Chapter 6

PLANNING: CONCEPT AND PROCESS

f youfail to plan, you plan to fail."

Planning is the basic function of management. With it starts the other functions of management. So
long planning does not determine the objectives and the methods of achieving those objectives, the other
functions like organising, staffing, leading and controling are meaningless.

Meaning of Planning
Planning forms that part of management which lays
P

down the objectives andvariousactivitiestobe doneforteTA

decide ANT2 TOOLKIT-1
TOOLKIT-1
atainment ofthoseobjectives, Under this1is Planning?
is to be done? How is it to bedone? When is to be done
and t refers to thinking before hand.
by whom is it to be done? Deciding about all these things is
called planning. A problem about taking decisions on these
matters arises when there are more than one possible answers. Therefore, it can be said to be a process of

choosing.
Definitions of Planning
Some of the important definitions of planning are as under: u e t o r a r

(i) According to Koontz and O'Donnell, "Planningis deciding inaduance what to do, how
"

to doit, when to do it, and who is to do it.

(ii) According to Haimann, "Planning is deciding in advance what is to be done
(ii According to M.E. Harley,"Planning is deciding in advance what is to be done. It involves
the selection of objectives, policies, procedures and programmesfrom among alternatives
(iv) According to Billy E. Goetz, "Planningisfundamently choosing and a planning problem
arises only when alternative course of action is discovered".
The above mentioned definitions tell us that planning involves choosing and its chief objective is to

anticipate the future course of events and give it a desired direction. In reality planning becomes necessary
when there are many alteratives to choose from.
 Planning: Concept and Process

Characteristics or Nature of Planning

After studying the definitionsof planning we get the following information about the characteristics

or nature
oft planning:
(1) Planning is an Intellectual Process: Planning is chietly an intellectual proess which
means 'thinkingbefore doing'. The success of planning depends on the manager and his ability to colect
the facts which are likely to affect planning-whether these facts are connected with the presentsituation or
theestimated future changings; how corectly he studies and evaluates these facts; and how correcthyhe
takes his decisions on their basis. The whole process happens to be intellectual and for the successful
completion of all these activities the planner should have far-sightedness, imaginative power and decisiron
making capacity. A planner should mainly consider the following questions:-
() What is to be done?
() How is it to be done?
(ii) When is it to be done?
(iv) By whom is it to be done?
Taking decisions on all these questions depends on the competence of the planner. Therefore, it
can be said that planning requires thinking at every step. Hence, it can be considered as an intellectual
process.
(2) Planning is Selection of the Best Alternative: The second important characteristic of
planning is the selection of the best alternative. There can be many ways of doing a work and the planner
selects the best possible alternative. Therefore, it can be said that
planning involves the selection of the
best alternative and rejection of
the inappropriate ones.
(3 Planning is all Pervasive: It will be appropriate to describe planning as all
pervasive
because it operates at all the levels of management in an enterprise. It is an important function of
manager to plan things whether he is managing director simply foreman in factory. Some every
a or a
are of the opinion that planning is the job of
a
people
only the high-level managers but it is not true. It can,
be admitted that the
high level managers spend more however
timein
comparison to the middle-level or
lower-level managers in the work of
planning. It is, therefore, clear that all the managers working in an
enterprise have to plan their activities. nt ITAA0
(4) Planning is the Primary Function of Management:
management and all other functions like organising, staffing. leadingPlanning
is the
primary function of
and controling comé later. In the
absence of planning no other function of
first function of
management can be completed. Undoubtedly.
management but it does not mean that after
planning is the
needed. In reality planning is required in the planning when other functions start t is rot
pertformance of other functions of management. Without
planning neither organisation can be created, nor stafting can be done.
case of
leading and controlling. Similarly. planning is needed in
(5 Planning is Forecasting: Planning always takes into
planning, on the basis of collected facts, the future is consideration the future. Under
say that anticipated and proper decision taken. Thus. we can
forecasting is the essence of planning.
 84
Business Managemens
6) Planning is a Continuous Process: Planning is that
process which begins with
establishment of the organisation and ends with the
organisation. In other words, the proces5 of
continues so long as the organisation continues to exist. A manager starts planning betore theplanir
started and when one work is work
accomplished planging for the other begins and this process continue
hus, planning is a continuous proces CTATaT E1
(7) Planning is Flexible: Planning involves forecasting the future which
1suncertaip. It is
quite
possible that the basis of the foreeast made by the manager or the facts on which he makes
his planning
undergo some changes after sometime. In case he finds any such thing happening, he immediately
n
bringg
changes in hisplanning according to the changed facts or situations. It can thus be said that planningisa
flexible process
8) Planning is goal-oriented: An enterprise in established with sorme pre-determined
objectivesand planning tells us how to achieve those objectives. First of all the objectives of the
organisation are determined and then planning is made to aphieve thern. Therefore, it is clear that
planning without some objectives is meaningless.
(9) Planning is an Interdependent Process: The activities of an enterprise are divided into
many departments like Purchase department, Sales department, Production department, Finance
department. Personnel department, etc. All these departments have their owh separafepläns which are
the parts of a master plan. All the departmental plans depend ononeand other. lf some change become
necessary in the plan ofa particular department due to some reason, the plans of all other departments
have to be modified accordingly. For example, if the sales department achieves more sales
anticipated quantity, its plans shall have to be modified resulting in more purchases and production to

