ST.

MARY’s UNIVERSITY
School Graduate Studies

Chapter 3

PLANNING AND DECISION-MAKING

3.1 Planning as a Management Function

What is planning?

Planning is the basic function of management. It deals with checking out a future course of action and
deciding in advance the most appropriate course of actions for achievement of pre-determined objectives.
According to Koonth, “Planning is deciding in advance - what to do, when to do and how to do. It bridges the
gap from where we are and where we want to be”. A plan is a future course of actions. It is an exercise in
problem solving and decision making.

Planning is determination of courses of action to achieve desired objectives. Thus, planning is a systematic
thinking about ways and means for accomplishment of pre-determined goals. Planning is necessary to ensure
proper utilization of human and non-human resources. It is all pervasive, it is an intellectual activity and it also
helps in avoiding confusion, uncertainties, risks, wastages etc.

According to Koontz & O’Donell, “Planning is deciding in advance what to do, how to do and who is to do it.
Planning bridges the gap between where we are to, where we want to go. It makes possible things to occur
which would not otherwise occur”. Before a manager can tackle any of the other functions; he/she must first
devise a plan.

A plan is a blueprint for goal achievement that specifies the necessary resource allocations, schedules,
tasks, and other actions.

A goal/objective is a desired future state that the organization attempts to realize. Goals are important
because an organization exists for a purpose, and goals define and state that purpose. Goals specify future
ends; plans specify today's means.

The word planning incorporates both ideas: It means determining the organization's objectives and defining
the means for achieving them.

Not only does planning provide direction and a unity of purpose for organizations, it also answers six basic
questions in regard to any activity:

 What needs to be accomplished?

 When is the deadline?

 Where will this be done?

 Who will be responsible for it?

 How will it get done?

 How much time, energy, and resources are required to accomplish this goal?

A plan, on the other hand, helps a manager organize resources and activities efficiently and effectively to
achieve goals.
Why do organizations plan?

Organizations plan for the following major reasons:

 stimulate forward thinking and clarifying future direction;

 Address major organizational problems;

 Improve performance;

 Build team work and expertise;

 increased capacity for change management;

 Set priorities and utilize resources effectively;

 Build Transparence and Accountability;

 Encourage delegation and commitment;

 Assist organization standards;

 Develop indicators for monitoring and evaluation;

The advantages of planning are numerous. Planning fulfills the following objectives:

 Gives an organization a sense of direction. Without plans and goals, organizations merely react to
daily occurrences without considering what will happen in the long run. For example, the solution that
makes sense in the short term doesn't always make sense in the long term. Plans avoid this drift
situation and ensure that short-range efforts will support and harmonize with future goals.
 Focuses attention on objectives and results. Plans keep the people who carry them out focused on
the anticipated results. In addition, keeping sight of the goal also motivates employees.

 Establishes a basis for teamwork. Diverse groups cannot effectively cooperate in joint projects
without an integrated plan. Examples are numerous: Plumbers, carpenters, and electricians cannot
build a house without blueprints. In addition, military activities require the coordination of Army, Navy,
and Air Force units.

 Helps anticipate problems and cope with change. When management plans, it can help forecast
future problems and make any necessary changes up front to avoid them. Planning for the potential
problems helps to minimize mistakes and reduce the “surprises” that inevitably occur.

 Provides guidelines for decision making. Decisions are future-oriented. If management doesn't have
any plans for the future, they will have few guidelines for making current decisions. If a company knows
that it wants to introduce a new product three years in the future, its management must be mindful of
the decisions they make now. Plans help both managers and employees keep their eyes on the big
picture.

 Serves as a prerequisite to employing all other management functions. Planning is primary,

because without knowing what an organization wants to accomplish, management can't intelligently
undertake any of the other basic managerial activities: organizing, staffing, leading, and/or controlling.

Purpose of Planning
Clarity of Purpose
 stimulate forward thinking and clarifying future direction

Unity of Purpose
 Build team work and expertise;

Achievement of purpose
 Improve performance
 Build Transparence and Accountability

Frame work for day-to-day decisions

 Encourage delegation and commitment
 Develop indicators for monitoring and evaluation;

 Be pro-active

The planning process

The planning process involves two important things that you should not forget. These are goals/ objectives
and plan.

