Unit 2 Nature and Purpose – Steps involved and Planning premises – Forecasting – Decision Making.



Planning Planning

Planning involves selecting missions and objectives and the actions to achieve them; it requires decision making that is choosing from among alternative future course of action. Plan thus provides a rational approach to preselected objectives. Planning also strongly implies managerial innovations. STEPS IN PLANNING Being aware of Opportunity - In light of the market, competition, what customer want, our strengths and weakness Setting Objectives or goals - where we want to be and we want to accomplish and when Considering Planning Premises - In what environment. Internal or External – will our plan to operate? Identifying alternatives - what are the most promising alternatives to accomplish our objectives Comparing alternatives in light of goals - which alternative will give us the best chance of meeting our goals at the lowest cost and highest profit Choosing an alternative - Selecting the course of action we will pursue. Formulating supporting plan - Such as plans to buy equipment, buy materials, hire and train workers. Develop a product. Numberizing plans by making budgets - Developing such budgets as volume and price of sales operating expenses necessary for plans expenditure for capital equipment OBJECTIVES / IMPORTANCE / ADVANTAGES OF PLANNING 1. Focuses attention on objectives & results. 2. Reduces uncertainty and risk. 3. Provides sense of direction 4. Encourages innovation & creativity. 5. Helps in coordination 6. Guides decision making 7. Provides a basis for decentralization

5. Resistance to Change PLANNING PREMISES . Strategic Planning Strategic Planning 1 Lays down major goals and Policies of the Organisation 2 Done at higher levels of Management 3 Long term in nature 4 Broad and general 5 Based on long term forecast and appraisal of Environment 1. Inadequate inputs 2.The assumptions about future derived from forecasting and used in Planning are known as planning premises Def – Koontz O’Donnell . Corporate Planning 2. Facilitates control TYPES OF PLANNING (TIME LIMIT) 1. 4. 3.Assumptions based upon certain intuition or scientific FORECASTING . Sudden emergencies 4. Short term plans (Less than 2 yrs) Planning can be classified as – 1. Divisional Planning 3. Provides efficiency in operation 9. Operational Planning Decides the use of resources in day to day operations Done at lower level of Management Short term in nature Detailed and specific Based on past experience OBSTACLES OF EFFECTIVE PLANNING 1.Assumptions or premises are for a future setting or happenings . Need for creativity 5. Long term plans (Above 5 yrs) 2. 2.8. Medium term plans (Between 2 to 5 Yrs) 3. Lack of ability 3.A plan is based on certain assumptions called premises .

Purpose of premises is to facilitate the planning process by guiding. POLITICAL AND LEGAL ENVIRONMENT Closely related to government. EXTERNAL & INTERNAL EXTERNAL ECONOMIC ENVIRONMENT Includes the type of economic system that exist in the economy The nature and structure of the economy. . . They include known conditions tht will affect policies and existing company supporting plans. monetary and financial policies of the government. foreign trade and foreign investment policies of the govt. The type of economic system.Social responsiveness ‘the ability of a corporate firm to relate its operations and policies to social environment in a way that are mutually beneficial to the company and society at large. anticipated environment in which assumptions or forecast of the the operations of plans. TECHNOLOGICAL ENVIRONMENT The nature of technology used for production of goods and services in an important factor responsible for the success of a business firm.. Premises guide planning.Members of a society wields important influence over business firms.Activities of business firm may harm the physical environment and impose heavy social costs. SOCIAL AND CULTURAL ENVIRONMENT . Political philosophy of the govt yields a great influences over business policies.Social responsibility / social responsiveness related to ethics. capitalist or mixed provides institutional framework with in which business firm have to work. . that is socialist. directing. Eg as plans that control the basic plans are future and prevailing nature of .“Planning premises are the expected to operate. simplifying and reducing the degree of uncertainty in it. the fiscal. the business cycle. PLANNING PREMISES CLASSIFICATION 1. .Business should consider the social implication of their decisions. .