department. This, in turn, necesitates changes in the plans of the

cope with the demand of the sales
purchase and production departments as well. Thus, the departmental planning depends on one and
other.
Eficiency and Economy: Planning makes it possible to utilise the
(10) Planning leads to
available human and material rësources in the most favourable manner in an organisation. Capital.
labour, material, machinery, etc., are utilised in a mannertoproduce the maximum quahtity ofthe best
quality goods with minimum cost.
(11) Planping considers Limiting factors: The quantity ofavailable resources of production
in ignoresthelimitedresources, planning is bound
to
has to be kept mindbefore planning. If a manager
raw material can be ayailable upto a certain limit for a certah period, then the
raw
fail. For example, if the
material will be the limited factor. Only after its availability is decided, the other activities like production.
sales, etc. can be thought of.
is
(12) Planning Creats Coordination: In any organisation coordination of all the activities
necessary to run the work unhinderéd.With the help of planning 'what', 'why', who', 'where', 'when.
it
etc.. of every thing is clarified. Doubts are cleared and coordination is established. Planning makes
will be
clear as to what is to be done, why it is being done, who will do it, where it will be done and when it
to be
done. On the other hand, without planning nobody will know what is to be done and what is not
done
 Process
Planning: oncept and 85

Importance or Advantages of Planning

Planning is the first and the most important function of management. It is needed at every level of
nagement. Without planning all the activities of a business organisation will be meaningless rendering
ho attainment of objectives merely a dream. Because of the increasing size and complexities of the
rCanisations planning has come to assume more importance. Planning has also become more important
o
cause these days business has to live in an environment dominated by perpetual uncertainties and
becau:

amism. Without planning it is difficult. if not impossible, to anticipate the uncertainties of future
Ffective planning also provides a basis for other managerial activities. Georg R. Terry has supported
this view by observing. "Planning is the main foundation of other functions of management like
oraanising, motivating and controlling. No work specifically laid down by planning can be organised,
activated and controlled
The importance and advantages of planning become clear on the basis of the
following facts:
(Focuses Attention on Drganísational Objectives: With the help of planning the
objectives of the organisation are clearly defined in simple words. Its result is that the attention of all the
employees are directed towards a particular goal, In this way planning has an
important contribution to
the attainment of the chief objective of the organisation. 1Ri4T 3ttR &T AZTIY Zo Ar
2 Minimises the Future Uncertainties: Planning is always made in
respect of future which is CATd2)
alwaysuncertain. Nobody can tell it clearly what is going to happen. Business environment is constantly 3rm
changing. Sometimes the tastes of the consumers undergo a change and sometimes the
production experience changes. Planning by anticipating the possible changes techniques of
the best plans various activities in
possible way.In this way the risk of füture
uncertainties is sought to be minimised. qan
3Utilises Resqurces Properly: The important advantage of planning is that it makes it
possible to utilise the available resources in àn
all the resources of an
organisation in a better way. First of all information
about
organisation is collected. and, then on its basis the
planned only on the availability of resources, the shortageactivities planned. Since all
the activities are are

the work moves of resources is never felt and

on unhindered.
(4 Ensures Economy Operation: First of all, under
in
and then follows the planning the objectives are determined
process of selecting the best work system out of various alteratives. As a
economy in operation is natural. result of this
5) Achieves Coordination: Under the
variora's
depaftments keeping in view the availabilityprocess of planning appropriate plans are devised
of resouYces. The result is that for
different departments. Every department is informed before hand about there is clash amonig
no
bedone and how it is to be done. the work to be done, when
Thus, it is to
good results. planning achieves a good coordination which
ultimately yields
16)Facilitates Control: Planning
considered the foundation facilitates the function of
of control. By
determing the 6bjectives oi thecontrolling and,with
therefore, it is
planning everybody working in the organisation told
is about the 'what',
organisation the help of
Standards are prescribed in context with their work, time 'why', and 'how, of everything.
and cost. In the end
by comparing the actual
 86
Business Managemen
3132 ROult 2Aid
WoTK pertormance with the standards laid down, an effort is made to find out deviations and in case th
he
work desired the person concerned is held responsible.at
pertormance is not as
2ETAT
(Encourages Innovation and Creativity: It is evident that planning chooses the best
altemative out of the many available. These various alternatives do not come to the managers of their
nanagers of their
Al dwn; they have to be found out. in an effort to find them, new ideas emerge and these new ideasare
d e e p l y studied to crystalise them. In this way planning encourages the process otthinking Ihis thinking

leads to innovations ahd dréativity.

