Chapter 2

Planning

Meaning and Concept of Planning

In simple words, planning is deciding in advance what is to be done, when where, how and by whom it is to
be done. Planning bridges the gap from where we are to where we want to go. It includes the selection of
objectives, policies, procedures and programmes from among alternatives. A plan is a predetermined course
of action to achieve a specified goal. It is an intellectual process characterized by thinking before doing. It is
an attempt on the part of manager to anticipate the future in order to achieve better performance. Planning is
the primary function of management.

Definitions of Planning

Different authors have given different definitions of planning from time to time. The main definitions of
planning are as follows:

According to Alford and Beatt, “Planning is the thinking process, the organized foresight, the vision based
on fact and experience that is required for intelligent action.”

According to Theo Haimann, “Planning is deciding in advance what is to be done. When a manager plans,
he projects a course of action for further attempting to achieve a consistent co-ordinate structure of
operations aimed at the desired results.

According to Billy E. Goetz, “Planning is fundamentally choosing and a planning problem arises when an
alternative course of action is discovered.”

According to Koontz and O’ Donnell, “Planning is an intellectual process, conscious determination of course
of action, the basing of decision on purpose, facts and considered estimates.”

According to Allen, “A plan is a trap laid to capture the future.”

Nature / Characteristics of Planning

The main characteristics or nature of planning is given below:

Planning Contributes to The Objective - Planning helps in achieving the objective. We cannot think of
achieving any objective without any kind of planning. Planning is one of the foremost important primary
steps in accomplishing the organisation.

Planning is The Primary Function of Management - Planning is the first step that any manager or anyone
adapts to use it to move towards any goal.

Pervasive - Planning is universal. Planning is there in every organization, whether it is a small size, mid-size
or large size or at whatever level it is, every manager, every individual employee plans on at his/her level.

Planning is Futuristic - We do planning for the future. Hence it is called a futuristic process. We always stay
in the present and plan for the future. Planning is never done for the past.

Planning is Continuous - We plan to achieve any goal. We do the planning, staffing, directing, and then
controlling. As soon as one goal is achieved, then we start planning for the next goal or objective. Hence it is
called Continuous Process. All the time, planning is done at every level for the future course of action.
Planning Involves Decision Making - In planning, function managers evaluate various alternatives and select
the most appropriate way to manage things.

Planning is a Mental Exercise - In planning, assumptions and predictions regarding the future are made by
scanning the environment properly. This activity requires a higher level of intelligence.

Planning is an Intellectual Process

Planning is an intellectual process of thinking in advance. It is a process of deciding the future on the series
of events to follow. Planning is a process where a number of steps are to be taken to decide the future course
of action. Managers or executives have to consider various courses of action, achieve the desired goals, go in
details of the pros and cons of every course of action and then finally decide what course of action may suit
them best.

Planning Contributes to the Objectives

Planning contributes positively in attaining the objectives of the business enterprise. Since plans are there
from the very first stage of operation, the management is able to handle every problem successfully. Plan try
to set everything right. A purposeful, sound and effective planning process knows how and when to tackle a
problem. This leads to success. Objectives thus are easily achieved.

Planning is a Primary Function of Management

Planning precedes other functions in the management process. Certainly, setting of goals to be achieved and
lines of action to be followed precedes the organization, direction, supervision and control. No doubt,
planning precedes other functions of management. It is primary requisite before other managerial functions
step in. But all functions are inter-connected. It is mixed in all managerial functions but there too it gets
precedence. It thus gets primary everywhere.

A continuous Process

Planning is a continuous process and a never ending activity of a manager in an enterprise based upon some
assumptions which may or may not come true in the future. Therefore, the manager has to go on modifying
revising and adjusting plans in the light of changing circumstances. According to George R. Terry,
“Planning is a continuous process and there is no end to it. It involves continuous collection, evaluation and
selection of data, and scientific investigation and analysis of the possible alternative courses of action and
the selection of the best alternative.

Planning Pervades Managerial Activities

From primary of planning follows pervasiveness of planning. It is the function of every managerial
personnel. The character, nature and scope of planning may change from personnel to personnel but the
planning as an action remains intact. According to Billy E. Goetz, “Plans cannot make an enterprise
successful. Action is required, the enterprise must operate managerial planning seeks to achieve a consistent,
coordinated structure of operations focused on desired trends. Without plans, action must become merely
activity producing nothing but chaos.”

Role, Significance, Importance & Advantages of Planning

An organisation without planning is like a sailboat minus its rudder. Without planning, organisation, are
subject to the winds of organizational change. Planning is one of the most important and crucial functions of
management. According to Koontz and O’Donnell, “Without planning business becomes random in nature
and decisions become meaningless and adhoc choices.” According to Geroge R. Terry, “Planning is the
foundation of most successful actions of any enterprise.” Planning becomes necessary due to the following
reasons:

Reduction of Uncertainty

Future is always full of uncertainties. A business organisation has to function in these uncertainties. It can
operate successfully if it is able to predict the uncertainties. Some of the uncertainties can be predicted by
undertaking systematic. Some of the uncertainties can be predicted by undertaking systematic forecasting.
Thus, planning helps in foreseeing uncertainties which may be caused by changes in technology, fashion and
taste of people, government rules and regulations, etc.

Better Utilization of Resources

An important advantage of planning is that it makes effective and proper utilization of enterprise resources.
It identifies all such available resources and makes optimum use of these resources.

Increases Organizational Effectiveness

Planning ensures organizational effectiveness. Effectiveness ensures that the organisation is in a position to
achieve its objective due to increased efficiency of the organisation.

Reduces the Cost of Performance

Planning assists in reducing the cost of performance. It includes the selection of only one course of action
amongst the different courses of action that would yield the best results at minimum cost. It removes
hesitancy, avoids crises and chaos, eliminates false steps and protects against improper deviations.

Concentration on Objectives

It is a basic characteristic of planning that it is related to the organizational objectives. All the operations are
planned to achieve the organizational objectives. Planning facilitates the achievement of objectives by
focusing attention on them. It requires the clear definition of objectives so that most appropriate alternative
courses of action are chosen.

Helps in Co-ordination

Good plans unify the interdepartmental activity and clearly lay down the area of freedom in the development
of various sub-plans. Various departments work in accordance with the overall plans of the organisation.
Thus, there is harmony in the organisation, and duplication of efforts and conflict of jurisdiction are avoided.

Makes Control Effective

Planning and control are inseparable in the sense that unplanned action cannot be controlled because control
involves keeping activities on the predetermined course by rectifying deviations from plans. Planning helps
control by furnishing standards of performance.

Encouragement to Innovation

Planning helps innovative and creative thinking among the managers because many new ideas come to the
mind of a manager when he is planning. It creates a forward-looking attitude among the managers

Increase in Competitive Strength

Effective planning gives a competitive edge to the enterprise over other enterprises that do not have planning
or have ineffective planning. This is because planning may involve expansion of capacity, changes in work
methods, changes in quality, anticipation of tastes and fashions of people and technological changes etc.

Importance/ Significance of Planning

Planning Provides Direction - Planning provides us direction. How to work in the future includes planning.
By stating in advance, how work has to be done, planning provides direction for action.

