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FUNDAMENTALS OF MANAGEMENT

UNIT-2: PLANNING AND DECISION MAKING

PLANNING:

Planning is the process of deciding in advance what is to be done, who is to do it, how it is to be done
and when it is to be done. It is the process of determining a course of action, so as to achieve the
desired results. It helps to bridge the gap from where we are, to where we want to go. It makes it
possible for things to occur which would not otherwise happen. Planning is a higher order mental
process requiring the use of intellectual faculties, imagination, and foresight and sound judgment.

According to Koontz, O’Donnell, “planning involves selecting missions, objectives and the actions
to achieve them; it requires decision making that is choosing from among alternative future courses of
action.

FEATURES/NATURE/CHARACTERISTICS OF PLANNING:

1. Goal oriented: the main purpose of plan is always to determine the goal to be achieved and the
activities to be performed to achieve these goals.
2. Primacy (basic function) of planning: it means planning is the basic function of all other managerial
functions. It provides a base for other managerial functions like organizing, staffing, directing and
controlling. We can say that structure of all other functions depends on planning.
3. Forward looking: planning is never done for past but is done for the future to achieve certain
objective. Therefore, it is said that planning is thinking before doing.
4. Involving choice (alternative): planning can be when there are two or more alternatives and the
planner can make a choice for the best.
5. Continuous process: planning is an ongoing process, planning starts before performing the job 6.
Flexible: there must be flexibility in planning, because plans are always based on future, which is
uncertain. So flexibility will give a chance to make changes as per future requirements. 7. Efficiency of
operations: planning is made with the objective of raising efficiency of operations but it is not necessary
that efficiency will raised, if may or may not.
8. Planning is the fundamental premise of all management functions: as managerial operations in
organizing, staffing, leading, and controlling are designed to support the accomplishment of
enterprise objectives, planning logically precedes the execution of all other managerial functions.
9. Planning is closely linked to objectives: each plan specifies the objectives to be attained in the future
and the steps necessary to reach them. As Billy E. Goetz said, “plans forecast which actions
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will tend towards the ultimate objective…Managerial planning seeks to achieve a consistent,
coordinated structure of operations focused on desired ends.”
10. The effectiveness of planning is measured in terms of what it contributes to the objectives: a
plan is efficient if it, when put into action, brings about the achievement of the objectives with the
minimum of unsought consequences and with positive gains greater than the costs.
11. Planning is a pervasive function of management: planning is a function performed by all
managers, although the character and breadth of planning will vary with their authority and with
the nature of policies and plans outlined by their superiors.
12. Planning is a highly skilful intellectual activity: it involves active use of higher mental process like
thinking, innovation or creativity, etc.
13. Planning involves selection among the alternatives: it is a highly selective process in which all the
alternatives need to be listed and best alternatives are selected or decided.

IMPORTANCE OF PLANNING

1. Makes the objectives clear and specific: planning clearly specifies the objectives and the policies or
activities to be performed to achieve these objective in other words what is to be done and how it
is to be done are clarified in planning.
2. Plans facilitate decision-making: to achieve the objective predetermined under planning, business has
to take various decisions by considering the available resources.
3. Provides basis of control: under controlling actual performance is compared with the planed
performance (target/objective). So planning is the base of controlling process.
4. Leads to economy and efficiency: planning clarifies the work and its method of doing. Resultantly it
reduces confusion and wastage of resources in the form of thinking at the time of doing. So
efficiency of the worker will risen which will further result economy in production.
5. Facilitates integration: under planning proper directions as per plane are provided to the subordinates.
Resultantly they all make effort towards the achievement of preplanned objective. 6. Encourages
innovation and creativity: planning is the process of thinking in advance and so plans are made to
achieve a target at future date by using latest methods and technology to perform the industrial/business
activities and so plans lead to innovation.
7. Improves motivation: the effective planning system ensures participation of all managers, which
improves their motivation. It improves the motivation of workers also.
8. Improves competitive strength: effective planning gives a competitive edge to the enterprise over
 other enterprises that do not have planning or have ineffective planning.
9. Achieves better coordination: planning secures unity of direction towards the organisational
objectives. All the activities are directed towards the common goals.