Goals or objectives are desired outcomes for individuals, groups or the entire organization. These are
targets or the end results that you want to achieve. A plan is a statement of action steps to be taken in order
to accomplish the goals or objectives.

The Planning process of management involves following steps:-

1. 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.
 Moreover objectives focus the attention of managers on the end results to be achieved.
 As a matter of fact, objectives provide nucleus to the planning process. Therefore, objectives
should be stated in a clear, precise and unambiguous language. Otherwise the activities
undertaken are bound to be ineffective.
 As far as possible, objectives should be stated in quantitative terms. For example, Number of
men works, salary given, units produced, etc. But such an objective cannot be stated in
quantitative terms like performance of quality control manager, effectiveness of personnel
manager.
 Such goals should be specified in qualitative terms.
 Hence objectives should be practical, acceptable, workable and achievable.

2. Establishment of Planning Premises

 Planning premises are the assumptions about the lively shape of events in future.
 They serve as a basis of planning.
 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.
 Establishment of planning premises is concerned to take such steps that avoid these obstacles
to a great extent.
  Planning premises may be internal or external. Internal includes capital investment policy,
management labor relations, philosophy of management, etc. Whereas external includes socio-
economic, political and economical changes.
 Internal premises are controllable whereas external are non- controllable.

3. 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.

4. 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 expedite the
achievement of basic plans.
 These detail plans include policies, procedures, rules, program, budgets, schedules, etc. For
example, if profit maximization is the main aim of the enterprise, derivative plans will include
sales maximization, production maximization, and cost minimization.
 Derivative plans indicate time schedule and sequence of accomplishing various tasks.

5. Securing Co-operation

 After the plans have been determined, it is necessary rather advisable to take subordinates or
those who have to implement these plans into confidence.
 The purposes behind taking them into confidence are :-

i. Subordinates may feel motivated since they are involved in decision making process.
ii. The organization may be able to get valuable suggestions and improvement in
formulation as well as implementation of plans.
iii. Also the employees will be more interested in the execution of these plans.
6. 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.

Types of plan in organizations

Plans commit individuals, departments, organizations, and the resources of each to specific actions for the
future. Effectively designed organizational goals fit into a hierarchy so that the achievement of goals at low
levels permits the attainment of high-level goals. This process is called a means-ends chain because low-
level goals lead to accomplishment of high-level goals.

Organization plans can be classified and analyzed in the following ways. Understanding the types of plan will
help you to identify areas in which you need different types of plan.

Classification Type
Breadth Strategic and operational/tactical
Time frame Long term, medium term and short
term
Specificity Directional and specific
Frequency of use Single us and standing

The following are the major types of planning found in organization:

 Strategic Planning

 Tactical Planning

 Operational Planning

Strategic Planning

Strategic Planning is the process through which managers determine the organizations basic mission and the

set of means for achieving this mission. The top-level executives prepare strategic planning. Strategic Plans:

 are organization wide

 establish the organization’s overall goals

 tend to be the long term success and direction of the organization

 are done by top-level managers

Tactical Planning

Tactical planning is the process through which managers design coherent groups of activities to accomplish

a strategy. It is a means of translating strategies into short-term tactics. Middle-level managers are

responsible for formulating the tactical plans of the organization. Tactical Plans:

 Facilitate objectives, because they are prepared as a performance targets

 Translate the strategic plans into measurable tactical objectives

 Tend to be short-term, usually not more than two years

 Prepared by middle managers who are responsible in directing departments, divisions or other

similar sub-units of the organization.

Operational Planning

Operational planning is the process through which managers design specific activities and steps to

accomplish objectives. Whereas strategic and tactical planning has time horizons of a number of years,

operational planning has a very short time frame, usually a few months.
First-level managers are responsible for accomplishing the operational planning. Operational planning is

narrow in scope and short-lived. It is concerned with budgets and schedules.