(8) Makes Management by Exception Possible: Management by excepton means that a
the manager should
managershould not join activity. If the whole work is proceeding satistactorily,
every
Temain contented but'if the work is not proceeding according to the work plan he should intervene

anning lays down the objectives of organisationtheand all efforts are directedtowards attaipment their
In this way the managers do not have to interfere in the daily work. Therefore,it'is aaid that planfing

get enough time to think more

makes management by exception possible as a result of which managers
about good plans.
under which various alternatives are
Prevents Irrational Decisions: Planning is a process
(9)
it is said that thinking essence of planning.
isthe
analysed and only the best one is chosen. That is why
When thinking and analysis come in, irrational and impatient
decisions automatically. Thus.
end
planning helps in developinga rational point of view among the managers
clear to all the
Satisfies the Employees: Planning makes it
( 0 ) Improves Cooperation and
This prepares them mentally about their future
employees the 'what', 'how',and 'when' of each.work. iwork
handle it with dediction and hard
momentfor theworkapproaches, they
more
work andwhen the
in theorganisation and they come to acquire an
This hard work and dedication increase their reputation
satisfaction and the feeling of cooperation gets an impetus.
identity oftheir own. In this way they get
Functions: Planning is the first function of
11) Provides Basis for Other Managerial
of planning the type of
other activities depend on planning. In the absence
mandgenent and all recruitments cannot be
the number of appointments and the method of
organisation cannot be decided, functions of
determined, and so is the position of controlling. Thus, planning
presents a basis for the other
management and makes them meaningful.

Process or Steps Involved in Planning

Planning the business
Planningis the first and the most important function of management. All
this job. There is definite process to go through the whole job. Planning process
organisations perform a
can be
the size of the the kind of the plan. In other words, planning process
organisation or
depends on
in the business organisations
different in different organisations or with regard to different plans. Planning
has to take the following steps:
to
some problem or
(1) Having Perception of Opportunity: Planning is needed to _olve information about the
profftably exploñ some opportunity. Therefore, the managers should get complete of a
basic problerm or the situation. He should act like an expert doctor whaunderstands the affliction
be available to
patient simply by exarnining his pulse. To examine the possible opportunities which could
a business organisation, the managers should have a thorough analysis of the strength and weakness O
 Concept andProcess K7
planning:

the
oGanisation. It means planner, first ofall, has to consider the fact that he is to utlise, the
that the
ilable resources of the organisation in the best possible way. To know about the opportunities, care
avar

internal resources. For

hould be taken to obtain intormation about outside environment alongwith the
in rural sector for its
ample, if the government is encouraging the establishment of industries
exam

alopment, an intelligent manager will certainly take advantage of this opportunity

(Note: Although Having perception of opportunity' precedes actual planning and is theretoreno
a part of the planning process even then being an important
factor it can be considered as first step
crictly
of planning. 610
busines
2) EstablishingObjectives: After having identified the opportunities available
to a

of the organisation are

oroanisation, the objectives are laid down. First of all the geFeral objectives
in the process of
determined and then the objectives of each department are prescribed. Since each step
are the central point of the
nlanning thinks of the achievement of the pre-determined objectives, they
of
nrocess of planning. Objectives should be clear, definite and simple and all the officers and employees
be conversant with them so that they fully contribute to the successful attainment
the organisation should
of these objectives.
or Premises: The third step in the process
of planning
(3) DeterminingPlapning Limitations
the pre-determined goals
determines the factors aftecting thé ativities connected with the achievement of
These factors
of an organisatjon. No planning can ignore these factors because they affect its practicality.
can be divided into two parts: eaEaa
212A1 z, mpovn
(0)External Factors: These are the factors having relationshipwith external environment and
over which the organisation has no control. for example, the economic policy of the government;

industrial and tax policy: increase in population: business competition; changein consumers' taste,
etc.

technical
Gi) Internal Factors: These factors include capital. labour, raw material, machine,
in which our
proficiency, etc. Thus, planning premises point out the internal and external environment
plans will operate 31
(4) Making a Forecast: Forecasting isthe fourth step of plannigg which depends on planning
premises. Before making a forecasta list oflimitations and asaumptions of planning is prepared. Later on
the intemal and the extemal factors (included in the above list) likely to afect the future activities are
anticipated. For example, an estimate about the future economic policy, industrial policy and tax policy
hasto be made, the possibilities of increase in population have to be considered, whether there is a
possibility of competing organisation emerging up in future, whether consumers tastes can undergo a
change are the external environment which have to be studied and considered. Similarly, the planning
limitations regarding availability of necessary capital, labour, raw material, machinery, etc., in future will
be anticipated. On the basis of these forecasts important decisions about planning will be taken. The
success of planning will be directly in proportion to the degree of correctness of the forecast made
(5) Searching for Alternative Courses: There are many methods of doing a work. Generally
there is no work which has po altenative method of doing it. On the basis of the objectives of the
organisation and the limitaions' of'planning, alternative courses of doing a particular work can be
discovered. For example, if an organisation has the object of expanding its business, it can be done in
 88

