Planning

and Decision Making

January 6, 2020
Organization has four types of accounting
information:
• Operating information – details of operations
• Management accounting information – used internally
for planning, implementation and control
• Financial accounting information – used both by
management and external parties
• Tax accounting information – used to file tax returns
with the internal revenue
Organization has four types of accounting
information:
• According to American Accounting Association
committee, accounting aids to decision making. It
further defined accounting as the process of
identifying, measuring and communicating economic
information to permit informed judgments and
decisions by users of the information.
Organization has four types of accounting
information:
The accounting information is used in three
management functions:
•Planning
•Implementation, and
•Control
What is Planning?
Planning is selecting the best course of action in
anticipation of future trends so that the desired
result may be achieved.
•-Priority is the desired result
•-Course of action chosen is the means to realize
the goal.
Why planning is undertaken?
•Managers are overwhelmed by various activities,
which at times cloud his judgment – tend to lose
sight of more important concerns of managing.
To minimize mistakes in decision making,
planning is undertaken.
Benefits of Planning
Pitfalls of Planning

•Too centralized and top-down

•Failure to question assumptions
•Failure to implement
•Failure to anticipate rivals’ actions
How to make a plan that works

Plan is the output of planning, provides

a methodological way of achieving
desired results.
Planning at Various Management Levels
1. Strategic Planning for Top Management. It refers to the process
of determining the major goals of the organization and the
policies and strategies for obtaining and using resources to
achieve those goals.
2. Intermediate or tactical planning for Middle Management. It is
the process of determining the contributions that the sub units
can make with allocated resources.
3. Operational planning for Lower Management. It is the process of
determining how specific tasks can best be accomplished on
time with available resources.
Plan is performed in support of the strategic and
intermediate plans.
Management Level Planning Horizon
•Top mgmt. strategic 1-10 yrs
•Middle mgmt. tactical 6 mos -2yrs
•Lower mgmt. operational 1wk -1yr
The Planning Process
1. Setting Organizational, Divisional or Unit Goals
Goals are precise statements of desired results, quantified in time and
magnitude where possible.
2. Developing strategies or Tactics to reach goals. Devise means to realize
the goals.
• Strategy is a course of action aimed at ensuring that the organization will
achieve its objectives.
• Tactic is a short-term action by management to adjust to negative or
external influences. These are formulated and implemented in support
of the firm’s strategies.
The Planning Process
3. Determining resources needed.
4. Setting standards. The standards for measuring
performance may be set at the planning stage.
•Standard is a quantitative or qualitative
measuring devise designed to help monitor the
performance of people, capital, goods or
processes.
Types of Plans
1. Functional area plans
2. Plans with time horizon
3. Plans with Varied frequency of
use
Functional area plans – prepared according to
needs of different functional areas.
Types of functional area plans
• Marketing plan – blueprint for implementing and
controlling an organization’s marketing activities related
to particular marketing strategy.
• Production plan – written document that states the
quantity of output a company must produce in broad
terms and by product family.
Functional area plans – prepared according to
needs of different functional areas.
• Financial plan – document that summarizes the current
financial situation of the firm, analyzed financial needs,
and recommends a direction of financial activities.
• Human resources plan – document that indicates the
human resource needs of a company detailed in terms
of quantity and quality and based on the requirements
of the company’s strategic plan.
Plans with time horizon
Consist of following:
•Short-Range plans – intended to cover a period
of < 1 year. First line supervisors are mostly
concerned with these plans.
•Long-Range plans – covered a time-span of > 1
year. Middle and top management mostly
undertake these.
Plans with varied frequency of use
Classified as follows:
•Standing plans – these are used again and
again, and they focus on managerial
situations that recur repeatedly.
Plans with varied frequency of use
Further classified as follows:
i. Policies – refer to broad guidelines used by managers
to help make decisions and take actions on specific
circumstances.
ii. Procedures – are plans that describe the exact series of
actions to be taken in a given situation.
iii.Rules – are statements that either require or forbid a
certain action.
Plans with varied frequency of use
• Single-Use plans – are specifically developed to
implement courses of action that are relatively unique
and are unlikely to be repeated.
Further classified as follows:
i. Budget plan – set forth the projected expenditures for
a certain activity and explains where the required
funds will come from.
Plans with varied frequency of use
i. Program plan – is designed to coordinate a large set
of activities.
ii. Project plan – is usually more limited in scope than a
program plan and is sometimes prepared to support a
program.
Effective planning
Plans can be made effective by recognizing the planning barriers:
• Manager’s inability to plan;
• Improper planning process;
• Lack of commitment to the planning process;
• Improper information;
• Focusing on the present at the expense of the future;
• Too much reliance on the planning department; and
• Concentrating on only the controllable variables.
Effective planning
and making use of planning aids:
•Gathering as much information as possible;
•Developing multiple sources of information; and
•Involving others in the planning process.
SUMMARY