Planning Reduces the Risk of Uncertainties - Uncertainty means any events in the future that change our
course of action. Planning helps the manager to face uncertainty. We cannot remove such uncertainty from
our life. However, due to planning, we can work on such uncertainty. Just like an unforeseen event is going
to come in which we are going in loss. So, if we are already ready, we have made funds for it, then we will
be able to use it to fight that unforeseen situation.

Planning Reduces Overlapping and Wasteful Activity - Overlapping means the working relationship has
not been allocated specifically. If we plan, our time will not be wasted.

Planning Promotes Innovative Ideas - If you are planning, then you get feedback from your senior
managers or juniors, from there you can get innovative ideas. Besides, if you make your employees part of
the decision making, then you can get new creative ideas from there too.

Planning Facilitates Decision - Planning helps in decision making. The more efficient you plan, the more
right you will be in the decision. With good planning, our decision making gets an accuracy, it gets feasible
and it also gets improved.

Planning Establishes a Standard for Controlling - Controlling is incomplete without planning and
planning is incomplete without controlling. If you have done the planning but you do not oversee that the
thing is happening or not, then the planning is useless. In case, there is no planned output then the
controlling manager will have no base to compare whether the actual output is adequate or not.

Focuses Attention on Objectives of that Company - Through planning, efforts of all the employees are
directed towards the achievement of organisational goals and objectives.

Limitations of Planning

Planning Leads to Rigidity - Once the planning is made, then it gets very difficult to change something in
it.

Planning May Not Work in a Dynamic Environment - If continual changes are happening in the
environment, then planning will not be effective as things will not run according to the plan we have
prepared. We have made a plan according to the situation but it is based on the environment, whether it is
external or internal. If there are continual changes, then the right prediction, right planning becomes almost
impossible.

It Reduces Creativity - Planning reduces the creativity of employees of any organization because
employees have to work the same set which is already decided, they do not get the opportunity to show their
creativity or their innovativeness. Therefore, they become rigid, uncreative and innovative ideas stop
coming.
Planning Involves Huge Costs - When we have to take a very important decision and we have to hire
experts from outside to take those positions, their fees are very high, due to which planning becomes costly.
If we purchase equipment for planning, which is very coastal, then in that sense, planning becomes very
costly to us.

It is a Time-Consuming Process - Sometimes when long term plans have to be done or some important
plan has to be made in which high level and low level are also included. Then it takes a lot of time to do that
and that’s why planning is a time-consuming process.

Planning Does Not Guarantee Success - Planning only provides a base for analysing for the future. It is not
a solution for the future course of action.

Lack of Accuracy - In planning many assumptions are made to decide about the future course of action.
Sometimes planning is not accurate. Assuming for the future cannot be 100% accurate.

Types of plans

1. Standing or repeat use plan

1) Objectives
2) Policies
3) Procedures
4) Methods
5) Rules
6) strategies
2. Single use plan
1) Programmes
2) Projects
3) Budgets

Standing plan:

Standing plans implies the plans which are formulated for repeated usage, as they are concerned with the
situations of the organization which occurs quite often.

Objectives

Definition: In business terminology, the objective is something that is expected as the end result to be
achieved by the firm within a definite period of time, through its operations.

It prescribes the scope and also directs the efforts of the concern. The objectives of the organization are
expressed in relation to the future.

It is the fundamental step in the planning process, which are set by the company’s top management while
considering the broad and general issues. All the other components of planning, i.e. policy, procedure,
schedule, budget, etc. depends on it. It deals with the ‘why’ aspect of planning.

Characteristics of Objectives

The objectives of the firm break down the company’s strategy into a number of achievable targets. The
points below will discuss the characteristics of objectives.

Based on vision and mission: The objectives of the organization are extracted from its vision and mission
statement.
Long term or short term: The objectives of the concern can be long term or short term. For instance, the
growth and expansion of the business is a long-range objective whereas sales maximization, and the increase
in the margin are considered as short term objectives.

Time-bound: It is a time-bound desired end, i.e. they must be achieved within the specified time.

Hierarchical: It has a hierarchy, in the sense that objectives can be arranged according to their importance
and priority. Indeed, for each position in the organization, objectives are laid down.

Social Sanction: It should be created keeping in mind the society’s interest and norms. Hence, it needs
social sanction.

Forms a network: These are interdependent and mutually supportive, however, it does not mean that the
achievement of one objective leads to the automatic achievement of the another. Further, it should not be
assumed that one objective shall be achieved regardless of the fact that other objectives are achieved or not.

There must be good coordination amidst the activities at the time of planning and its implementation because
when the objectives support one another, they can be achieved simultaneously.

Multiple: The organizations do not exist with a single objective and so every organization has several
numbers of objective, which they need to balance so as to run the business effectively. The objectives can be
profit generation, customer satisfaction, service to society and nation, market leadership, innovation,
development of human resource and so forth.

Dynamic: They are dynamic in nature as it can be reviewed, modified and replaced according to the
circumstances.

Verifiable: Objectives must be verifiable, i.e. expressed in numerical terms. When the objectives are
verifiable they provide standards against which actual performance of the organization and its employees can
be measured. However, all the objectives cannot be expressed quantitatively and so in such circumstances,
these are expressed qualitatively.

Advantages of Objectives:

The main advantages of objective may be explained as follows:

It has been clearly defined that the organisation how the manager should behave in the organisation. Proper
planning helps the executives to coordinate in the correct sense of direction towards the effective results. The
main source of objective is to supervise in proper manner. If there is no proper maintenance these will be
problem in the creation of the work.

1. Proper Planning:

The main advantage of planning is in proper way. It encourages the proper planning. The Basic ideas and
fundamental theories of planning to achieve the basic thing, in the organisation. These ideas are make the
people to work in the proper planning. Some objectives are basically aimed on individual focus.

2. Single Motivation:

The main objectives providing motivation to the people in the organisation. All the individuals are directly
motivated by their own subordinates from the High level to lower level, he feels motivated. He feels, that he
will complete his duties and will also be rewarded suitably towards the job performance.

3. Direct Coordination:
The efforts of voluntary coordination may put into a detailed plan of an organisation. In the workforce, the
freedom has been given to employee they can work in replace of other towards voluntary coordination.

4. Control Process is Standard:

Control of human efforts is standard in the organisation. Controlling processes maintaining the standard
performance so as to obtain the organisational goal effectively in the organisation. Without such standard,
meaningful control cannot exist. Standard for control is mainly helpful in finance and thought promotional
strategy.

5. Integration:

It is set to link between the organisation and groups. So as the different department like production,
marketing, Finance, account, auditing and personnel brings them all enterprise together in the organisation.

6. Decentralization of Authority:

Decentralization is the clear-cut objectives also facilitate the authority. The manager can assign the duties to
perform to the subordinates at the lower level. Then the subordinate’s requisite the authority to carry out the
performed duties.