many ways Business Manageme

like (i) by
example, if a company expanding
is
engaged in
the
existing business, for
TOOLKIT -2
size of T.V. sets, it
can start producing particular a
producing T.V. sets of different
sizes; (ii) by entering other area Minimum Preliminary Criteria
of
T.V. company can
start
production, for example, a
In fact it is not as difficult to find
alternative courses as it is to reduce out
th

entering into some producing Refrigerators: (ii) by list of alternative courses. Alternatie
collaboration with courses should be the minimum possihl
organisation and start a new
some
business; (iv) by taking
other so that they can be deepiy analysed. T
some other business over reduce the size of the list of alterrnative
enterprise, etc. courses a minimum preliminary criterin
(6) Evaluating should be decided upon and those
Alternatives: All those
courses which are upto th alternative minimum
alternatives which do not fulfil the
expèctatións of the minimum criteria, should be deleted
preliminary criteriaare selected for intensive study. It will be example, if thein minimum
from the list the very beginning. For
seen as to what extent a capital limit is
in the attainment of the
particular alternative course heip courses less than that will be left
can rupees ten crores, all the alternative
out.
objectives
is, however, one problem which
of the organisation. There
confronts us while analysing
these alfernative courses. Every alternative course has its merits and demerits. For example, a particular
alternative course can be highly profitable but it requires investment of more capital and has a long
gestation period to yield profits. Similarly, another alternative course needs less capital investment, has a
short gestation period to yield profits but the profits are not suficient. In such a situation the planners
should evolve a new alternative course by a mixture of different alternative courses. 31ua1s) u1t
best one
alternatives the
(7) Selecting the Best Alternative: After a careful analysis of different
is selected. Sometimesthe analysis yields more than one alternative course with similar merits. Keeping
in
One of such
view the uncertainties of future iít is juatifiable to select more than one good alternative course.
in reserve. In case the future forecast proves wrong and the
alternatives is adopted and the other is kept
one can immediately be brought into operation
and failure can be
first alternative course fails, the reserve

(8) Formulating of Supporting Plans: By finding out alternative courses, analysing them and
to the main
selecting the best one, the main plan of the organisation is prepared. To give practical shape
SSA , 2 h l n)
example, (out of the four given
if the second alternative
plan, many subsidiary plans are needed. For is
heading
of
'search for altermative courses producing refrigerators alongwith T.V. sets
under the
it a practical shape (thatis
it can be said that the main plan has been formulated. To give
declared the best, sales department, finance
refrigerators) different plans for the purchase department,
producing These subsidiary plans or sub-plans are not
denartment, personnel department, etc., will be prepared.
independent plans
butreflection of the main plan.
only a
the subsidiary plans are formulated, they
(9 Implementing Plans: After the main plan and In
are implemented, the order of different works is decided.
to be implemented After the plans
rem
to achieve
words, it is decided who will do, what will he do and when will he do it. This makes it easy
ather
of the organisation.
the objectives
At this stage to make plans meaningful budgets are prepared in the form of figures.
 Concept
and PProcess
and 89
Planning:

(10) Reviewin wing Plans: The process of planning does not end with the implementa of plans.
fomulatedjor
Plansareformulate huhure which is uncertain. It is of great importance that there isa constant review a
o astoensure suCcess in the uncertain future. The moment there appears to be changes in the
o plaans on which the plans are based, there should be corresponding changes in the plans also. In
assumpt

we can say planning is a continuously moving process.

t h i s we

Drinciples of Planning or Essential Elements of Good Planning

During the last few years many principles of planning have emerged for guidance of the the
a0eIS in making planning efective. Following principles of planning have specialsignificanc
manage

should be
dPrinciple of Contribution to Objectives: While making plans and sub-plans it of the
nt in mind that
they shouid provide sound foundation for the achievernent of the objectives
a

it does not bjectives and if

p
sanisation. Planning should be considered a meansforthe attainment of
organis
cCceedin this purpose, it will be treated a failure or meaningless.
it should be able to
(2) Principle of Efficiency: The success of any plan depends on the fact tht
the minimum cost. The success of a plan can be measured
achieve the objectives of the organisation with too
its contribution to the attainment of objectives. Thus, according
hy the difference in its expense_ and of the
should be formulated in such to increase the efficiency
this principle the plans a manner as

organisation.
cannot complete other
3 Principle of Primary According to this principle, the managersIn this
way planning is
the
before them.
managerial activities so long they do not have the outlinesofplans
principle also tells that whatever may be the fom of
first necessity of the management. This
us

management, business or non-business, planning occupies the primary place.