It is important to note that the three types of plans mentioned above interacts each other. Strategic plans

cannot be accomplished without the implementation of tactical and operational plans. Tactical and

operation plans, on the other hand, do not make much sense if they are not coordinated through a broader

strategic plan. Managers, therefore, have to ensure that there is a mutual interaction among them.

Long term plans

Long term plans are plans with a time frame for over 5 years. Medium term plans are plans between 2to 5

years. Short term plans are plans for less than a year.

Specific plans

Specific plans are clearly defined objectives and that gives no room for interpretation. For example, increase

health coverage by 20% in 2012 in X region. Directional plans are plans that are flexible and set out general

direction. For instance, improve the health coverage of X region.

Single-use plans

Single use plans are a onetime plan developed to meet the needs of a unique situation. Program and projects

are single use plans. Standing plans are ongoing plans that provide guidance for activities performed

repeatedly. Rules, policies and procedures are standing plans

Single-use plans apply to activities that do not recur or repeat. A one-time occurrence, such as a special

sales program, is a single-use plan because it deals with the who, what, where, how, and how much of an

activity. A budget is also a single-use plan because it predicts sources and amounts of income and how much

they are used for a specific project.

Standing plans

Standing plans are predetermined course of action that is used again and again, focusing on situations that

recur repeatedly.

Standing plans speed the decision-making process and allow managers to handle similar situations in a

consistent manner. Policies, procedures, and rules are all forms of standing plans.

 A policy provides a broad guideline for managers to follow when dealing with important areas of

decision making. Policies are general statements that explain how a manager should attempt to handle

routine management responsibilities. Typical human resources policies, for example, address such

matters as employee hiring, terminations, performance appraisals, pay increases, and discipline.

 A procedure is a set of step-by-step directions that explains how activities or tasks are to be carried

out. Most organizations have procedures for purchasing supplies and equipment, for example. This

procedure usually begins with a supervisor completing a purchasing requisition. The requisition is then

sent to the next level of management for approval. The approved requisition is forwarded to the
 purchasing department. Depending on the amount of the request, the purchasing department may

place an order, or they may need to secure quotations and/or bids for several vendors before placing

the order. By defining the steps to be taken and the order in which they are to be done, procedures

provide a standardized way of responding to a repetitive problem.

 A rule is an explicit statement that tells an employee what he or she can and cannot do. Rules are

“dos” and “don'ts” statements put into place to promote the safety of employees and the uniform

treatment and behavior of employees. For example, rules about tardiness and absenteeism permit

supervisors to make discipline decisions rapidly and with a high degree of fairness.

Why plans fail?

Various barriers can inhibit successful planning. In order for plans to be effective and to yield the desired

results, managers must identify any potential barriers and work to overcome them. The common barriers that

inhibit successful planning are as follows

 Inability to plan or inadequate planning. Managers are not born with the ability to plan. Some

managers are not successful planners because they lack the background, education, and/or ability.

Others may have never been taught how to plan. When these two types of managers take the time to

plan, they may not know how to conduct planning as a process.

 Lack of commitment to the planning process. The development of a plan is hard work; it is much

easier for a manager to claim that he or she doesn't have the time to work through the required

planning process than to actually devote the time to developing a plan. (The latter, of course, would

save them more time in the long run!) Another possible reason for lack of commitment can be fear of

failure. As a result, managers may choose to do little or nothing to help in the planning process.

 Inferior information. Facts that are out-of-date, of poor quality, or of insufficient quantity can be major

barriers to planning. No matter how well managers plan, if they are basing their planning on inferior

information, their plans will probably fail.

 Focusing on the present at the expense of the future. Failure to consider the long-term effects of a

plan because of emphasis on short-term problems may lead to trouble in preparing for the future.

Managers should try to keep the big picture — their long-term goals — in mind when developing their

plans.

 Too much reliance on the organization's planning department. Many companies have a planning

department or a planning and development team. These departments conduct studies, do research,

build models, and project probable results, but they do not implement plans. Planning department

results are aids in planning and should be used only as such. Formulating the plan is still the

manager's responsibility.
  Concentrating on controllable variables. Managers can find themselves concentrating on the things

and events that they can control, such as new product development, but then fail to consider outside

factors, such as a poor economy. One reason may be that managers demonstrate a decided

preference for the known and an aversion to the unknown.