Approaches to Objective Setting (or Goal Setting)

Two approaches of objective setting can be identified. They are (a) Traditional approach and (b)
Management by objectives. The important features of these two approaches are as follows:

(a) Traditional Approach: In this approach, the objectives are set by the people at the top of the
organisation for those at the lower levels. This approach is essentially one-way and it is called an
authoritarian approach. This approach is likely to reduce their motivation, sense of commitment and
responsibility.

(b) Management by Objectives: MBO is a technique and philosophy of management based on converting
an organisational objective into a personal objective on the presumption that establishing personal objectives
makes an employee committed, which leads to a better performance. The objective setting in MBO creates
an integrated hierarchy of objectives throughout the entire organisation. In the process of objective setting in
MBO, superiors and subordinates jointly identify common objectives, set the result that should be achieved
by the subordinates, assess the contribution of each individual and integrate individuals with the organisation
so that the resources of the organisation are put to their best use. Thus, we find, in MBO, the process of
objective setting involves participation and collaboration among the various levels of organisation with the
intention of achieving organisational objectives.

Policies

The term policy is derived from the Greek word “Politicia” relating to policy that is citizen and Latin work
“politis” meaning polished, that is to say clear. These policies which are generally formulated at top level
helps manager’s sufficient freedom to make judgments and helps to achieve the organizational goals and
objectives.

The term “Policy” is defined by koontz and O ‘Donnel as “policies are general statements or understandings
which guide mangers thinking in decision making”. They ensure that decisions fall within certain
boundaries. They usually don’t require action but are intended to guide managers in their commitment to the
decision they ultimately make.

George R Terry defined “policy is a verbal written or implied overall guide setting up boundaries that supply
the general limits and direction in which managerial action will take place”.

According to JS Chandan, “Policy is a statement and a predetermined guidelines that provides direction for
decision making and taking action.

Brench defined, “policies are a pattern of direction for the guidance of those who carry responsibilities for
the management of the activities of the enterprises.”

Thus the essence of policy is discretion strategy on the other hand, concerns the direction in which human
and material resources will be applied in order to increase the chance of achieving selected objectives.

From the above definitions the following general characteristics can be identified:

(i) It is a guide to thinking in decision making and action.

(ii) Lays down course of action.

(iii) Lays down the limits within which decisions are made.

(iv) Framed at all levels of management.

(v) Does not become valid for all times. Periodically it is necessary to review and modifications are made.

Type of Policies:

Policies may be divided into different types of policies from different approaches.

A. On the Basis of Source:

Koontz and O’Donnell divide the sources of policy into the following four types:

(i) Originated Policy.

(ii) Appealed Policy.

(iii) Implied Policy.

(iv) Externally imposed policy.

1. Originated Policy:

By originated policy they refer to policy which originates from the top management itself. These policies are
aimed at guiding the managers and their subordinates in their operations. They flow basically from the
organisation’s objectives as defined by top management. From the broad policy at the top, other derived
policies may be developed at subsequent levels depending upon the extent of decentralization. However, all
such policies, whether originated by top management or subordinate managers, are described as “originated
policy”.

2. Appealed Policy:
It is meant decisions given in case of appeals in exceptional cases up to management hierarchy. In case of
doubts, an executive refers to higher authority on how he should handle the matter. The direction that he gets
is described as appealed policy and constitutes a precedent for future managerial action.

3. Implied Policy:

Implied policy is meant policies which emanate from conduct. It also originates where existing policies are
not enforced. Again, guidelines may be provided by the decision makers unconsciously and become implied
policies.

4. Externally Imposed Policy:

Policies may be imposed externally that is from outside the organisation on such as by Government control
or regulation, trade associations and trade union etc.

Procedure

Definition: Procedure, refers to a comprehensive set of instructions that prescribes a certain way of
performing a process, or part of a process, in relation to time. It states a chronological sequence for
undertaking activities, so as to achieve the objectives.

The procedures are meant for insiders (members of the organization including employees, directors,
managers and workers) to be pursued. They are also popularly known as the term Standard Operating
Procedure (SOPs). It states exactly what course of action is to be followed by an employee in a specific
circumstance.

Characteristics of Procedure

Procedures are operational guidelines, reflecting the way in which policies can be implemented. A
company’s policies and procedures are interconnected to one another, which are to be undertaken within a
general policy framework. The salient features of procedures are discussed as under:

Acts as a guide to action.

Defined keeping in view the company’s objectives, policies and resources.

Related to the time sequence for the work to be performed.

Meant for handling repetitive and regular events effectively.

Relevant for controlling and coordination of activities.

Procedure suggests particular beginning and endpoints which are required to be pursued in an exact manner
to efficiently and satisfactorily carry out a task.

Importance of Procedure

Upcoming points will discuss the importance of procedures:

It defines the manner in which work is to be carried out and eliminate all the irrelevant or repetitive steps.

It ensures a high level of uniformity in tasks, and consistency in the decisions which helps in avoiding chaos.

To undertake any task in an effective manner, the procedure suggests the ideal ways and methods.
It facilitates in eliminating or reducing errors or accidents.

It assists in the successful completion of the work assigned in a timely manner.

Procedures specify the base for evaluating the performance of the workers or employees. In this way, it
ensures executive control over the performance of employees.

It saves time, efforts and money because it states the standard ways for doing things.

The procedure is a component of planning which handles the “how” and “when” aspect, i.e. it specifies the
way in which work is to be performed and the right time for performing it.

Methods

Methods prescribe the ways in which in which specific tasks of a procedure must be performed. Also,
methods are very specific and detailed instructions on how the employees must perform every task of the
planned procedure. So managers form methods to formalize routine jobs. Methods are very important types
of plan for an organization.

Rules

Rules are very specific statements that define an action or non-action. Also, rules allow for no flexibility at
all, they are final. All employees of the organization must compulsorily follow and implement the rules. Not
following rules can have severe consequences.

Strategies

Strategic planning is a process in which organizational leaders determine their vision for the future as well as
identify their goals and objectives for the organization. The process also includes establishing the sequence
in which those goals should fall so that the organization is enabled to reach its stated vision.

characteristics of strategies

Strategic Planning is an analytical process which formulates strategic and operational plans for the
organization. The implementation of strategic plans is possible through projects, whereas various units or
divisions of the firm implement operational plans.

It performs SWOT Analysis, i.e. during the planning process, the firm’s strengths, weaknesses,
opportunities and threats are taken into consideration.

It is a forward-looking activity wherein the future opportunities and threats are ascertained while
considering its profitability, market share, product and competition.

It presupposes that a firm should always be ready to adapt itself according to the dynamic business
environment. For this purpose, alternative strategies are developed for different circumstances, i.e. from best
to worst, for the future

It can be done for the entire organization or to a specific business unit.

It is helpful in selecting the best strategy, among the various strategies taking into account the firm’s
interest, personal values and corporate social responsibility.

It acts as a guide to the executive to reduce the risk involved in the business and also to take the best
possible advantage of the opportunities. So, in this way, it contributes to the success of the enterprise.
Types of strategies

Master Strategy is a results-focused management and marketing consulting firm dedicated to assisting non-
profit organizations and businesses to define and achieve their highest priority strategic objectives.

programme strategies are more specific and refer to the specific deployment of resources to achieve
organizational goals. They support the master strategies.