officers all the concermed should
(4) Principle of PlanningPremises:While fomulating plan_
ensüre the success of the plans. The time
take into consideration all the assumptions and limitations tó
uncertainties, etc., can be the
consumed and expenses incured in the process of planning, risk of future
premises of planning.
(5) Principle of Policy Frame Work; According to this principle, effectiveplanñingcan be done
which influence thinking regarding the
only when the planners clearly understand the basic policies
and soundness of the policies will make
determination of the plans of the organisation. The clarity
planning strongarnd effective.
is done in connection with all those activities which are
6 Principle of Time: Planning
to this principle, planning
peformed for theachievement ofthe objectivesoftheorganisation. According
in mind while different
Fx
should lay down a time frame for every process so that it is kept performing
me

programmes.
47Principle of Flexibility: According to this principle, planning should be flexible because
planning is done by anticipatingthe possible future events. But this estimate about future can undergo
Some changes necessitating changes in the plans. By making changes in the plans in accordance with the
changes in the future situations, the risk can be reduced to the minimum possible extent.

anns 3iTRar
 90
Business Managemes

(8) Principle of
Limiting Factor: This principle
ple lays stress upon the
stress upon the fact
that planning process
selects the best altemative ae
keeping in view the limiting factors. This helps in seesful
diternative. The plans
formulated by iqnoring the limiting lactors are always unsucce
inciple of Selection of the Best Alternative There c bedeeply all the pOssible
marny to

complete any activity. According to this

principle, the managerthatshould
will be st
alternatives before selecting the best one. This is the alternative
achiev
aable to achieve the objectives

of the
organization at the minimum cost. has to take
0) Principle of Competitive Strategies: When a manager
into consideratión the plans of the competing organizations. It is necessau
competition in the market. ner
rernernber the
plans the
managers must
n c i p l e of Commitment: While formulatina of some
* related to the accomplishment
be
commitment made to the owners.These c o m m i t m e n t s can

work in time or about cost and quality of a product.

Limitations or Difficulties or Criticisms of Planning Some people think that

organisations.
business and non-business and, thus it is only
a fruitless
lanning is needed in both the about future,
is certain to be made
planning is based on the forecast of
future and nothing If planning has
difficulties of planning.
hint at the and limitations
u s e i e s s exercise. In fact these people only these difficulties
to be in the know of
have got
successtul and purposeful the managers
Since future
Following are the limitations of planning: on the
forecasts made aboutfuture.
based
Forecasting: Planning is To consider planning as
( ) Unreliable
forecasts are not necessarily
fully corect.
and subject to change, thë in the dark Uncertainty of planning
is uncertain aiming an arow

of objectives is like
istrimental in the attainmenf to the length of the period of planning. Thus, thefirst
and the foremost
forecasting n y AT
31 proportion
would be directly in
is the uncertainty ofthe
undertaken for the achievement of
the
difficulty in the success of
planning
activities to be
Under planning the in particular
performs his work
a
2 ) End of Initiative: individual
befor hand. Copsequently every initiative is handicapped
in finding out
objectives are determined In this way their
manner as laid down inthe plans. strangulates the initiative of
way and
in a
According to Terry, "Planning
steps which can be adopted.
m o r e appropriate inflexible manner.
to work in an
and compels them other words, changes can
the employees the virtue of flexibility. In
Flexibility: Planning possesses
are possible
(3) Lack of but it must be remembered that only small changes
need of the moment
as per introduce
be introduced nor useful for the organisation.
Thus, inability to
neither possible
in planning.
Big changes are circumstances allows many useful
opportunities to slip
according to the changing
the desired changes
from thoHands
of the organisation.
away
Process: The word planning is a small one but it hasa long process.
Rightfrom
(4An Expensive itself meamingfil. t
opportunities' down to the 'review ofplans' it is a longwayto go tomake
nerception of this long time is utilised by the managers in
collecting
lot of time to cover this long distance and
takes a
so long a time
and analysing it. Thus, when so many persons remain busy with one work for
information
ir
of the organisation
it is
certain to increase the expenses
Planning: Concept and Process
91

5 Difficulty in the Selection of the Best Alternative: Under

planning the best available
alternative is chosenjor work pertormanee Ta work of selecting the best altegnative involves a difficult
ess of collecAMg ståtistics and then
analysing them, and even if this work is atcomplished, there can be
difference ot opinion among the managers regarding the choice of the best alternative. One
manager may
consider a particular alternative as the best while the other can be in favour of some other
alternative.
Even if all agree on the suitability of one particular alternative
being best, there can n0 guarantee
the be
about its being the best in future circumstances.
dT 3dTT
(6) Affected by External Environment: Planning is affected some factors which are
by beyond
the control of the planner. These factors are
part and parcel of the external environment. They are
primarily political, economic, technical changes and natural calamities. For example, as a result of
changes introduced by the government in trade policy, tax policy, import policy, etc., the plans prepared
by an organisation come to naught.
(7) Lack of Adequate Expertise: Making plans is not everybody's job. It is a mental process and
the advice of the experts has to be sought for their successful
completion. In the absence of expert opinion,
the plans are formulated by managers with average ability and that always puts a question mark on their
success.