3.2 DECISION MAKING

The Nature of Decision Making

Decision-making is the process of defining problems, generating alternative solutions, choosing one alternative,

and implementing it. It means choosing among from various alternatives. By its nature, decision-making

involves a choice, and decision-making situations are choice situations.

Although each of us makes decisions every day, it is particularly a vital function of managers. It enables managers to

solve social, economic and political problems. For example, if an engineer who is responsible for the construction of

road is behind the schedule, the top management has a problem to resolve. The engineer may be reluctant to follow the

construction activity or construction materials may not be available as planned. If the top management investigates and

discovers that the Engineer has been lacking directing people towards implementing plan, a decision has to be made on

how to correct the problem. The engineer may be replaced by another competent engineer, given training on basic

management, or reassigned to work not requiring the same skills. Among those three choices, the top management may

decide to send the engineer for a short-term training. If so, after the decision is implemented, the management would

check the Engineer’s performance to determine whether training had resolved the problem.

Types of Decision situations

There are two categories of decisions. These are programmed and non-programmed decisions as illustrated in the figure

below.

Determined outcomes
Inputs of Decision Programmed results of most operations
Policies, Procedures,
Decision are expected, known, or
rules, guidelines, and
probabilities are estimated
other parameters

Inputs for Decisions Outcomes

Non-programmed
No clear objective Results are unknown or
Decision
information; often unexpected,
intuition and judgment probabilities are not
estimated
Programmed Decisions

Programmed decisions are those that are made in predictable circumstances and have predictable results. Results are

predictable because similar decisions have often been made before under similar, and recurring circumstances 3. When

problems are of repetitive and routine nature, alternative procedures are developed and used to solve these problems each

time they occur. Programmed decisions are, therefore, based on policy directives, procedures and rules.

Non-Programmed Decisions

Non-programmed decisions are those that are made in unique circumstances and often have unpredictable results 4.

While programmed decisions can be anticipated, non-programmed decisions must be dealt with as they occur.

Baird et al. state that the number of programmed and non-programmed decisions a manager makes varies according to

his or her level in the organization. Higher-level mangers tend to make more non-programmed decisions, while lower-

level mangers usually make more programmed decisions5.

The Decision-Making Process

Decision-making is an affair of the mind, an intellectual process. It consists of a sequence of steps starting with an input

(a problem) and ending with an output (action). In this sense, decision-making is a system of inputs, processes and out-

puts. In other words, decision-making involves several steps that lead administrators towards optimal solution. Hence,

administrators are required to solve organizational problems, which are caused by changing situations and unusual

circumstances using the following rational decision-making steps. These steps in the rational decision-making process

are:

1. Define the Objectives

-What do I want to achieve?

2. Diagnose the Problem

-What problems must I solve in order to achieve the objective?

3. Identify Viable Alternative Course of Action

-What are the possible options I have in dealing with the situation?

4. Evaluate each Alternative Course of Action

-What are the pros and cons of each of these alternatives?

5. Make a Choice and Implement Decision

-What solution will work best in dealing with the situation?

6. Follow-up and Evaluate the Decision

-How can I review and evaluate decision?

Objective Definition

Defining the objective is an integral part of the rational decision-making process. Concrete objectives must be identified

which should be consistent with the general purposes and the stated prime objectives of the organization. Well-defined

operational objectives would be essential in detecting and identifying problems to be solved by the decision-maker.
Diagnose the Problem

Recognizing the kind and the nature of the problem that exists within an organization is the most important and difficult

in the decision-making process. It is essential to examine problems thoroughly, recognize symptoms and identify

causes. For example, common symptom of business administration problem is declining profit. For this problem

different possible causes can be identified such as poor-quality product, absolute technology, ineffective decision-

making. It is important to note that symptoms provide clues to existing or potential problems, and when they are

diagnosed correctly, mangers can accurately define the right problems to solve 7. The administrator’s job here is to

identify the right problem, but if he/she fails to do so, his/her solution either fails completely or succeeds only

temporarily. Problem diagnosis sets the tone for the other steps in decision-making, it also determines the extent of its

effectiveness.