Sub-Strategies (or Minor Strategies) These strategies are oriented towards deployment of resources for
achieving specific objectives but they are not of overall importance to an organisation. However, they
provide guidance to decision-making and action.

Single-Use Plan:

One is a single-use strategy that sets a course of action for a specific set of circumstances and is used until
the specific purpose is achieved. Programs, budgets, programs, and timetables can be included. It is called
specific preparation, too. The single plan for use is short-range. For single or special circumstances or issues,
single-use plans are prepared and are usually discarded or replaced after one use. Four forms of single-use
policies are commonly used. These are the:

Programs

Projects

The Budgets

Programme:

Programme is a written statement which describes proposed developmental activities, the problems they
address, the actions, and resources required.

Programme planning: Programme planning is the process of making decisions about the direction and
intensity of development education efforts to bring about desirable change among people /community.

Characteristics or principles of programme

i) Programme-planning should be based upon a careful analysis of a factual situation.

ii) Problems for action are selected on the basis of recognized needs of people.

iii) Objectives and solutions are to be feasible and offer satisfaction.

iv) Programme should be permanent and flexible to meet a long-term situation, short-term changes, and
emergencies.

v) Programme should have both balance and emphasis.

vi) Programme should have a definite plan of work.

vii) Programme planning is a continuous and coordinating process.

viii) Programme planning should be educational and directed towards bringing about desirable change.

ix) Programme planning should have a provision for the evaluation of results.
OBJECTIVES OF PROGRAMME PLANNING

i) To ensure careful consideration of what is to be done and why.

ii) To furnish a guide against which to judge all new proposals.

iii) To establish objectives toward which progress can be measured and evaluated.

iv) To have a means of choosing the important / deep rooted from incidental /

minor / less important problems and the permanent from the temporary changes.

v) To develop a common understanding about the means and ends between various functionaries and
organizations.

vi) To ensure continuity during changes in personnel.

vii) To help develop leadership.

viii)Avoid wastage of resources, money and promote efficiency.

ix) To justify expenditure and ensure flow of funds.

x) To have available a written statement for public use.

Budget

A budget is an estimation of revenue and expenses over a specified future period of time and is usually
compiled and re-evaluated on a periodic basis. Budgets can be made for a person, a group of people, a
business, a government, or just about anything else that makes and spends money.

Characteristics or needs of budget

The Budget Must Address the Enterprise’s Goals

Essentially, a budget must begin with the enterprise’s short and long-term plans and goals. The budget
should not just to recreate the enterprise’s previous year’s results with slight changes. It must include
valuable input from planning so that the budget becomes a powerful guiding tool.

When the budget addresses an enterprise’s goals and objectives clearly, it is bound to be successful.

The Budget Must be a Motivating Tool

The budget should motivate and inspire all the people in the enterprise to work toward attaining the
enterprise’s goals. Furthermore, the budget must encourage everyone to work together for the improvement
of the organization. The budget should not be viewed as a rigid plan, or as a device for top management to
use in assessing blame.

Most often, the budget is successful when managers and employees of an enterprise view the budget as an
essential tool to enhance their overall performance.

The Budget Must Have the Support of Management

The budget must undeniably have the support of management at all levels of the organization. The support
of both the top-level managers and the lower-level managers is crucial to garner the support of the
employees of the enterprise. Hence, to be successful, it is critical for the budget to have the support of
management at every level within the organization.

The Budget Must Convey a Sense of Ownership

To be successful, the budget must convey a sense of ownership to the people in the enterprise who are given
the responsibility of implementing the budget. At no stage during its implementation, the budget should
convey a sense of restriction or be overbearing on the people responsible for implementing it.

The budget should not be imposed on them. Rather, the people responsible for its implementation, must have
the necessary input into the budget’s development.

The Budget Should Be Flexible

A key factor in the success of a budget is whether it is flexible or not. Most successful budgets are flexible.
A flexible budget permits an enterprise in going ahead with plans that are strategically important to the
enterprise. However, a rigid budget becomes an excuse for not executing strategically important plans.

A flexible budget permits an enterprise to carry out essential unplanned and unforeseen large maintenance
works which benefit the enterprise. A rigid budget does not permit this, thus hurting the enterprise in the
long run.

The Budget Should be a Correct Representation

To be helpful, the budget should accurately represent what is anticipated to happen. An inaccurate budget
will not have the support of the managers and employees directly affected by it.

Furthermore, an inaccurate budget encourages managers of an enterprise to cleverly fabricate “budgetary

slack” into their budgets.

Budgetary slack is nothing but budgeting lower revenues and higher expenditure. This results in managers
being unfairly rewarded whenever they exceed their revenue targets or curtail their expenses.

Hence, to be successful, a budget should unquestionably be an accurate representation of what is actually

expected to occur.

The Budget Should Be Coordinated

The budget must be coordinated to smoothly operate within the different business units of an enterprise. For
example, the sales manager will strive to increase the sales of the enterprise. However, the credit manager
will be extremely keen in limiting bad debt write-offs.

Here, a prudent coordinated effort to set up credit standards that both of them can profitably support should
be integrated into the budgeting process.

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Planning Premises

A planning premise is a set of assumptions that are derived from forecasting the future. It is a logical and
systematic estimate of the future factors that can affect planning. Planning premises provide a background
against which the estimated events take place.

Classification of planning premises

Internal and External Premises

The premises which exist within the boundaries of the business are internal premises. Some of the internal
premises are men, money, material, and methods. Your planning would be based on how competent is your
workforce and how much money you have at your disposal.

External premises are derived from the environment that surrounds the business. They are centred around the
market like money market, product market, government policies, growth in population, etc.

Tangible and Intangible Premises

Any premise which can be quantitatively measured is a tangible premise. These premises can be quantified
in terms of time, money, and units of production.

On the other hand, intangible premises cannot be quantified. Some of the intangible premises are public
relations, business reputation, the morale of employees, etc.

Controllable, Semi-controllable, and Uncontrollable Premises

Those premises which can be controlled by the management to a large extent come under controllable
premises. Management has a lot of control over their future commitments when it comes to material,
machines, and money.

The business can partially control some premises or assumptions about the future. These fall under semi-
controllable premises. Few examples of such planning premises are trade union relations, product demand,
etc.

Those premises which cannot be controlled by the management of an organization come under
uncontrollable planning premises. Some examples are weather conditions, natural disasters, etc.

Constant and Variable Premises

These premises which do not change irrespective of actions taken are constant premises like men, money,
etc. These premises behave similarly under all circumstances.

Based on the course of action taken, some premises change which is termed as Variable premises. These
premises cannot be controlled or predicted, for example, the sales volume of a firm, union and management
relations, etc.

Steps in planning process

1] Recognizing Need for Action

An important part of the planning process is to be aware of the business opportunities in the firm’s external
environment as well as within the firm. Once such opportunities get recognized the managers can recognize
the actions that need to be taken to realize them. A realistic look must be taken at the prospect of these new
opportunities and SWOT analysis should be done.

Say for example the government plans on promoting cottage industries in semi-urban areas. A firm can look
to explore this opportunity.