8 ) Resistance to Change in Planning: Resisting changes in the plans is a major problem of the
process of planning. It is evident that changes can be introduced in the plans according to the need of the
2,6
situation in order to achieve the objectives of the organisation. But the managers get so habifuated to
work according to a single plan that they are not ready to accept any new responsibility. If they accept the
new plans joyfully, they shall have to comprehend them and adopt new procedures of work also. To avoid
facing this predicament they resist changes in the plans.
19) Creates a False Sense of Security: Sometimes the managers think that planning solves all
their problems. Having been influenced by this thinking they remain unmindful of their work and its
adverse effects have to be faced by the organisation. Thus,
planning, by holding out a false promise of
security, turns the managers into an iresponsible being9.
6 ) Dificulty in Taking Quick Decision: Plans are ndauhtoil SR2 2T
situation but are certainly not capable of facing sudden emergencies. It means quick decisions have to be
taken in the face of some urgent
sifuations orif there happens to be some prefitaßle opportunities for
which no provision has been made in the planning. In
such a if the
situation managerthinks that the
process of planning should be first completed and then a decision should be taken, it is quite possible that
'

by then the serious situation may become more serious or the opportunity of
proft hay slip out of hand.
Thus, planning being a long process can be an impediment in the
process of decision taking. AARE
 Chapter8
DECISION-MAKING:
CONCEPT AND PROCESS

f there is any universal marks of a manager, it is decision-making."

-George R. Terry
Decision-making is an important function of every
TOOLKIT-1
managerIn the previous two chapters we have studied
planning. Under planning important things like. 'what is to Decision-Making and Decision?

be done. 'how it is to be done', when it is to be done and who Decision making is a process and
decision is the outcome of such a
isto do it are considered. In an answer to all these
questions
a process.
manager has various altematives. When a manager chooses
the best altemative out of many available ones, it is called decision and the
process that has been adopted
in order reach the final decision is known as the
to
decision-making.
Adecision is essential in all the managerial functions like
planning, organising, staffing. directing,
and controlling. All the managerial functions are performed through the medium of a decision. The
managers are doubly benefitted when they face problems and try to find out their solutions. Firstly, by
finding out an eftective solution they serve the organisation, and secondly, they are personally satisfied.
Thus, it is clear that the success of an organisation depends on the
manager, and a manager succeeds only
when he possesses the quality of taking effective decision.

Meaning of Decision-Making
Decision-making means analysing different alternatives and ariving at a decision in the face of a
particular situation about what to do and what not to do. In this way decision-making means reaching a
conclusion or final decision which can be implemented solution of a
as a
problem. Since the managers are
invariably faced with some problem or the other for which they have to find a solution, it is said that
decision-making is perpetually needed and Simon has very pertinently observed that "To make
decision is Management".

Definitions of Decision-Making
Different management experts have defined decision-making differently. Some
prominent
definitions are given below:
120
Business Managemeny
(i) According Koontz and O'Donnel, Decision-making is the actual selection from
to

among alternatives of a course of

action
(i According to George Terry. "Decision-mak is the selection based on som
R. some criteri
from two or more possible
ii)
alternatives
CCording to Louis A. Allen, "Decision-making is the work which a manager perorms to

arrive at conclusion and judgement

the basis of the above be saidthat decision-making invohves
n mentioned definitions it can

of some problem. it is thus clear that a

decision i Et available alternative as a solution
work. In other
words. it there is
onilyone
needed when there are many alternatives to doa
case that method in itself is a
that
ietnod or doing a work there is no
need to take a decision and in
decision.

ICharacteristics or Nature of Decision-Making

E Characteristics or nature of decision-making becomes clear by the following facts
The tirst characteristic of
() t is a Process of selecting the best from the alternatives:
available ones. There are
selected out of the many
decision-making is that under it the best alternative is For example. if an
out of them all.
selects the best one
many ways to solve a problem. The manager
of solving this problem like -

organisation has the problem of increasing sales,

there can be many ways
on credit, etc
advertisement, making available the facility of selling goods
reducing prices, more and good
alternative out of them.
The manager has to select the best appropriate
to be the essence of
Rational thinking is considered
(2) It is based on Rational Thinking: and their success
with the help of decision-making
decision-makingbecause the conclusions aived at

depends on rational thinking or intensive study.

problem or conflict: Since the purpose of
It is always related to
some
3) related to them. In other
solution to problems or conflicts, it is naturally
decision-making is to find out
no problems or conflicts, decision-making
and manager will both come to lose
words, if there are which a manager
In this context it is said that Problems are the diet or food upon
their importance.
lives and prospers
the Evaluation of Various Available Alternatives: It is evident
that in case
(4) It involves
solution to a problem, decision-making is not needed. There should be many alternatives
there is only one
medium ot
for taking a
decision. When there will be many alternatives, they will be evaluated through the
In other words, the best alternative will be chosen after taking into consideration its
decision-making.
merits and demerits.

AS) It is aimed at achieving organisational Goals: Decision-making is not a futile

exercise because through its medium efforts are made to achieve the goals of an organisation
ex
successfully.
 and Proess
ecision-Making: Concept 121

6 )It involves Commitment. Every decision taken by a manager is a promise. In other words, a
an.ager through the medium of decision, tells us that the consequences of the decisions taken by him will
manag

be good

A) It is basically a Human Activity. One of the special characteristics of decision-making is

that it is a human activity. Decisions are taken by men and are meant for them.

