• Subordinate
Decision&!a'ing: Introduction
Becision-maing is an important part of management process. &t covers every part
of an enterprise. &n fact, whatever a manager does, he does through decision-maing only.
0or example, a manager has to decide *i+ what are the long term objectives of the
organization? how to achieve these objectives? what strategies, policies, procedures to be
adopted *planning+? *ii+ how the jobs should be structured, what type of structure, how to
match jobs with individuals *organizing+? *iii+ how to motivate people to pea
performance, which leadership style should be used, how to integrate effort and resolve
conflicts *leading+? *iv+ what activities should be controlled, how to control them,
*controlling+. Thus, decision-maing is a central, important part of the process of
managing. Managers are essentially decision maers only. !lmost everything, managers
do involve decision-maing.
Decision: A choice from available alternatives.
Managers scout for problems, mae decisions for solving them and monitor the
conse.uences to see whether additional decisions are re.uired. 'ood decision-maing is
a vital element of good management because decisions determine how the organizations
solve their problems, allocates its resources and accomplishes its goals. 7owever,
decision-maing is not easy. &t must be done amid ever changing factors, unclear
information and conflicting points of view.
. 'ecision is a choice made &rom availa%le alternatives/ 'ecision-making is the
process %y #hich individuals select a course o& action among several alternatives0 to
produce a desired result/
(haracteristics of Decision&!a'ing
The important characteristics of decision-maing may be listed thus:
1/ Goal oriented: Becision-maing is a goal oriented process. Becisions are usually
made to achieve some purpose or goal. The intention is to move ,toward some
desired state of affairs(.
2/ Alternatives: ! decision should be viewed as ,a point reached in stream of
action(. &t is characterised by two activities E search and choice. The manager
searches for opportunities, to arrive at decisions and for alternatives solutions, so
that may tae place. 8hoice leads to decision, and for alternative solutions, so that
action may tae place. 8hoice leads to decision? it is the selection of a course of
action needed to solve a problem. 1hen there is no action, no decision is re.uired.
The need for decision-maing arises only when some uncertainty, as to outcome
3/ Analytical-"ntellectual: Becision-maing is not a purely intellectual process. &t
has both the intuitive and deductive logic? it contains conscious and unconscious
aspects. )art of it can be learned, but part of it depends upon the personal
characteristics of the decision maer. Becision-maing cannot be completely
.uantified? nor is it based mainly on reason or intuition. Many decisions are based
on emotions or instincts. "! decision represents a judgement? a final resolution of
a conflict of needs, means or goals? and a commitment to action made in the face
of uncertainty, complexity and even irrationality.# Becision implies freedom to
the decision maer regarding the final choice? it is uni.uely human and is the
product of deliberation, evaluation and thought.
4/ 'ynamic Process: Becision-maing is characterised as a process rather than as,
one static entity. &t is a process of using inputs effectively in the solution of
selected problems and the creation of outputs that have utility. Moreover, it is a
process concerned with ,identifying worthwhile things to do( in a dynamic setting.
! manager for example, may hire people based on merit regularly and also pic
up candidates recommended by an influential party, at times. Bepending on the
situational re.uirements, managers tae suitable decisions using discretions and
5/ Pervasive Function: Becision-maing permeates all management and covers
every part of an enterprise. &n fact, whatever a manager does, he does through
decision-maing only? the end products of a manager(s wor are decisions and
actions. Becision-maing is the substance of a manager(s job.
6/ !ontinuous Activity: The life of a manager is a perpetual choice maing activity.
7e decides things on a continual and regular basis. &t is not a one shot deal.
7/ !ommitment o& Time0 E&&ort and Money: Becision-maing implies
commitment of time, effort and money. The commitment may be for short term or
long-term depending on the type of decision *$.g. Strategic, tactical or operating+.
/nce a decision is made, the organisation moves in a specific direction, in order
to achieve the goals.
8/ 9uman and )ocial Process: Becision-maing is a human and social process
involving intellectual abilities, intuition and judgement. The human as well as
social imparts of a decision are usually taen into account while maing the
choice from several alternatives. 0or example, in a labour-surplus, capital-hungry
country lie &ndia managers cannot suddenly shut down plants, lop off divisions
and extend the golden handshae to thousands of worers, in the face of intense
:/ "ntegral Part o& Planning: !s Koontz indicated, "decision maing is the core of
planning#. >oth are intellectual processes, demanding discretion and judgement.
>oth aim at achieving goals. >oth are situational in nature. >oth involve choice
among alternative courses of action. >oth are based on forecasts and assumptions
about future ris and uncertainty.
Forecasting: Introduction
>usiness forecasting is a systematic attempt to probe the future, so as to recognize
problems and opportunities and turn them into plans of action. >usiness forecasting helps
in analyzing the problems, political and maret information to reduce the riss involved
in maing decisions and long-range plans. 0orecasts mae managements thin ahead and
give singularity of purpose to planning by concentrating attention on the future. >usiness
forecasting involves a Iloo aheadI approach in business. ! systematic attempt is made to
loo into all the influential factors *past and present+, affecting the woring of the
organizations. >ased on the analysis of these factors, through sophisticated statistical and
econometric techni.ues, a reliable calculation of probabilities about the future is made.