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KINDS/TYPES OF PLANS:

The term plan refers to a course of action determined in advance by the management. It has always a
time frame in other words it is a package of decisions to make efforts to achieve some results in a
specified term of period.

1. Goals (Target): goal is a desired state of affairs, which an organisation wants to achieve. Overall goals
are the collective ends for which the whole organisation makes efforts to achieve. Goals may be of
short term or long term in nature. E.g. goal of an automobile company may be to provide low cost
and higher quality of automobiles to the public.
2. Objectives: objective is the ends towards which activity is aimed. In other words it is desired and end
result of an activity. There must be a time frame for the achievement of predetermines objectives.
Objectives may differ from one organisation to another. E.g. business organisation will have an
objective of earning more profits where as co-operative society has an objective of well fare of its
members more-over objectives may change from time to time. An organisation may have single
objective or multiple objectives.
3. Policies: policies are general statements, which guide the thinking in decision making. These are
concerned with administrative action and serve a principle for conduct. These are predetermining
decisions these helps the managers in achieving the objectives. E.g. policy of hiring a trained
engineer or to promote from within the staff. By way of training, policy of setting competitive
prices, policy of quick after sale service with in three months from the date of sale. In other words
these guidelines (policies) helps the management for taking decision in proper direction to achieve
the objective. Policy increase in taking decisions but within limits and so the decision depends on
the authority given in the policy.
4. Procedures: the procedure is defined as pre-determined sequence of steps to initiate action and
complete the task. E.g. export and import procedure, admission procedure in a school 5. Rules: rules are
specific directions to perform an action or not to perform an action these are the directives to the people
in organisation, finding them to do or not to do, to behave or not to behave in a particular way. Rules are
always in the form of order’s or directions and not in the form of request. Rules are a set of instructions to
be followed in a particular way.
6. Methods: a method is a prescribed process in which a particular task is performed. Its specifies any
best and efficient way of performing the task: - e.g. methods of valuation of stock-cost or market
price, which is less, is consider in final accounts. Moreover there are several methods like method
 of calculating depreciation. Which method will be the basis of nature of business and once
selected the method becomes a prescribed manner of performing a job.
7. Programme: programme refers to the outline of plans of work to be carried out in proper sequence. Do
that the objectives can be achieved. E.g. management want to expand the size of

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business by 70% so to implement this programme management must lay down certain policies,
procedures, methods, rules etc. so that with the co-ordination of these we may become successful
to implement this programme. A primary programme may call for any supporting programme in
above.
8. Budget: budget is a statement of exceptive result expressed in numerical term. Budget is a single use
plan and can be expressed in respect of finance, material time, etc. so budget is a finance and/or
quantitative statement prepare and approved prior to a specified period. Budget always pertains to
future it is prepared in advance and expressed in qualitative financial terms.

LEVELS OF PLANNING

In management theory, it is usual to consider that there are three basic levels of planning,

1. Strategic planning /Top level planning: top level planning is done by the top management, i.e., board
of directors or governing body. It encompasses the long-range objectives and policies or
organization and is concerned with corporate results rather than sectional objectives.
2. Tactical planning: it is done by middle level managers or departmental heads. It is concerned with
‘how’ of planning. It deals with development of resources to the best advantage. 3. Operational or
activity planning: it is the concern of departmental managers and supervisors. It is confined to putting
into effect the tactical or departmental plans. It is usually for a short-term and may be revised quite often
to be in tune with the tactical planning.