Identification of alternative Courses of Action

Decision-making situations are problem situations that involve choice. Administrator’s task here is to begin developing

viable alternatives (choices), which represent feasible courses of action for dealing with the problem at hand.

Evaluation of Each Courses of Action

The process of evaluating alternative courses of action requires screening alternatives, examining the advantages and

disadvantages of each course of action, and analyzing each alternative.

Making of a Choice and Implementing the Decision

After assessing alternative courses of action, the decision-maker must make a decision that is optimal. As Holt noted, if

a problem has been accurately formulated and sufficient viable alternatives exist, then a manger should make a choice

that is best under the circumstances. This will be the optimal choice-one that generates the greatest possible benefits with

the fewest negative consequences.

Once the most promising choice is made, decision implementation will follow. In order to implement the decision

successfully the manger must:

 Develop an action plan

 Consider the resources involved in decision implementation

 Assign specific responsibility for decision implementation and this mean determining the appropriate

organizational level.

 Anticipate problems that might occur during decision implementation. Moreover, to the extent possible potential

implementation problems must be assessed before implementation for two reasons. These are:

1. The organization or managers must be able to smooth out potential difficulties or at least anticipate

trouble spots before they occur.

 2. Careful consideration of implementation problems may lead to revisions of decision alternatives, as they are

being generated11.

It is important to note that the acceptance of the decision by the concerned people is vital to getting their devotion and

backing for decision implementation. People who will be affected by the decision should actively participate and be also

informed throughout the decision-making process. This will simplify the future job of the decision implementation.

Follow-up and Evaluate the Decision

The final step in the rational decision-making process is control, follow-up and evaluates the results of the decision.

Once the decisions are implemented, controls are needed to guide action toward desired results. This is of course,

essential for implementation; but effective managers use control and feedback mechanisms not only to ensure results but

also to provide information for future decisions. The effectiveness of decision can largely depends on top management

ability in providing answers to the following questions.

1. To what extent has the decision helped the organization to deal with the problem at hand? Has it attained the

purpose for which it was made?

2. How well the decision-makers carry out the steps of the decision-making process?

3. How well was the decision accepted by those involved?

Toward More Effective Decision-making

The following are the major guidelines for making effective decisions.

1. Use Information Effectively

Using information effectively is one way to reduce confusion and improve decisions because it is the quality

of timely information that helps managers make good decisions.

2. Enhance Systems for Decision-making

Recent innovations in management reflect exciting changes in systems, human forms of organization, and

joint endeavors lead to improve performance. Practicing managers at every level are responsible for

creating systems, not simply working within them. For example, researchers have found that when new

computerized information systems are implemented, the pace of work increases and middle mangers are

pressed to make more rapid decisions about more issues.

3. Empower those who must Implement Decisions

Empowerment means not only including employees in decision-making, but also ensuring that they are

given both the resources necessary to implement decisions and the responsibility for getting the job done.

The main benefit of empowerment is improved cooperation. Those who feel empowered are more likely to

accept and understand organizational decisions.

4. Communicate Effectively
 Those who carry them out as well as by those at higher echelons who must evaluate performance must

understand decisions. Clear communication is crucial to gaining acceptance. Communicating expectations

for performance, detailing decisions, and explaining changes and adaptations are all essential for

organizational success.

5. Delegate Pragmatically

Leadership and motivation focus on the delegation of authority. Mangers cannot evolve systems,

communicate effectively, or empower employees if all decisions are made by one dominant authority

figure. Assuring timely and more accurate decision-making at critical points in operations consists basically

of shifting authority downward. Pragmatic delegation suggests that mangers define who is best suited to

make decisions on the basis of several criteria. People with experience in solving problems, who have

access to information, and who are in the best position to implement decisions are the best candidates for

decision-making authority.

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