• Business activities like other activities, require effective planning if objectives and
goals are to be realized.
• A plan is methodical way of achieving results.
• Planning is undertaken at various management levels.
• Various steps are required in the planning process depending on the management
level.
• Plans may be classified in terms of functional areas, time horizon and frequency of
use.
• Plans consist of various parts that the manager must be familiar with.
• Plans can be made effective by recognizing the planning barriers and making use of
planning aids.
Decision Making
• It’s management responsibility. The higher the
management level is, the bigget and more complicated
decision making becomes.
• Decision making is the process of defining the problem
and identifying and choosing alternative courses of action
in a manner appropriate to the demands of the situation.
• Decisions made at various management levels and at
various management functions.
Steps on Decision making process
1. Diagnosing the problem ... Failure to identify the problem, next
moves will be useless. Problem exists when there is a difference
between the actual and desired situation.
2. Analyzing the environment ... This is to identify constraints (internal
or external limitations).
Internal – limited funds; limited training of employees; ill designed
facilities; irrelevant organization structure
External – product patents are controlled by other organizations;
limited market for company’s products; strict regulations
Steps on Decision making process
3. Develop viable alternatives – solutions offered to solve
the problem
Steps to get the best alternative solutions
• Prepare a list of alternative silutions;
• Determine the viability of each solution; and
• Revise the list by striking out those which are not
viable.
Steps on Decision making process
4. Evaluate alternatives – After determining the viability of the
alternatives and a revised list is made, an evaluation of the
remaining alternatives is necessary.
Each alternative must be analyzed and evaluated in terms of
• Value – benefits that can be expected from it
• Cost – out-of-pockets costs; opportunity costs; follow on costs
• Risk characteristics – likelihood of achieving the goals of the
alternatives
Steps on Decision making process
5. Make a choice or choice-making refers to the process of selecting
among alternatives representing potential solutions to a problem.
To make the selection process easier, the alternatives can be ranked
from best to worst on the basis of factors like benefits, cost and risk.
6. Implement decision
Implementation – refers to carrying out the decision so that the
objectives will be achieved.
Resources must be available to implement the decision. Those who are
involved in implementation must understand and accept the solution;
otherwise execution will be a failure.
Steps on Decision making process
7. Evaluate and adapt decision results
Expected results may or may not happen, hence control and feedback
mechanisms ensure results and provide information for future decision.
Feedback – refers to the process which requires checking each stage of
the process to assure that the alternatives generated, the criteria used
in evaluation, and the solution selected aligned with the original goals
and objectives.
Control – refers to actions made to ensure that activities performed
match the desired activities or goals that have been set.
Approaches in decision making
1. Qualitative evaluation – use of intuition and
subjective judgment
Used when
a. The problem is fairly simple
b. The problem is familiar
c. The costs involved are not great; and
d. Immediate decisions are needed.
Approaches in decision making
2. Quantitative evaluation – used of technique classified as rational and
analytical
Types
a. Inventory models
b. Queuing theory
c. Network models
i. Program evaluation review technique (PERT)
ii. Critical path method (CPM)
Approaches in decision making (quantitative evaluation)

d. Forecasting – decisions that will have implications in the future;

collections of past and current information to make predictions about
the future.
e. Regression analysis – a forecasting method that examines the
association between two or more variables.
Types
i. Simple regression – one independent variable is involved
ii. Multiple regression – two or more independent variables
Approaches in decision making (quantitative evaluation)

f. Simulation – model constructed to represent reality, on which

conclusions about real life problems can be based ( a mathematical
model).
No guarantee of optimum solution but it can evaluate the
alternative fed into the process.
g. Linear programming – used to produce an optimum solution within
the bounds imposed by constraints upon the decision. Useful as a
decision making tool when supply and demand limitations at plants or
market are constraints upon the system.
Approaches in decision making (quantitative evaluation)

h. Sampling theory – where samples of populations are

statically determined to be used for a number
processes.
i. Statistical decision theory – rational way to
conceptualize, analyze, and solve problems in
situations involving limited or partial information
about the decision environment.