STEPS/STAGES OF PLANNING

Planning is a process consisting many steps, which may differ from one plan to another. But
following are the common steps: -

1. Identify the opportunity

2. Define the goals
3. Consider the planning premises
4. Identify alternatives
5. Evaluate the alternatives
6. Choose the best alternative
 7. Formulate and communicate supporting plans
8. Make budgets

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FEATURES OF GOOD PLAN/POLICY/PROCEDURE

1. These should be purposeful and functional.

2. These should be simple and clear.
3. These should be flexible.
4. These should really serve as guidelines to reach the objective.
5. These should be economic (maximum use at minimum cost).
6. These should be in written form to avoid confusion.
7. These should be a periodic review and corrective measures to be taken.
8. These should be understandable.

LIMITATIONS OF PLANNING:

Planning is an important function of management. However, he planning may fail if the following
limitations.

1. Lack of accuracy: planning relates to future and future is always uncertain and so prediction about
future is so much difficult. Moreover planning are based on data/information relating to past and
as such planning based on any wrong information may not be useful to the organisation.
2. Costs: formulation of plans involves too much cost which are in the form of time spend, money spent
etc. but some times there is little benefit from in plan and than it becomes a burden for the
institution. If the plan is not useful than the amount or time spent on its formulation is a waste.
3. Advance effect on decisions: some plans are rigid and a manager faces difficulty while making any
changes where as there may be continuous change in environment where as the quick decision is
required as per the changed environment.
4. Delay in actions: planning requires some time for thinking, analyzing the situation and designing the
final plan and so in case emergency decision is required it will take time and business will lose its
opportunity. Moreover delay in decision will further delay the action.
5. Psychological barrier: people in organisation have to work strictly according to plan where as they
may be able to give better performance in a way decided by themselves. Secondly they do not
think beside the plan and performs their activities like a machine without using their psychology.
6. Limited flexibility: there may be some changes in planning only up to some extent because measure
changes in plan will further attract the changes in supporting plans also and as such the whole
system is disturbed moreover changes in plans time and again will prove a wastage of time and
money spent on previous plan (pre-changed plan).

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BUSINESS STRATEGY AND ITS DEVELOPMENT

Business Strategy refers to what the organization wants to follow to achieve its vision and mission.

Vision refers to what an organization want to become and achieve at some point of time in future.

Mission: vision when translated into the written form becomes mission.

STEPS IN DEVELOPMENT OF BUSINESS STRATEGY

1. Develop the tactics that will enable the company to reach the given objectives.
2. Define the milestones to be achieved from time-to-time.
3. Formulate goals, objectives, plans, policies, programmes, schedules and procedures to translate the
vision and mission into action
4. Evaluate and review the strategy from time to time in line with the changes in the internal and
external environment.

CONTEMPORARY BUSINESS STRATEGIES

The modern organizations pursue one or more of the following strategies of cost leadership,
differentiation and focus.

A. Cost leadership means Manufacturing/marketing a good or service at a lower cost than the
competitors. Offering products and services at discounts and lower prices every day is an example
of cost leadership.
B. Differentiation refers to designing a product or service that is perceived as unique by the customer
throughout the industry.
C. Focus means addressing a narrow or niche segment which is not addressed so far. In other words,
take up that path which is less or least travelled so that you become the fore runner or pioneer in
that market.

MANAGEMENT BY OBJECTIVES (MBO)

Where superiors and subordinates jointly identify the goals of the Organisation
Harold Koontz & Heinz Weihrich “ MBO is a comprehensive managerial system that integrates many
key managerial activities in a systematic manner and that is consciously directed towards the effective
and efficient achievement of Organisation and individual Objectives.”

Features:

1. It is a process of setting objectives at different levels including the corporate world

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2. It is a philosophy that focuses on excellence in organizations. Even though it is widely used in

the corporate world, it can also be used in non profit organizations such as educational
institutions, charitable trusts etc.
3. It defines major areas of responsibility for each employee and also the result expected of
his(her)
4. MBO Focuses attention on what must be accomplished (goals) rather than how it is to be
accomplished (methods).