2] Setting Objectives

This is the second and perhaps the most important step of the planning process. Here we establish the
objectives for the whole organization and also individual departments. Organizational objectives provide a
general direction, objectives of departments will be more planned and detailed.

Objectives can be long term and short term as well. They indicate the end result the company wishes to
achieve. So objectives will percolate down from the managers and will also guide and push the employees in
the correct direction.

3] Developing Premises

Planning is always done keeping the future in mind, however, the future is always uncertain. So in the
function of management certain assumptions will have to be made. These assumptions are the premises.
Such assumptions are made in the form of forecasts, existing plans, past policies, etc.

These planning premises are also of two types – internal and external. External assumptions deal with factors
such as political environment, social environment, the advancement of technology, competition, government
policies, etc. Internal assumptions deal with policies, availability of resources, quality of management, etc.

These assumptions being made should be uniform across the organization. All managers should be aware of
these premises and should agree with them.

4] Identifying Alternatives
The fourth step of the planning process is to identify the alternatives available to the managers. There is no
one way to achieve the objectives of the firm, there is a multitude of choices. All of these alternative courses
should be identified. There must be options available to the manager.

Maybe he chooses an innovative alternative hoping for more efficient results. If he does not want to
experiment he will stick to the more routine course of action. The problem with this step is not finding the
alternatives but narrowing them down to a reasonable amount of choices so all of them can be thoroughly
evaluated.

5] Examining Alternate Course of Action

The next step of the planning process is to evaluate and closely examine each of the alternative plans. Every
option will go through an examination where all their pros and cons will be weighed. The alternative plans
need to be evaluated in light of the organizational objectives.

For example, if it is a financial plan. Then it that case its risk-return evaluation will be done. Detailed
calculation and analysis are done to ensure that the plan is capable of achieving the objectives in the best and
most efficient manner possible.

6] Selecting the Alternative

Finally, we reach the decision making stage of the planning process. Now the best and most feasible plan
will be chosen to be implemented. The ideal plan is the most profitable one with the least amount of negative
consequences and is also adaptable to dynamic situations.

The choice is obviously based on scientific analysis and mathematical equations. But a manager’s intuition
and experience should also play a big part in this decision. Sometimes a few different aspects of different
plans are combined to come up with the one ideal plan.

7] Formulating Supporting Plan

Once you have chosen the plan to be implemented, managers will have to come up with one or more
supporting plans. These secondary plans help with the implementation of the main plan. For example, plans
to hire more people, train personnel, expand the office etc. are supporting plans for the main plan of
launching a new product. So all these secondary plans are in fact part of the main plan.

8] Implementation of the Plan

And finally, we come to the last step of the planning process, implementation of the plan. This is when all
the other functions of management come into play and the plan is put into action to achieve the objectives of
the organization. The tools required for such implementation involve the types of plans- procedures, policies,
budgets, rules, standards etc.

Essentials of Good Plan

1. It should be based on a clearly-defined objective.

2. It must be simple.

3. It should be rationale and appropriate.

4. It should be comprehensive.
5. It should provide for a proper analysis and classification of actions.

6. It must be flexible.

7. It must be balanced.

8. It must use all available resources and opportunities to the utmost before creating new authorities and new
resources.

9. It should be free from social and psychological biases of the planners as well as of subordinates.

10. There should be proper co-ordination among short-term and long-term plans.

Environmental analysis

Environmental analysis is the process of monitoring an organisational environment to identify both present
and future threats and opportunities that may influence the firm’s ability to reach its goals.

Environmental Analysis and Diagnosis # Process of Environmental Scanning:

As environmental change has a direct link to planning, it is essential that environmental scanning forms an
integral part of an organization’s strategic planning.

Albright (2004) suggests five fundamental steps in a formal environmental scanning process:

1. “Identify the environmental scanning needs of the organization.” Before launching the scanning process, a
few items must be determined – purpose of scanning, participants, and time and resources allocation.

2. “Gather the information.” Translate the needs of the organization into specific information and a list of
questions, select the information sources and collect the information.

3. “Analyse the information.” Information gathered should be analysed for trends and issues that may affect
the organization.

4. “Communicate the results.” Potential effects should be communicated to decision-makers in a concise

format and manner that fit their preference.

5. “Make informed decisions.” Based on the information provided, decision-makers can take corresponding
steps to equip the organization to be responsive to potential opportunities or threats.

SWOT Analysis

SWOT (strengths, weaknesses, opportunities, and threats) analysis is a framework used to evaluate a
company's competitive position and to develop strategic planning. SWOT analysis assesses internal and
external factors, as well as current and future potential.

A SWOT analysis is designed to facilitate a realistic, fact-based, data-driven look at the strengths and
weaknesses of an organization, initiatives, or within its industry. The organization needs to keep the analysis
accurate by avoiding pre-conceived beliefs or grey areas and instead focusing on real-life contexts.
Companies should use it as a guide and not necessarily as a prescription.

Strengths
Strengths describe what an organization excels at and what separates it from the competition: a strong brand,
loyal customer base, a strong balance sheet, unique technology, and so on. For example, a hedge fund may
have developed a proprietary trading strategy that returns market-beating results. It must then decide how to
use those results to attract new investors.

Weaknesses

Weaknesses stop an organization from performing at its optimum level. They are areas where the business
needs to improve to remain competitive: a weak brand, higher-than-average turnover, high levels of debt, an
inadequate supply chain, or lack of capital.

Opportunities

Opportunities refer to favourable external factors that could give an organization a competitive advantage.
For example, if a country cuts tariffs, a car manufacturer can export its cars into a new market, increasing
sales and market share.

Threats

Threats refer to factors that have the potential to harm an organization. For example, a drought is a threat to
a wheat-producing company, as it may destroy or reduce the crop yield. Other common threats include
things like rising costs for materials, increasing competition, tight labour supply. and so on.

Advantage: Problem Domain

SWOT analysis can be applied to an organization, organizational unit, individual or team. In addition, the
analysis can support a number of project objectives. For example, the SWOT method can be used to evaluate
a product or brand, an acquisition or partnership, or the outsourcing of a business function. In addition,
SWOT analysis can be beneficial in evaluating a particular supply source, a business process, a product
market or the implementation of a particular technology.

Advantage: Application Neutrality

SWOT analysis is conducted by specifying an objective and conducting a brainstorming session to identify
internal and external factors that are favourable and unfavourable to the objective's achievement. This
approach remains the same whether the analysis supports strategic planning, opportunity analysis,
competitive analysis, business development or product development processes.

Advantage: Multi-Level Analysis

You can gain valuable information about your objective's chances by viewing each of the four elements of
the SWOT analysis – strengths, weaknesses, opportunities and threats – independently or in combination.
For example, identified threats in the business environment, such as new government regulations regarding a
product design or the introduction of competing products, might alert the business owner that a proposed
investment in a new manufacturing production line should be more carefully evaluated.