Availability of natural resources in a region a country is a basic factor in determining business activity in it. . Since new workers are recruited from outside the firm.It includes geographical and ecological factors such as minerals and oil reserves.In the ultimate source of many inputs such as raw materials. life expectancy of the people rural urban distribution of population the technological skills and educational levels of labour force. water and forest resources wealth and climatic conditions. energy which business firms use in their productive activity. port facilities are all highly significant for various business activities.The improvements in technology raise total factor productivity of a firm and reduces unit cost of output. NATURAL ENVIRONMENT . Technological environment affects the success of firms and the need for technological advancement cannot be ignored. INTERNAL ENVIRONMENT Internal factors are to good extent controllable factors because the firm can change or modify these factors to improve its efficiency. . . DEMOGRAPHIC ENVIRONMENT Includes the size and growth of population.Not the availability of natural resources alone but also the technology and ability to being them in use that determines the growth of business and the economy. demographic factors are considered as parts of external environment. . The skills and ability of a firms workers determine to a large extent how well the orgn can achieve its mission. VALUE SYSTEMS The ethical belief that guides the organization in achieving its mission and objective.

shareholders and society at large.Ranbaxy laboratories – to become a research based international pharma company. The choice of business domain. choice of business strategy and policies are all guided by the overall mission of the company. ORGANISATION STRUCTURE Composition of board of directors. vendors and society at large” MISSION AND OBJECTIVES The objectives of all firms is assured to be maximization of long – run profits. employees. honesty. Infosys “Our corporate culture is to achieve our objectives in environment of fairness. transparency and courtesy towards our customers. Reliance Industries Mission “To become a world class company and to achieve global dominance. . These in a lack of trust & confidence in subordinate officials of the company and secrecy pervades throughout in the organization.The value system of a business orgn makes an important contribution to its success and its prestige in the world of business. Value system of a business firm has an important bearing on its corporate culture and determines its behavior towards its employees. Closed and threatening culture the business decisions are taken by top level managers. . direction of its development. Mission is def as the overall purpose or reason for its existence which guide and influences its business decision and economic activities. the extent of professional management and share holding pattern forms the organization structure. Significant influence over decision making process in an organization CORPORATE CULTURE AND STYLE OF FUNCTION OF TOP MANAGEMENT Ccorporate culture is either closed and threatening or Open and Participatory. the number of independent directors.

Units of Production.Smooth working of a business organization requires that there should be good relations between mgt & labour union. company reputation. Open & participatory culture business decisions are taken at lower of management & top management has a high degree of trust & confidence in the subordinates. etc. Eg – Money. . CONTROLLABLE AND UNCONTROLLABLE FACTORS . The importance of HR for the success of a company these days there in a special course for managers how to select and manage efficiently HR of a company.Among lower level Managers and workers there is no sense of belongingness to the company.Unions collectively bargain with top managers regarding wages. capabilities. Communication between top level mgt & lower level mgt The participation of workers in managerial take is encouraged. Employee morale. Tangible and Intangible premises Tangible – those which can be quantified. PHYSICAL RESOURCES AND TECHNOLOGY CAPABILITIES Physical resources such as plant and equipment and technological capabilities of a firm determine its competitive strength which is an important factor determining its efficiency and unit cost of production. R& D capabilities of a company determine its ability to introduce innovation which enhance productivity of works. LABOUR UNIONS . attitudes and commitment of its employees. etc Intangible Premises – refers to the qualitative factors like Public relations. working conditions of different categories of employees. QUALITY OF HUMAN RESOURCES Quality of employees of a firm in an important factor of internal environment of a firm The Success of a business organization depends to a great extent on the skills.

Selection of premises which bear materially on the programs 2. Potentially the most successful strategy. Communication of the premises. rules of the enterprises Uncontrollable Factors – Enterprises has absolutely no control are uncontrollable premises.Process of predicting future conditions. New product services and Technology. Use of strengths to cope with threats to avoid threats WT strategy Mini Mini Eg. utilizing the Organisation strength to take advantage of opportunities Eg. Verification of the consistency of premises 4. SWOT Analysis or / TOWS Matrix Opportunities (O) Consider risk also. political and social changes. EFFECTIVE PREMISES 1. FORECASTING . Eg Current and future Economic condition. Liquidation . new invention. competition and areas similar to those shown in Opportunity box ST Strategy Maxi – Mini Eg. Development of alternative premises for contingency planning 3. behaviour and performance of the Organisation. Joint venture. programmes. Eg – War. Developmental strategy to overcome weakness in order to take advantage of opportunities External Threats (T) Eg Lack of energy. population trends. Def – “ Forecasting is the formal process of predicting future events that will significantly affect the functioning of the enterprises.Controllable – entirely within the control and realm of management Eg. Retrenchment. natural calamities. . that will influence and guide the activities.Policies.