Steps in MBO Process

1) Goal setting
2) Let objectives emerge after interaction
3) Laying down objectives
4) Identifying key result areas(KRA)
5) Synchronise sub goals and corporate objectives
6) Clarify roles in an organization
7) Joint review of progress
8) Documentation of progress at every stage

Benefits of MBO

1. Better Planning
2. Superior subordinate relationships reinforced
3. Motivational Force.
4. Facilitates control.
5. Better Morale
6. objective Appraisal
7. Clearer Goals.
8. Review of objectives
Weakness of MBO

1. Failure to teach the philosophy of MBO

2. Failure to give guidelines to goal setters
3. Difficulty of setting goals
4. Emphasis on short run goals

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MBO Limitations:

1. In adequate commitment from top management

2. Goal setters not given any orientation
3. Setting goals is a complex process
4. Emphasis on short-term goals
5. Problems of status and authority
6. Limited time horizon

Improving the effectiveness of MBO:

1. Organizational Commitment
2. Training
3. Adequate time & Resource.
4. Timely feedback.

DECISION MAKING

It is the process of choosing a course of action from available alternatives

Def . Haynes & Massie “Decision making is a process of selection from a set of alternative courses of
action which is thought to fulfills the objective of the decision – problem more satisfactorily than others.”
Characteristics of decision-making:

1. It is a process of choosing a course of action from among the alternative courses of action. 2. It is a
human process involving to a great extent the application of intellectual abilities. 3. It is always related to
the environment. A manager may take one decision in a particular set of circumstances and another in a
different set of circumstances.
4. It involves a time dimension and a time lag.
5. It always has a purpose. Keeping this in view, there may just be a decision not to decide. 6. It involves
all actions like defining the problem and probing and analyzing the various alternatives, which take place
before a final choice is made.
Rationality, the essence of decision making

Decision theory concerns itself with rational decision making. Decisions are said to be rational if the
manager concerned

1. Knows about the alternatives

2. Understands the consequences of each of the alternatives
3. Ordered preferences by which consequences can be evaluated and rules by which a particular
alternative is selected.
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Pre-requisites fro decision making

Decision making is a complex task. It is an art by itself. However, it has some pre-requisities. A
manager can take proper and appropriate decisions if empowered with the following,

1. Appropriate authority
2. Suitable decision support system
3. Organizational policies and procedures
4. Trained employees
5. Conducive organizational climate for decision making
6. Standard operating procedures

Types of Managerial Decisions

1. Organizational and Personal Decisions

2. Routine and Strategic Decisions
3. Programmed and Non programmed Decision
4. Policy and Operating Decision
5. Individual and Group decision

Classification of Decisions

1. Programmed Decisions
2. Non programmed Decisions

Programmed Decisions:

✔ A decision that is repetitive and routine

 ✔ A definite method for its solution can be established & Procedures are often already laid out

✔ Examples: pricing standard customer orders, determining billing dates, recording office
supplies etc.

Non programmed Decisions:

✔ A decision that is novel (new or unique) or Ill structured

✔ No established methods exist, because it has never occurred before or because
✔ Are “tough” decisions that involve risk and uncertainty and
✔ Such decisions draw heavily on the analytical abilities of the manager
✔ Examples: Moving into a new market, investing in a new unproven technology, changing
strategic direction

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Characteristics Programmed decisions Non-programmed decisions

Type of problem Structured Unstructured

Managerial level Lower level Upper level

Frequency Repetitive New, unusual

Information Readily available Ambiguous or incomplete

Time frame for solution Short Relatively long

Solution relies on Procedures, rules, and policies Judgment and creativity

CLASSIFICATIONS OF DECISIONS BASED ON MANAGERIAL LEVEL

Decisions can be classified based on the managerial level into

Strategic decisions: these are made at the top level management to address critical issues that
confront the survival and success of the organization.

Tactical decisions: these are made at the middle level management to translate the strategic decisions
into action. They are relatively short and easy to understand than strategic decisions.

Operational decisions: these are taken by the bottom level managers.