In addition, an awareness of a company weakness such as a lack of qualified employees might suggest a
need to consider outsourcing particular functions. In turn, opportunities such as the availability of low-
interest loans for start-ups might encourage the entrepreneur to pursue the development of a new product to
meet a rising customer demand. In contrast, identified strengths, such as extensive experience in an industry
experiencing rapid international growth, might suggest the need to partner with foreign companies.
Advantage: Data Integration

SWOT analysis requires the combination of quantitative and qualitative information from a number of
sources. Access to a range of data from multiple sources improves enterprise-level planning and policy-
making, enhances decision-making, improves communication and helps to coordinate operations.

Advantage: Simplicity

SWOT analysis requires neither technical skills nor training. Instead, it can be performed by anyone with
knowledge about the business in question and the industry in which it operates. The process involves a
facilitated brainstorming session during which the four dimensions of the SWOT analysis are discussed. As
a result, individual participants’ beliefs and judgments are aggregated into collective judgments endorsed by
the group as a whole. In this way, the knowledge of each individual becomes the knowledge of the group.

Advantage: Cost

Because SWOT analysis requires neither technical skills nor training, a company can select a staff member
to conduct the analysis rather than hire an external consultant. In addition, SWOT is a somewhat simple
method that can be performed in a fairly short time.

Disadvantage: No Weighting Factors

SWOT analysis leads to four individual lists of strengths, weaknesses, opportunities and threats. However,
the tool provides no mechanism to rank the significance of one factor versus another within any list. As a
result, it's difficult to determine the amount of any one factor's true impact on the objective.

Disadvantage: Ambiguity

SWOT analysis creates a one-dimensional model which categorizes each problem attribute as a strength,
weakness, opportunity or threat. As a result, each attribute appears to have only one influence on the
problem being analysed. However, one factor might be both a strength and a weakness. For example,
locating a chain of stores on well-travelled streets that grant easy access to customers might be reflected in
increased sales. However, the costs of operating high-visibility facilities can make it difficult to compete on
price without a large sales volume.

Disadvantage: Subjective Analysis

To significantly impact company performance, business decisions must be based on reliable, relevant and
comparable data. However, SWOT data collection and analysis entail a subjective process that reflects the
bias of the individuals who collect the data and participate in the brainstorming session. In addition, the data
input to the SWOT analysis can become outdated fairly quickly.

TOWS Analysis

A TOWS Analysis is an extension of the SWOT Analysis framework that identifies your Strengths,
Weaknesses, Opportunities and Threats but then goes further in looking to match up the Strengths with
Opportunities and the Threats with Weaknesses. It’s a great next step after completing your SWOT and
allows for you to take action from the analysis.

Adding the relationship between the internal and external factors makes TOWS a much more useful matrix
than a standalone SWOT and an obvious next step.

The main purpose of a TOWS Analysis is to:

Reduce threats

Take advantage of opportunities

Exploit strengths

Remove weaknesses

A well thought out TOWS can not only provide you with detail of your SWOT, but also some data to make a
decision about your overall direction.

What is the difference between SWOT and TOWS?

The big difference between a TOWS and a SWOT is the relationships between the internal and external
factors, examining how they link up, impact and influence each other...

Strengths to Opportunities:

The S-O focuses around how you can exploit your strengths in order to respond to the potential opportunities
in the market.

Strengths to Threats:

The S-T examines how strengths can be used to mitigate or remove the threats to the business, and in some
cases look at how threats can be transformed to opportunities.

Weaknesses to Opportunities:

The W-O can be the hardest consideration, as it doesn’t always come naturally. Consider how your
opportunities can remove your weaknesses.

Weaknesses to Threats:

The W-T highlights how weaknesses can play into, develop or enhance the threats of the business.

What are the advantages of TOWS?

TOWS has a number of advantages:

It’s simple to understand and complete

It provides a good analysis of both internal and external issues

It focuses on the positive and negative

It leads to actions to improve your current position

What are some of the limitations of TOWS?

The limitations of TOWS are:

It can be too broad to be used to make decisions

It doesn’t contain a way to weight the importance or the element of risk

It takes longer to complete than other frameworks

You need a good knowledge of both internal and external issues to complete it
How do you make the most out of TOWS?

You may not have heard of TOWS before, whereas SWOT is likely to be something you’ve heard of a
number of times. TOWS is worth researching as the outcome is usually more helpful than a SWOT, which
on its own normally requires other frameworks to progress.

Before you start your TOWS:

Gather feedback from your customers

Talk to your employees and get their thoughts

Always be honest and factual in the TOWS – remember it’s an internal tool

What preparation should be done before a TOWS?

While no preparation is required for a TOWS beyond some knowledge of the internal and external
environment you operate in, it is helpful to have knowledge of:

Current customer relationships

Good & bad case studies of sales & service

Latest news in your industry

Any competitive activity

Any M&A in the market

Positive & negative employee feedback

BCG Matrix

The Boston Consulting Group Matrix (BCG Matrix), also referred to as the product portfolio matrix, is a
business planning tool used to evaluate the strategic position of a firm’s brand portfolio. The BCG Matrix is
one of the most popular portfolio analysis methods. It classifies a firm’s product and/or services into a two-
by-two matrix. Each quadrant is classified as low or high performance, depending on the relative market
share and market growth rate. Learn more about strategy in CFI’s Business Strategy Course.

Dogs (or Pets)

If a company’s product has a low market share and is at a low rate of growth, it is considered a “dog” and
should be sold, liquidated, or repositioned. Dogs, found in the lower right quadrant of the grid, don't generate
much cash for the company since they have low market share and little to no growth. Because of this, dogs
can turn out to be cash traps, tying up company funds for long periods of time. For this reason, they are
prime candidates for divestiture.

Cash Cows

Products that are in low-growth areas but for which the company has a relatively large market share are
considered “cash cows,” and the company should thus milk the cash cow for as long as it can. Cash cows,
seen in the lower left quadrant, are typically leading products in markets that are mature.
Generally, these products generate returns that are higher than the market's growth rate and sustain itself
from a cash flow perspective. These products should be taken advantage of for as long as possible. The value
of cash cows can be easily calculated since their cash flow patterns are highly predictable. In effect, low-
growth, high-share cash cows should be milked for cash to reinvest in high-growth, high-share “stars” with
high future potential.2

The matrix is not a predictive tool; it takes into account neither new, disruptive products entering the market
nor rapid shifts in consumer demand.

Stars

Products that are in high growth markets and that make up a sizable portion of that market are considered
“stars” and should be invested in more. In the upper left quadrant are stars, which generate high income but
also consume large amounts of company cash. If a star can remain a market leader, it eventually becomes a
cash cow when the market's overall growth rate declines.

Question Marks

Questionable opportunities are those in high growth rate markets but in which the company does not
maintain a large market share. Question marks are in the upper right portion of the grid. They typically grow
fast but consume large amounts of company resources. Products in this quadrant should be analysed
frequently and closely to see if they are worth maintaining

Benefits of the BCG-Matrix:

The BCG-Matrix is helpful for managers to evaluate balance in the companies’ current portfolio of Stars,
Cash Cows, Question Marks and Dogs.

BCG-Matrix is applicable to large companies that seek volume and experience effects.

The model is simple and easy to understand.

It provides a base for management to decide and prepare for future actions.