5. 2.Qualitative ( use of Statistical tools) and Quantitative ( employ human judgments to predict future) 1. To find the relative movements of two or more interrelated series. seasonal variations. Between advertising expenditure and sales volume. Eg. Future sales estimated on basis of change in adv expenditure 4. Viz – trend.Delphi Technique – the minds of the experts in the concerned areas are probed systematically.Historical Analogy – past history records 3.Time series Analysis – involves decomposition of historical series into its various components. 6. cyclical variations and random variations.FEATURES     Involvement of Future events Depends upon past and present events Happening of future events Make use of forecasting techniques PROCESS     Developing the ground work Estimating the future trends Comparing actual with estimated results Refining the forecast Importance      Key to planning Means of coordination Basis for control Executive development Facing Environmental challenges Forecasting Techniques .Correlation – to find the relationship between two variables. Input output analysis . A trend can be known over the period of time and projections can be made about future.Regression – To measure the relationship between two variables.

3. 3. Forecasting does not involve Decision making.Types of Forecast . 4.Demand forecast / sales forecast . Routine and Strategic Decisions 3.Organizational and Personal Decisions 2. FORECASTING forecasting is the estimate of future events & provides parameters to the planning. Forecasting is usually carried By middle or level lower level Management.” Types of Managerial Decisions 1. Programmed and Non programmed Decision 4.Economic Forecast . Haynes & Massie “ Decision making is a process of alternative courses of action which is thought to fulfills the objective of the decision – problem more satisfactorily than others.Def . Forecasting does not require Any commitment but helps Planning for future actions. Commitment of action is the Basic motive of planning. Requires several decision making. 1. PLANNING IS MORE COMPREHENSIVE. For planning top management Level is involved. 2. IT INVOLVES MANY SUB PROCESSES AND ELEMENTS IN ORDER TO ARRIVE AT DECISION 2. Individual and Group decision Decision making Process selection from a set of . 4.is the process of choosing a course of action from available alternatives .Technological Forecast Comparison of planning and forecasting PLANNING 1. Policy and Operating Decision 5. Decision Making .

Creative and innovation Problems of Decision Making 1. Group decision making. Consumer behaviour. Lack of follow through Key to success in Decision Making 1. Defining the problem 2. Be flexible 6. Analysing the problem 3. Evaluate and follow up the decision . Lack of Information 4. quality of labour relations. Selecting the best alternatives 6.1. Set decision making goals 3. Evaluating the Alternatives 5. Don’t be afraid to develop innovative alternatives 5. Fixed cost. etc 2.things which can be measured. profits.Tangible Factors.Intangible factors – Unmeasurable elements. Eg. Always check the accuracy of the information 4. Developing alternative solutions 4. etc. Gain commitment for decision at an early stage 7. Indecisiveness 2. Implementing the decision Factors involved in Decision Making 1. Failure to evaluate correctly 6. operating cost. machine. confusing symptoms with causes 5. Employee morale. Be problem oriented not just solution oriented 2. – Personal values & Orgn Culture. Time pressure 3.

Referred as “numberized” program. Rules – spell out specific actions or nonactions. procedures. policies. Budgets – is a statement of expected results expressed in numerical terms. Programs – are a complex of goals. rather than to thinking. they are often merely implied from the actions of managers. they are the results to be achieved. must provide standards for the evaluation of performance and actions 6. They are guides to action. Simple. Strategies – Strategies are grand plan. Objectives or goals – are the ends towards which activity is aimed. Based on clearly defined objectives 2. resources to be employed and other elements necessary to carry out a given course of action. tasks assignments. they are ordinarily supported by budgets. must be balanced in all respects 5.Should be capable of being controlled . specific and logical 10. rules. The determination of the basic long term objectives of an enterprises and the adoption of courses of action and allocation of resources necessary to achieve these goals. Prepared with the consultation of concerned persons 9. and they detail the exact manner in which certain activities must be accomplished. Not all policies are “Statements”. They are chronological sequences of required actions. Policies – are general statements or undertakings which guide or channel thinking in decision making. It should be practicable 8. Flexible or adaptable to changing conditions 4. easily understandable 3. The most common usage of the term are – general programs of action and deployment of resources to attain comprehensive objectives. steps to be taken. allowing no discretion. They represent not only the end point of planning but the end toward which Organising. Should be clear. Procedures – are plans that require method of handling future activities. leading and controlling are aimed.Types of Plan Purposes or Missions – identifies the basic function or task of an enterprises or agency or any part of it. It should be economical 7. The financial operating budget is often called a “profit plan” FEATURES OF A GOOD PLAN 1. staffing. The purpose of business generally is the production and distribution of goods and services.

Create carefully planning premises 4.provide required resources 7. Clear cut Objectives 2.WAYS TO OVERCOME THE OBSTACLES 1. Develop a sound Management Information System 3.Develop a dynamic outlook away manages 5. keep plans flexible 6. Undertake a cost benefit analysis of all plans .

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