(8) It is both a Managerial Function and an Organisational Process: It is a managerial

function because decision-making is the chief responsibility of all the managers. It is called organisational
process because there are many decisions which a manager cannot take single-handed and they need a
group of managers or a committee of managers.
(9) It is the Core of Planning: Although decision-making is needed for all the managerial
functions. yet planning is completely dependent on decision-making because all the chief or major
decisions are taken here. When under planning the functions of determining objectives, policies.
procedures, rules, etc., are performed. decision- making has a special importance
10) It Starts Action: When a problem arises, work is immediately suspended and till a decision
is taken the work cannot recommence. Therefore, the future activity starts only after a decision is taken.

(11) Uncertainty of Results: It is true that the best alternative is chosen only after an analysis of
the various alternatives but the consequences of the best alternative are uncertain as it is an imaginative

action with reference to future.

12) It is a Universal Mark of a Manager: Decision making is a universal mark of a manager. It
means whatever a manager does is based on decision-making and this speciality is found every where
and in every manager.

(13) It may be Negative: Decisions can both be positive and negative. Positive decision means
deciding to do something while negative decision means doing nothing
Decision-Making Process or Mechanism of Decision-Making
Decision-making has been defined as a selection of the best alternative out of many. Hence
decision-making is a choice-making activity. In order to select a proper alternative, one has to pass a long
distance right from gathering the information about the problem to the final decision-making and
implication. This long distance or the various steps taken constitutes the process of decision-making. The
process of decision-making is divided into two parts- Traditional Process and Scientific Process.
Under the traditional process the managers take decisions on the basis of their limited
knowledge
experience and assumptions, and no definite process is followed. On the other hand. under scientific
process managers folow an established process from the beginning to the final result. In other words, the
destination can be reached after crossing various steps. Scientific process adopted for successful
decision-making is described ahead.
 Business Managemeni
122

(3) Development of

(1) Defining the (2) Analysing the Alternatives

Problem
Problemn
(4)
Evaluation of Alternatives
Decision -Making Process
of the best
15) Selection
6)Execution of the Alternative

(7) Fllow-up
Decision
d e c i s i o n - m a k i n g
volves obtaining
involu
of off tthe
in the
process
origin of
the origin the probiem
problem
(1) Defining the Problem: The first step
sought.
First of
ofFirst
all
all
-determined
is to be in the pre-c
information about the problem for which a solution
difference
the
b e c a u s e of in results shall
created
he the Cause ofof difference
differe
shall have to be studied. Generally a problem is
cause
Now
of work. the problen can be
solution ot
objectives of the organisation and the actual progress located the
be
of this problem can
O De studied. If the true cause

dE factor. In fact
the information
easier or critical
strategic orlimiting business the problem
and the
ne cause of aproblem is known a s In respect of
decision-making. the sales of
example, in
of a company
a 0 o u t the critical
factor is the very basis For
an example. Now there is a
problem of
be explained with the help of could be made.
factor can units
Critical
buta sale onlyof 80,000 the decline in
sales-like the
w a s decided upon c a u s e s for
units
There can be
1,00,000 many of rival
the sales manager. m o r e price
of the product, entry
in sales facing
of the product is the
decrease advertisement,
on
of products, litle expenditure the inferior quality
inferior quality found out that factor
market, etc. If after
inquiry it is factor. The critical
in the will be the critical
product obtained. fify
quality of the
companies
decline in sales, the i n f o r m a t i o n about
it can be
of the
main c a u s e If correct
is false, it leads
the problem. to one
role in defining information obtained
a prominent hand, if the
plays solved. On the
other
of the problem is
percent
it. Under
after the other. the manager analyses
problem defined the problem,
the Problem: After having the problem and
where from
(2) Analysing information will be required
in connection with
a critical
decided what has been treated as
analysis it is For example, the quality of the product
can be gathered.
the
this information inferior quality of the product
in sales. Now for analysing the
the problem
of decline have the
factor in
material was purchased,
needed can be whether the inferior quality raw
-

that will be inferior quality raw

information whether the supplier has deliberately supplied
worked properly, control
rmachines not the employees, whether the quality
there is a deficiency of training among
material, whether yields the information
that
careless, etc. We can say that the analysis of the problem
been
officer has of expected
machines the quality of the product has not been
the improper working of the
of
hecause
s t a n d a r d .
 and Proce
Decision-Making: Concept 12.3