If a company is able to use the experience curve to its advantage, it should be able to manufacture and sell
new products at a price that is low enough to get early market share leadership. Once it becomes a star, it is
destined to be profitable.

Limitations of the BCG-Matrix:

It neglects the effects of synergies between business units.

High market share is not the only success factor.

Market growth is not the only indicator for attractiveness of a market.

Sometimes Dogs can earn even more cash as Cash Cows.

The problems of getting data on the market share and market growth.

There is no clear definition of what constitutes a “market”.

A high market share does not necessarily lead to profitability all the time.

The model uses only two dimensions – market share and growth rate. This may tempt management to
emphasize a particular product, or to divest prematurely.
A business with a low market share can be profitable too.

The model neglects small competitors that have fast growing market shares.

WOTS-UP

The annual examination for your Company is called the WOTS-UP analysis (or SWOT analysis). WOTS-
UP stands for Weaknesses, Opportunities, Threats and Strengths Underlying Planning. Strengths and
Weaknesses are items that are internal to the company, while Opportunities and Threats are external to the
company.

The WOTS-UP process requires a thorough internal assessment by your leadership team, as well as an
external assessment of your markets and competition.

From these internal and external assessments, you will be able to build a list of current Strengths,
Weaknesses, Opportunities and Threats, that will influence your business over the next 12 to 36 months.

Once you have made an honest and thorough assessment of these items, the team can build strategies that:

· Build on strengths

· Eliminate weaknesses

· Take advantage of opportunities

· Avoid threats

competitor analysis

A competitor analysis, also referred to as a competitive analysis, is the process of identifying competitors in
your industry and researching their different marketing strategies. You can use this information as a point of
comparison to identify your company’s strengths and weaknesses relative to each competitor.

You can do a competitor analysis at a high level, or you can dive into one specific aspect of your
competitors’ businesses. This article will focus on how to conduct a general competitive analysis, but you’ll
want to tailor this process to match the needs and goals of your business.

Why do a competitor analysis?

More often than not, small business owners find themselves juggling many tasks at once. Even amid a busy
schedule, though, it’s worth taking the time to do a competitor analysis. It can benefit your business by
helping you:

Identify your business’s strengths and weaknesses.

Understand your market.

Spot industry trends.

Set benchmarks for future growth.

Identify your business’s strengths and weaknesses

By studying how your competitors are perceived, you can draw conclusions about your own brand’s
strengths and weaknesses. Knowing your company’s strengths can inform your positioning in the market, or
the image of your product or service that you want members of your target audience to have in their minds.
It’s essential to clearly communicate to potential customers why your product or service is the best choice of
all those available.

Being aware of your company’s weaknesses is just as important in helping your business grow.
Understanding where you fall short of your customers’ expectations can help you identify areas where you
may want to invest time and resources.

You might learn that customers prefer your competitors’ customer service, for example. Study your
competition to find out what they’re doing right, and see what you can apply to your business.

Understand your market

While identifying competitors, you may find companies that you didn’t know about or that you didn’t
consider part of your competition before. Knowing who your competitors are is the first step to surpassing
them.

Conducting a thorough assessment of what your competitors offer may also help you identify areas where
your market is underserved. If you find gaps between what your competitors offer and what customers want,
you can make the first move and expand your own offerings to satisfy those unmet customer needs.

Spot industry trends

Studying the competition can also help you see which way the industry as a whole is moving. However, you
should never do something just because your competitors are doing it. Copying the competition without
really considering your own place in the market rarely, if ever, leads to success.

If you see your competitors doing something that you’re not, don’t rush to replicate their offering. Instead,
evaluate what your customers’ needs are and how you can create value for them. It’s often better to zag
when everyone else zigs.

Set benchmarks for future growth

When doing a competitor analysis, you should include companies that are both larger and smaller than your
own. Studying well-established businesses in your industry can give you a model of what success looks like
and a reference point against which to compare your future growth. On the other hand, researching new
entrants into your industry tells you what companies may threaten your market share in the future.

Decision making

Decision making is the process of making choices by identifying a decision, gathering information, and
assessing alternative resolutions.

Using a step-by-step decision-making process can help you make more deliberate, thoughtful decisions by
organizing relevant information and defining alternatives. This approach increases the chances that you will
choose the most satisfying alternative possible.

Characteristics of Decision Making

1. Mental and Intellectual Process

Decision making is a mental and intellectual process because whatever decisions are taken, they are based on
logical deliberations to make them more rational.
For which intelligence, knowledge, experience, educational level, and mental facilities are essential.

Similarly, in decision making, the voice of inner consciousness is also important, along with intellectual
logic.

2. It is a Process

Decision making is a process to find out the solution to any problem or for the achievement of a specific
result, problems are well analysed, during the course of decision making.

Facts are obtained and analysed and alternative solutions are developed and the best possible alternative is
selected and in the end, the decision is taken and implemented.

3. It is an Indicator of Commitment

This is an indicator of commitment because decision making ties up with the result of its decision.

The decision-maker has to bear the result of the decisions of one or the other form.

Not only that, but decision making is also the indicator of commitment because, for its implementations,
individual and collective efforts are required.

4. It is a Best Selected Alternative

Decision making is the best-selected Alternative.

The best alternative is selected, out of two or more possible alternatives, for solving any problem.

5. Decision-Making Might Be Positive or Negative

Decision making is positive or negative. The decision of implementing any plan to do some work is positive,
whereas the decision not to do any work or not to implement and plan is negative.

Hence, negative decisions are also as good decisions, as are positive decisions.

6. It is the Last Process

Decision making is the last stage of the planning process because the result of the work is derived from it.

This result is derived after detailed logical deliberations about various possible alternatives.

That is why, decision making which is the last process, is the conclusion of the intellectual analysis,
discussions, deliberations, comparative and analytic study of the alternatives.

7. Decision Making is a Pervasive Function

Decision making is a pervasive function because it is used in all business and non-business organizations, for
all managerial activities, all the levels of Management, and in all countries, etc.

Decision making, being a pervasive function, many scholars regard decision making and management as
synonymous.

8. Continuous and Dynamic Process

This is a continuous process because decisions are to be taken continuously in the business organizations, for
routine and Special Tasks.
Besides, it is a dynamic also, because the situations and circumstances of each decision are different than the
situations and circumferences of the preceding decisions.

9. It is a Measurement of Performance

Decision making is a measurement on the basis of which the success or failure and execution or non-
execution of the decisions taken by the managers depends.

Hence, the evolution of the efficiency of managers, etc. is possible by the measurement of decision making.

10. It is a Human and Social Process

Decision making is a human and social process also because all human factors are to be kept into
consideration, before the final selection of any particular alternative, in the decision-making process.

Similarly, it also includes the use of intuition and Justice.

11. It is an Art and Science, Both

Decision making is an art because decisions are taken for achieving certain pre-decided objectives, which is
possible only by using knowledge, talents, imagination, and foresightedness.

Besides, decision making is science also, since in decision making certain sequences are used in a particular
sequence.

Principles, causes, and outcomes of decision making have a relationship.

12. Other Characteristics

A new decision emerges from the decision making process.

