PLANNING &

DECISION MAKING
Unit - 3

Meaning. Levels of Planning: Strategic, Tactical and operational. Steps in Planning. Tools for planning.
Decision Making: meaning, types and process. Decision making conditions – certainty, risk and uncertainty.
Planning
Meaning
 Planning

Planning is concern with setting of organizational goals and ways to

achieve it. It is the basis for other managerial functions like organizing,
directing and the controlling the organization.

Planning is predetermination of objectives, and future course of

action to be taken to achieve defined goals effectively and efficiently.

SP Robbins - “Planning is deciding in advance about what to do, how

to do it, when to do it, and who is to do it. It provides the ends to be
achieved.”

Planning is the process of formulating objectives, identifying activities

to be performed to achieve these objectives, selecting the best way to
achieve it. It is very important for business to take the competitive
advantage from the business environment.
 Characteristics of Planning

1. Focus on goal
2. Primary function
3. Pervasive function(wide coverage on all levels)
4. Future oriented
5. Continuous function
6. Intellectual work(mental work that need intelligence)
7. Flexible
8. Efficiency and economy
9. Actionable
 Importance of Planning

1. Focus on goal
2. Minimize uncertainty
3. Effective control
4. Innovation and creativity
5. Organizational effectiveness
6. Economy in operation
7. Facilitates coordination
8. Avoids business failure
 Types of Plan

On the basis of Hierarchy:

a. Corporate Plan
b. Tactical Plan
c. Operational Plan

On the basis of Use

a. Single Use Plan
b. Standing Use Plan

On the basis of Flexibility

a. Specific Plan
b. Flexible Plan
 Types of Plan

A. On the basis of Hierarchy

1. Corporate plan: Corporate plan is long term plan prepared by the

top-level management after environmental scanning. It explains the
objectives of organization as a whole and it influences overall activities.

2. Tactical plan (middle level): It is sub-division of corporate plan

prepared by the departmental managers to allocate the resources
according to the programs.

3. Operational plan: It is specific plan of each and every activity of the

unit that concentrates on the best use of available resources. Usually,
lower level management are responsible for the formulation of
operational plans.
 Types of Plan

B. On the basis of Use

1. Single use plan: These plans are developed for meeting the particular objective
only for single purpose. Once this plan is executed, it will not be used again for
next time. Eg. New project, program, launching budget etc.

2. Standing use plan: These plans are developed for ongoing repetitive functions
like mission, procedure, policies, rules etc. They provide guidance for repeated
actions. They are used for regular activities in a routine way.

C. On the basis of flexibility

1. Specific plan: Such plan is developed for a particular department about the
activities to be performed. All members are made clear about the task to be
performed. These are not changeable.

2. Flexible plan: This plan is changeable on the basis of time and situation. It is
not specific in terms of procedures and allocation of resources. These plans can be
modified.
 Hierarchy of Plan

1. Mission: Mission is the basic function which is the reason for the existence of
organization. It is the long term commitment and purpose of the organization.
2. Goals/Objectives: Goals are developed to achieve the mission. Goals are the
target or end point of the planning an organization plans to reach.
3. Strategies: Strategies are comprehensive master plan stating how an
organization will achieve its mission and goals.
4. Policies: Policies are guidelines for decision making that links the formulation of
strategy with its implementation to achieve goals.
5. Procedures: Procedures are sequential steps that describe how a particular task
is to be performed. They are steps that guide action.
6. Rules: Rules are guides to carry out specific activities. They are specific and rigid
in nature and are strictly to be obeyed by all the members of an organization.
7. Programs: Program is statement of activities essential to accomplish a single use
plan. Program consist a complex set of goals, procedures, rules etc. which is
designed to achieve goal or mission.
8. Budgets: Budget is the short-term financial plan, which is presented in terms of
money. They are prepared regularly to allocate the resources in an organization.
 Methods of Plan

1. Top-down method: In this method, only top level mangers involved in all
aspects of planning such as formulation of objectives, programs, policies, plans,
strategies etc. Then these are communicated to the lower levels.
2. Bottom-up method: In this method, plan proposals are initiated and developed
at the first line management and forwarded to the middle level management
for screening, adjustment and modification. Top level management reviews
and approves the final plan.
3. Composite method: In this method, top level manager reviews, modify and
finalize the corporate plans formulated by middle and lower level
management. MBO is the example of such method.
4. Team method: In this method, an entrusted work team is formed to formulate
a corporate plan. The plans are reviewed and finalized by the top management.
 Process of Planning

1. Analyze opportunities(SWOT and PEST)

2. Setting goals(SMART)
3. Determining premises(assumptions of future basis)
4. Determination of alternatives
5. Evaluation of alternatives
6. Selecting a course of actions(using past experiences and present situation)
7. Formulation of derivative plans(action plans for each stages of work to all
departments)
8. Implementation of plan
9. Reviewing the planning process
 Tools for Planning

• Forecasting Method
• Network Techniques
• Flow Chart
• Gantt Chart
• Break-even Analysis
 Tools for Planning

Forecasting
It is the process of predicting, estimating or guessing the situation of future
from the current or last performance of organization.
Some techniques of forecasting are:

1. Single projection method: Current year forecast from the addition of last
year’s figure.

2. Extrapolation method: Forecasting based on plotting the figures of past

several years to get the future expected figure.

3. Moving average method: Forecasting based on weighted average of

irregular trends of historical data.