What is important to understand regarding the analysis of the problem is that it is more important to
Uwhat infommation could not be obtained rather than the amount of information collected. In this way
the time of taking decision, the non-available information may be accepted as imitations and on the
cs of these limitations the risk involved in the decision can be determined. In other words, it does not
an thatif
mean t the infomation is not available, a decision cannot be taken. Adecision will be taken but there
sill be a risk of it not being the best decision for want of the expected information. If it can be ascertained
wil
what information has not been obtained, the amount of risk involved in the decision can be determined
the importance of the information not received.
keeping in view
(3) Development of Alternatives: The third step in the process of decision-making is the
development of different alternatives. When the problem has been defined and its causes have been
deeply studied, its possible solutions remain to be seen. There can be many alternatives for the solution of
a problem. If there is only one method of the solution of a problem, there is no need to take any decision,
because that method is in itself a decision.
The examples taken in the process of decision-making can be considered in the process of
development of alternatives. It shall have to be found as to what alternatives there can be about the
removal of deficiency in machines being the cause of inferior production. To remove the deficiency in
machinery there can be different alternatives like the repair of machineryif it is not very old. If the
machinery is old, new one can be purchased. If the new machinery is expensive and beyond the capacity
of the organisation to purchase it can be hired. While developing alternatives the limiting factors must be
kept in mind. The finance is a limiting factor in the alternative about the expensive machinery which can
compel the manager to abandon it.
Amanager makes use of many sources while exploring the possibility of alternatives. This can be
his own past experience, practices followed by others arnd some entirely new idea. In this example, the
manager can have an idea whether the same material of good quality can be obtained at cheap rates from
other fims. If the answer is in the affirmative, the alternative about the repair of machines, purchase of
new machines or taking them on rent can be left out.

(4) Evaluation of Alternatives: After finding out the different alternatives, the next step is their
evaluation so that the best alternative can be selected. Under their analysis their merits and demerits are
studied. On the basis of analysis the manager comes to know about the inherent risk of different
alternatives
Evaluation of alternatives should be made with reference to time and capital and only that
alternative should be selected which is most economical. The function of evaluation becomes
easy if a
particular alternative is better than the other alternatives. On the other hand, different alternatives of the
same level complicate the problem. In such a situation they should be
studied more deeply. This is also
possible that none of the alternatives may be acceptable. Not accepting an alternative is in itself an
important decision. In such a situation the manager should search out for some suitable alternative.
In the given example the merits and demerits of all the possible altematives will be looked into. In
the fist altermative the expenses involved in the repair (of machinery) can be looked into. It can abso be
 124 Business Managemen

considered as to how long the effect (of repair) will remain. Regardina the second alternauve an be

Considered whether the machines uhat will be the rent;

for how long they will be
are available on rent

available on rent. Similarly, the altemative of purchasina the finished product ran "eng
Ihus, the
considered.
can be
manutactured by the organisation in the liaht of its offoct onthe customers,

information about all these things will be collected. becomes clear that
alternatives it
( Selection of the Best Alternative- After analksing various Under the irth step the in

solving a problem.
w n a t extent every alternative presented can be hetnfiul in
comparing their possible
alternative is made after
process of decision-making the selection of the host and experiments. A
the help of his experience
m a n a g e r takes
esuits. while selecting the best alternative a
a similar
problem earlier. Some
to confront
dndger càn take the of his experience in c a s e he had
help r e c o n s i d e r e d on getting
are
and they
ematives
are examined by putting them into practice of getting the
machines repaired to

s u p p o s e the
alternative
avourable results. In the given example.
decision. Hence, the
a final
selection is called
selected. Thus, making implement
mprove the quality of the product is It is important to
process is not completed.
decision-making
a e c i s i o n has been taken but the

the decision and find out its results the next step is its
has been selected,
Decision: Once the
best alternative essential (Manager
(6) Execution of the other people is
decision effective, action by
effective implementation. To make
the taken care of:
things have to be specially
Therefore, following
takes decisions without any action). decision is essential.
It should be
c o m m u n i c a t i o n of
Effective
(i) Effective
Communication:
Securing Employees'
who will translate it into reality. (ii)
all those persons concerned for the effective
clearly c o m m u n i c a t e d to acceptance of the employees
the
Acceptance: It is important
to s e c u r e of the employees, it is
order to get the acceptance and cooperation
decision. In Correct Timing of
implementation of the different alternatives. (ii)
while developing
should be consulted to
necessary that they
s o m e change
and it is the nature of employees
decision does bring
Execution: Every atmosphere, and there
Decision
decision should be implemented in a congenial
the
oppose a
change. Therefore,
fear of opposition.
should not be any decision-making. As the
decision
action is the last step in the process of
(7) Follow-up: Follow-up results should essentially be
in line with the expected
results start pouring in. These whether the
is implemented, resuts and the expected results clearly points out
difference between the actual
outcome. The another problem has
the results are not good, it means
has been properly implemented or not. If
decision
have to be initiated afresh. Therefore,
the previously
come up
and the decision-making process shall favourable the
re-examined and if the results are
decision shall have to be amended, its results to be
taken another amendment. Therefore,
shall continue to prevail. But unfavourable results shall require
decision
an important part of decision- making process.
follow-up action is also
it becomes clear as to how
After having studied the steps taken in the process of decision-making
here that it is not
an ideal decision needs to pass through all these steps. It is, however, worth-mentioning
necessary that all these steps should be taken. The number of steps involved in decision-making process
can be reduced according to the nature of the problem.