INDIVIDUAL & GROUP DECISIONS

Individual decisions: these decisions are those which are taken by individuals in the managerial
cadre right from CEO to the first line supervisors.
 Group decisions: these are made by more than one manager. It is very likely that organizations
believe in collective wisdom and hence the CEOs appoint a committee to take decisions on product
related decisions which call for designing, manufacturing and marketing.

PROCESS/STEPS IN DECISION MAKING

1. Identification of decision problem

2. Diagnosis and definition of the decision problem
3. Specification of objectives
4. Collection of relevant information
5. Search for alternative course of action
6. Evaluation of alternative courses of action
7. Making the final choice
8. Implementation of the decision

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Techniques of Decision-Making

1. Linear programming
2. Probability decision theory
3. Decision tree
4. Game theory
5. Queuing theory
6. Simulation
7. PERT- Programme Evaluation Review techniques
8. CPM- Critical Path Method
9. Creative Techniques such as brain storming
10. Heuristic techniques: it refers to a framework used to make decision quickly and

easily Factors involved in Decision Making

1. Tangible Factors - things which can be measured, Fixed cost, operating cost, profits etc 2.
Intangible factors – Un measurable elements. Eg. Employee morale, quality of labour relations,
Consumer behavior, etc. – Personal values & organisation Culture, Group decision making, Creative
and innovation

Problems of Decision Making

 1. Indecisiveness
2. Time pressure
3. Lack of Information
4. confusing symptoms with causes
5. Failure to evaluate correctly
6. Lack of follow through

Factors influence the quality of Decisions

1) Experience
2) Age
3) Social and economic status
4) Prices level
5) The belief in personal relevance
6) Present decisions
7) Regret, dishonor, rejection, feelings of disappointment or dissatisfaction with a choice made

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Key to success in Decision Making

1. Be problem oriented not just solution oriented

2. Set decision making goals
3. Always check the accuracy of the information
4. Don’t be afraid to develop innovative alternatives
5. Be flexible
6. Gain commitment for decision at an early stage
7. Evaluate and follow up the decision

Advantages and disadvantages of group decision making:

1. A group has more information 1.) Groups are notorious time-wasters

2. A group can generate a greater number 2). Groups are create pressures
of alternatives. Forward conformity.

3. People understand the decision better. 3). It may be very costly to secure
participation from several individuals in the decision making process

Group problem solving

Many key problems are solved in groups or teams in organization. Group problem solving is generally
more fruitful than individual effort. One should be aware of problems that arise out of business or social
situations and develop the ability to generate a wide variety of potential solutions to a given problem.

Steps in group problem solving

1) Identify the underlying problem

2) Clarify the issues to be addressed.
3) Analyze the cause of the problem
4) Search for alternative solutions to overcome the cause
5) Identify best alternative
6) Plan for implementation considering the actions are necessary to carry out chosen solution to the
problem
7) Define the parameters for evaluation
8) Hold meetings with the team from time to time to discuss progress and hold people accountable for
results that have not been achieved.

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Methods of group problem solving

1) Brainstorming
2) Electronic Brainstorming
3) Nominal group technique
4) Stand up meetings
5) groupware

BRAINSTORMING: Under this, a group is assembled, presented with the problem & encouraged to
produce as many ideas & solutions as they can, the discussion is free, Criticism is prohibited, the greater
the chance of an outstanding solution.

CREATIVITY AND INNOVATION IN MANAGERIAL WORK.

Creativity refers to the ability to produce work in a novel, original and unexpected way in an
appropriately useful manner

Innovation is a process of generation, acceptance, developing and implementing a new idea, process,
product or service

The focus of creativity is primarily at the individual level whereas innovation operates much more at the
team/group and organizational level.
Tools for creativity

1) Attribute listing: here the major attributes of a product are listed and the task is to modify each of
these tasks.
2) Brainstorming: a group of six members is invited to generate ideas to solve a given problem
within a short span of time
3) Lateral thinking: a way of solving a problem by thinking about it in a different and original way
and not using traditional or expected methods
4) Synectics: it is a process of making the familiar strange so as to gain new insights using non
rational approaches.

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