4. Time series analysis: Method of long range forecasting using statistical

tools of forecasting.
 Tools for Planning
Network Techniques
It is the techniques of planning for the implementation, monitoring
and control different phases of projects.
Critical path method (CPM) and Program Evaluation and Review
Technique (PERT) are popular network techniques used in planning.

Five steps for network analysis:

a. Listing all possibles jobs
b. Determine an order of precedence
c. Representing diagrammatically the activity of sequence
d. Assessing the time required for each activity
e. Finding the earliest time by which task would be completed.
 Tools for planning

Flow Chart
It is diagrammatic representation of
sequential events in an order of desired
outcomes shown in the certain direction
by means of arrow.

It contain different symbols for

representing different events:
‣ rectangular box
‣ diamonds
‣ oval
‣ line arrow
 Tools for Planning

Gantt Chart
It depicts a schedule of project implementation in graphical form
according the time duration of each stage of activity. Beginning
and end of each activities are shown for monitoring and finding
progress.
 Tools for Planning

Break-even Analysis

The break-even point can be defined as a point where total costs

(expenses) and total sales (revenue) are equal. This Break even
analysis gives an idea about what quantity of production is needed to
cover the fixed cost so as to find the profit level at certain quantity of
sales.
 Planning Premises

Meaning
Planning premise are the assumptions providing a background against
which the estimated events affecting the planning will take place. Premises
are basis assumptions about the anticipated future environment that is
required for plan to be implemented successfully.

Types of Planning Premises

• Internal premises
• External premises
• Tangible premises
• Intangible premises
• Controllable premises
• Uncontrollable premises
• Constant premises
• Variable premises
Pitfalls/Limitations of Planning

Reasons of failure of plan:

‣ All levels is not involved in planning
‣ Corporate planning is not integrated
‣ planning is not simple
‣ expectations of plan may not be attain
‣ planning is based on inadequate or wrong assumptions
‣ planning is not balanced
‣ planning does not posses flexibility
‣ planning is not well monitored, coordinated, implemented and
controlled
‣ short term plan may conflict with long term plan
‣ environment of organization may not be favourable
 Improving Planning

Things to remember for improving planning:

‣ Reinforce the connections
‣ Be mission centric
‣ Connect staff review and development process to the planning
process
‣ Continuous look for, find and use appropriate benchmarking
and best practices
‣ Feedback is critical
‣ Use planning, assessment and improvement to help identify
what really needs to be done
‣ Keep the plan moving
 Decision Making

Decision simply means to choose among the various related alternatives. In

an organization, all functions of management involves decision making.
Decision making is the process of selecting best course of action out of many
available alternatives to produce a desired outcome or achievement of
organizational goal.
It is the process of identifying and defining the problems, developing
alternative solutions, evaluating, choosing and implementing them effectively.
Managers in any organization involves in decision making continuously.

Features of Decision Making:

• Selective process
• Human and rational (pervasive) process (all level and type of org)
• Dynamic process
• Goal oriented process
• Continuous process
• Freedom to decision maker
 Types of Decision Making

1. Programmed and Non-Programmed Decisions

Programmed: The decision related to the daily work activities of an

organization is called programmed decision. These decisions are taken
by lower level managers on the basis of policies, rules, regulations.
Such decision need less thinking and managerial skills. Eg. Payroll
procedures, admission procedures etc.

Non-Programmed: The decision which is needed for non routine

functions that deal with complex problem is called non-programmed
decision. These are also called managerial decision and are different
from past knowledge. Top level managers take such decision. Eg.
Product diversification, marketing strategy, new investment plan etc.
 Types of Decision Making

2. Strategic, Administrative and Operational Decision

Strategic decision: Decisions regarding to the long-term corporate goal, strategy

and environmental positioning is called strategic decision. They are made by the
top level management. They deal with non-programmed conditions.

Administrative decision: Decisions taken for attaining short-term goal by

different departments like production, marketing, finance, personal by middle
management are administrative decisions. Such decisions covert strategic
decision into operational decision.

Operational decision: Decisions taken by lower level management to take

decision regarding to the routine and repetitive decisions for operating different
low priority activities are operational decisions. Authorities for operational
decisions are given to the lower level manager.
 Types of Decision Making

3. Individual and Group Decision

Individual Decision: In a small organization the decision regarding to

any problem is taken by individual person or employees such
decisions are called individual decisions. They can be routine or
complex. Usually, investor of sole trading concern or manager in any
company takes such individual decision.

Group Decision: Some decisions are collectively made by group of

people in an organization. Decision Taken by board of directors,
committees, teams etc. are group decision. Departmental decisions
are group decisions. Decision made in joint stock companies,
partnership firms, cooperatives are group decisions.
 Process of Decision Making

1. Identification of problems
2. Analysis of problems
3. Development of alternatives
4. Evaluation of alternatives
5. Selection of best alternatives
6. Implementation of alternative
7. Review of implementation
Decision Making Conditions
The decision maker should know the conditions under which decision are to be
made. Some conditions are:

1. Certainty: A state of certainty exists when the manager knows the available
alternatives as well as the outcomes of decisions. In such condition control of
management is high. Manager has all the necessary information to make
effective decisions.

2. Risk: A state of risk exists when the manager is aware about the available
alternatives but is unaware about the outcomes of decision. In such condition
probability of the outcome of risk situation are possible. Management has
medium control.

3. Uncertainty: A state of uncertainty exists when the manager is unaware of

alternatives and the outcomes of decisions. Probabilities cannot be estimated.
Management has very low control over the situation. Most of the complex and
complicated decisions are made under uncertainty.