Decision making is synonymous with Management.

Decision making is part of planning.

The forecast is part of decision making.

Decision making is different from the decision.

Thus, now you know the characteristics of decision making in an organization.

Importance of decision-making

1. Implementation of managerial function: Without decision-making different managerial function such as

planning, organizing, directing, controlling, staffing can’t be conducted. In other words, when an employee
does, s/he does the work through decision-making function. Therefore, we can say that decision is important
element to implement the managerial function.

2. Pervasiveness of decision-making: the decision is made in all managerial activities and in all functions of
the organization. It must be taken by all staff. Without decision-making any kinds of function are not
possible. So it is pervasive.

3. Evaluation of managerial performance: Decisions can evaluate managerial performance. When decision is
correct it is understood that the manager is qualified, able and efficient. When the decision is wrong, it is
understood that the manager is disqualified. So decision-making evaluates the managerial performance.
4. Helpful in planning and policies: Any policy or plan is established through decision making. Without
decision making, no plans and policies are performed. In the process of making plans, appropriate decisions
must be made from so many alternatives. Therefore, decision making is an important process which is
helpful in planning.

5. Selecting the best alternatives: Decision making is the process of selecting the best alternatives. It is
necessary in every organization because there are many alternatives. So decision makers evaluate various
advantages and disadvantages of every alternative and select the best alternative.

6. Successful; operation of business: Every individual, departments and organization make the decisions. In
this competitive world; organization can exist when the correct and appropriate decisions are made.
Therefore, correct decisions help in successful operation of business.

7 steps of the decision-making process

1. Identify the decision.

2. Gather relevant info.
3. Identify the alternatives.
4. Weigh the evidence.
5. Choose among the alternatives.
6. Take action.
7. Review your decision.

7 decision-making process steps

Though there are many slight variations of the decision-making framework floating around on the Internet,
in business textbooks, and in leadership presentations, professionals most commonly use these seven steps.

1. Identify the decision

To make a decision, you must first identify the problem you need to solve or the question you need to
answer. Clearly define your decision. If you misidentify the problem to solve, or if the problem you’ve
chosen is too broad, you’ll knock the decision train off the track before it even leaves the station.

If you need to achieve a specific goal from your decision, make it measurable and timely.

2. Gather relevant information

Once you have identified your decision, it’s time to gather the information relevant to that choice. Do an
internal assessment, seeing where your organization has succeeded and failed in areas related to your
decision. Also, seek information from external sources, including studies, market research, and, in some
cases, evaluation from paid consultants.

Keep in mind, you can become bogged down by too much information and that might only complicate the
process.

3. Identify the alternatives

With relevant information now at your fingertips, identify possible solutions to your problem. There is
usually more than one option to consider when trying to meet a goal. For example, if your company is trying
to gain more engagement on social media, your alternatives could include paid social advertisements, a
change in your organic social media strategy, or a combination of the two.
4. Weigh the evidence

Once you have identified multiple alternatives, weigh the evidence for or against said alternatives. See what
companies have done in the past to succeed in these areas, and take a good look at your organization’s own
wins and losses. Identify potential pitfalls for each of your alternatives, and weigh those against the possible
rewards.

5. Choose among alternatives

Here is the part of the decision-making process where you actually make the decision. Hopefully, you’ve
identified and clarified what decision needs to be made, gathered all relevant information, and developed and
considered the potential paths to take. You should be prepared to choose.

6. Take action

Once you’ve made your decision, act on it! Develop a plan to make your decision tangible and achievable.
Develop a project plan related to your decision, and then assign tasks to your team.

7. Review your decision

After a predetermined amount of time—which you defined in step one of the decision-making process—take
an honest look back at your decision. Did you solve the problem? Did you answer the question? Did you
meet your goals?

If so, take note of what worked for future reference. If not, learn from your mistakes as you begin the
decision-making process again.

committee

A committee is a gathering of people representing different functions or spheres of knowledge, who come
together to promote a common purpose or fulfil a common task or solve a problem, by interchanging of
views.

advantages of Committee Organization

In all types of social institutions whether business or non-business, committees are found to exist in different
areas and at different fields of the organization. The reasons for constituting such committees can be outlined
as follows:

1. Group Deliberation and Judgement

It is the general rule that “two heads are better than one “. Since the committees comprise of various people
with wide experience and diverse training, they can think the impact of the problems from various angles
and can find out appropriate solutions. Such decisions are bound to be more appropriate than individual
decisions.

2. Fear of Authority

If too much functional authority is delegated to a single person, there is always a fear that the authority may
be misused. Committees avoid undue concentration of authority in the hands of an individual or a few.

3. Representation of interested Group

A policy decision may affect the interests of different sections. The committees provide an opportunity to
represent their interest to the top management for consideration. This will facilitate the management to make
a balanced decision.

4. Coordination of Functions

They are highly useful in bringing co-ordination between different managerial functions.

5. Transmission of Information

Committees serve as a best medium to transmit information since they generally comprise of the
representatives of various sections. Misinterpretation is almost avoided.

6. Consolidation of Authority

Many special problems arising in individual departments cannot be solved by the departmental managers.
The committees, on the other hand, permits the management to consolidate authority which is spread over
several departments.

7. Motivation through Participation

Managerial decisions cannot be put into action without the co-operation of the operating personnel. Since the
committees provide an opportunity for them to participate in the decision-making, the management can gain
their confidence and co-operation.

8. Avoidance of Action

The committee system also helps the manager who wants to postpone or avoid action. By referring the
complicated matters to the committees, the managers can delay the action.

9. Educational Value

Participation in committee meetings provides a beautiful ground for development of young executives.
Through observation, exchange of information and cross examination, the young executives can broaden
their knowledge and sharpen their understanding.

Disadvantages of Committees

The committees also have their own defects. Considering the dangers involved in the use of committees, a
few authorities went to the extent of giving a sarcastic definition to the committee as “group of unfits
engaged by unwilling to do unnecessary”. In particular, the committees suffer from the following demerits

1. High Cost in Time and Money

Committees take a lot of time to take a decision. The prolonged sessions of the committee results in a high
expenditure. Generally speaking, committees are constituted only to avoid or postpone decisions. Hence,
delay in decision has become an inherent feature of committees.

2. Indecisive Action

In many cases, committees are unable to take any constructive decision because of the differences of
opinions among their members.

3. Compromising Attitude
In reality, many decisions taken by a committee are not the result of joint thinking and collective
judgements. But they are only compromises reached between the various members Hence, the decisions of
the committees are not real decisions in the strict sense.

4. Dominance of a Few

Collective thinking and group judgement are only in theory but not in practice. The decisions of the
committees are generally the decisions of the chairman or any strong dominant members.

5. Suppression of Ideas

Many smart members who can contribute new ideas, deliberately keep their mouth shut in order to avoid
hard feelings.

6. Splitting of Responsibilities

The greatest disadvantage of this system is the splitting of authority among the committee members. When
authority is split up, no one in particular can be held responsible for the outcome of the committee.

7. Political Decisions

Since the committee decisions are influenced by the dominant members, the decisions of the committee
cannot be taken as meritorious one with broader outlook