• Essential Elements in Business Forecasting: Redfield, in a famous article in
7arvard >usiness Heview, identified four essential elements in business
• 'eveloping the Ground#ork: The nown and available information regarding
the growth of the company, the industry in which the company is positioned, the
growth of the product lines of the company, etc., is put to investigation in the first
stage. The basic purpose is to prepare a ground wor on which future predictions
can be based.
• Estimating Future Business: !gainst the bacdrop of the information collected,
an estimate of future prospects of business is made by the management. The
trends are projected by management after a step-by-step procedure where the
information is put to close scrutiny and analysis. These probable trends should not
be taen as absolute guides to executive action? they can be taen as intelligent
guesses at this stage.
• !omparing the Actual +esults #ith Estimated +esults: To ward off dangers
arising from wrong anticipation, periodic comparisons, of actual versus estimated
results, are made at this stage. The forecast provides the measurement apparatus
and helps in tracing down reasons for major differences resulting in
unanticipated gainsJlosses.
• +e&ining the Forecast Process: The above three-step process helps executives in
gaining proficiency in constructing dependable forecasts. !s time progresses they
are able to refine, sharpen and adjust the forecasting techni.ues to meet the
changing needs of business.
)elationship beteen Planning * Forecasting
)lanning and forecasting are closely related to each other. )lanning is deciding in
advance what is to be done in future. 0uturity is in its essence, but the future is uncertain
and risy. )lanners, in majority of cases, do not now with certainty the conditions which
will exist in the future, when activities will tae place etc. !s a result, they are forced to
mae certain assumptions regarding future. This is forecasting. 0orecasting provides
pertinent information for successful planning. )lanning without forecasting proves to be
wasteful and useless. 0ayol aptly remared that Kthe plan is synthesis of the various
forecasts: annual, long-term, short-term, special etc.K 0orecasting is the essence of
planning. &n fact, forecasting is so essential to sound planning that it would be not an
exaggeration to state that the success of the plan depends, in large measures, up to the
validity and accuracy of the forecast.
Forecasting as an Aid in Planning
0orecasting plays an important role in managerial planning. <nfortunately, the
importance of forecasting efforts is rarely recognized. &t is fre.uently pointed out that
Kthe only certain about a forecast is that it will be wrong K. &t is true that no forecast can
be so reliable that it can tell the future. 0orecasting is nothing but a prophecy to the
future, the future which is highly volatile and uncertain. The element of error and ris is
inevitable. >ut, there is no way of escaping this. The best alternative would be to mae
use of the existing forecasting instruments in a judicious manner, in a discriminating way
allowing for the ris factor involved and plan accordingly. &n our daily actions, some
Lmount of forecasting is inevitable. The man who starts a business maes an assessment
of a future demand of its products. The man who determines a production programme for
the next six months or twelve months is usually also basing it on some calculation of
future demand. The man, who engages staff, and particularly young staff, usually has an
eye to future organizational re.uirements. The very fact that so many people
*meteorologists, politicians, managers+ employ this instrument bears ample testimony to
the fact that it is an invaluable guide to steer people to suitable actions. 0orecasts do not
have to be IrightI to be useful. Bespite all its limitations, business forecasting is
immensely useful and therefore unavoidable. 1ithout business forecasting, individuals as
well as organizations are at the mercy of the future events. 0orecasts are ey aids to
planning in the following ways:
3. 0orecasting helps in bringing a singleness of purpose to planning, that cannot
exist easily otherwise.
9. 0orecasting offer pertinent information regarding the future.
4. 0orecasting improves the .uality of managerial planning. 0or example, if a
company is able to anticipate the future re.uirements of customers, it can plan and
develop new products in an appropriate way. 0orecasting helps in minimizing the
costly planning errors. 0orecasting also helps in preparing the organization for
future crisis and emergencies. The organization through ade.uate planning
measures, can buffer itself against many, if not all, of these unexpected changes. &t
may be as impossible to evolve necessary shoc absorbers completely guard
against business cycles but at least their impact can be fairly assessed, and the
unfavourable conse.uences can be minimized.
6. 0orecasting supplies vital information regarding the wea spots in the
organization thereby paving the way to appropriate control. /nce such areas are
spotted, it is easy for managers to establish chec posts for effective control and
sound planning thereafter.
Advantages of Forecasting
!lthough business decision-maers should neither accept any forecast as
infallible nor rely exclusively on it, they would be well advised to give forecasts a
significant weight in their own planning due to the following reasons:
3. 0orecasting is the essence of planning. 0orecasts are the premises or basic
assumptions upon which the managerIs planning and decision-maing are
based. They supply vital facts and pertinent information for successful
planning. )lanning without forecasting is impossible.
9. 0orecasting forces executives to loo ahead and thin through the future
and improve their mental faculties.
4. 0orecasting helps in achieving better coordination by focusing attention on
the future. &t helps in ensuring the singleness of purpose to planning and
6. 0orecasting, by revealing the wea spots in the organization, helps in
ensuring control wherever it is lacing and thereby improves performance.
2. $ffective forecasting helps in indentifying the environmental forces and
assists in providing for these challenges, though in an imperfect way.
1ithout business forecasting, individuals as well as organizations are at
the mercy of the future events.