PLANNING

AND
DECISION
MAKING
CHAPTER 8

What is Planning?
Planning is the first function of management.
Planning in Laymans language, is thinking and
looking ahead.
Professor James Stoner defines planning as the
process of establishing objectives and appropriate
courses of action before taking action.
Planning is preparing now for tomorrow.
Planning exist in all levels of the business
organization.

Types of Planning
1. Strategic Plan
Is focused on the entire business operations.
It involves 3 levels of management: TOP
management formulates the corporate objectives
while the lower levels of management develop
relevant objectives and plans on how to attain
them.
Prepares the business enterprise for its operations
in the future.
Strategic planning also implements the corporate
mission.

2. Tactical Plan
A series of tactical plans constitute a strategic
plan.
Division managers are involved in tactical
planning which is shorter in time frames- usually
one year or less. They also plan WHAT to do, HOW
to do and WHO will do it.
3. Operating Plan
Provides the specifics as to how the strategic plan
will be attained.
This plan type is used by managers to accomplish
their job responsibilities.
There are 3 types of Operating Plans, namely:

a. Single-use plan
. Applicable for activities that do not repeat. Once
the activity is finished, the plan is no longer
needed.
Examples:
1. Program which is a set of activities towards an
objective, like a special program for children.
2. Budget which provides funds in indicating their
sources and their corresponding expenditures
such a budget for additional teachers.
b. Ongoing plan
. This is used for continuing situations, problems,
and activities which are similar and consistent.
Examples:

1. Policy which is a guideline for making decision.

2. Procedure, which are step by step instructions for
performing an activity or task.
3. Rule, which is a specific plan for controlling human
behavior at work.
PRINCIPLES OF PLANNING
. Business planning is not only to promote the interest
of stockholders and customers, but also to look after
the welfare of the community. The following are the
principles of planning:
1. Planning be REALISTIC.
- Objectives must be supported by available resources
like manpower, money, material, machines and others.
Otherwise, planning is just like a wish or dream.

2. Planning must be based on FELT NEEDS.

- If it is the felt needs of employees, customers, suppliers
and the community, then they must be pursued. If not,
then the objective is not acceptable because it does not
benefit them.
3. Planning must be FLEXIBLE.
- Internal and external environments of the organization
change. Change is constant and inevitable. Therefore,
planning must be adjustable and adaptive to the
changing conditions and resources.
4. Planning must be DEMOCRATIC.
- Those who are responsible in the implementation of the
plan must be involved in the planning process.
5. Planning must start with SIMPLE PROJECTS.
- This applies to the organizations with limited resources
and experiences in their field of operations.

6. Planning must include SOCIAL RESPONSIBILTY.

- It is not bad to maximize the profits of stockholders, but
such corporate goal must be in harmony with the
interest of the employee, customers and the
community.
PLANNING CONCEPT
Where do we want to go?
(objectives/goals/aims)

Strategies

Where we are now?

How do reach our
(present situation/existing resources)
objectives?

Basic Steps in Planning

1. Establish objectives.
-. These are the targets set by the organization.
2. Evaluate the environment.
-. This refers to the existing condition within and
outside the organization.
3. Determine the best alternative strategy.
-. These are the courses of actions used to attain the
objectives of an organization.
4. Implement the action plan.
- The best alternative action is the best solution if it
has the most advantage.

5. Evaluation of results.
- This is the last in planning. Results are evaluated
in order to control or modify them If necessary.
EFFECTIVE PLANNING
Planning is effective if it produces the desired
results. What then are the secrets to successful
planning? First apply the principles of planning,
then second identify and remove the possible
barriers to successful planning. Some of the
planning barriers are:
1. Incompetence in planning.
-. Planning requires analytical and conceptual
abilities.
2. Lack of dedication.
- To make a plan requires hardwork.

3. Incompetence and inaccurate information.

- Complete and accurate information is a vital input
in planning.
4. Short-sightedness.
- When planning is focused only on short-term
problems, it fails to consider the needs of the
future.
5. Dependence on the planning department.
- A planning department conducts research and
builds planning models. But they do not
implement the plans because implementation is in
the line managers job.

Planning Tools
Knowing and undertanding future events and their on
business are essential in planning.
The ability to forecast accurately serves as eyes and ears
to the future.
It is evident that a good forecast is based on correct and
complete information.
Planning Tools are instruments that help guide
organizational action steps related to implementation of
an initiative, program, or intervention. They may provide
detailed descriptions about the county implementation
plan and how it was developed.

Types of Planning Tools

1. Quantitative Planning Tools
-. Numerical data in which sufficient information is
available to determine the relationships between
variables is used.
Examples of quantitative plannng tools are:
a. PERT
-. Stands for Program Evaluation and Review Technique.
It is used to schedule and control projects whose
completion cannot be precisely determined.
b. CPM
- Means Critical Path Method. It is used to schedule
projects whose completion can be precisely predicted.

c. Break-even analysis compares total revenue (TR)

with total cost (TC). TR= price x quantity while TC=
fixed cost+variable cost.
d. Extrapolation
- Is the extension of some benchmark data to some
desired period in order to obtain data which are
not available.
2. Qualitative Planning Tools
- These are based on expert judgements, opinions
or experiences and do not use numbers like
arithmetic or mathematics.
Examples are:
a. Delphi Technique
- Forecasts are performed by consultants, experts or

b. Brainstorming
- Is a group effort in solving problem.
c. Quality circle
- Is a cooperative effort of employees and a supervisor.
d. Management by objective (MBO)
- Is a one on one approach which requires face-to-face
meetings between managers and subordinates.
Characteristics of a Sound Business Plan:
- Objective
- Clear
- Logical
- Simple
- Flexible

- Stable
- Complete
- Integrated
Data For a Business Plan
Data from a prospective business can be obtained
from research surveys, government agencies,
accountants, bankers and lawyers. Here are some
questions for getting the necessary data:
1. What is unique about my product or service?
2. Who are my competitors?
3. How will my customers buy?
4. What is my share in the market?
5. What is the market potential?

6. Who are my customers and where are they

located?
7. Where will I put up my business?
8. How big should my plant be or where should my
place of business be?
9. What equipment will I need and what size?
10. How will I create customers?
11. What personnel do I need?
12. How will I recognize my enterprise?
13. How much capital do I need?
14. What kind of records do I need?
15. How profitable will the business be?
16. How financially healthy will I be?
17. What is my break-even point?

Outline of a Business Plan

Cover sheet: Name of business, name of
principals, address and phone number
Business goals
Strategies
Table of contents

Sample Outline Guides

Section Two: Financial Data

A.
B.
C.
D.
E.
1.
2.
3.

Sources and applications of funding

Capital equipment list
Balance sheet
Break-even analysis
Income projections (Profit and Loss Statements)
Five year summary
Details by month for first year
Details by quarter for second, third, fourth and
fifth years.
4. Notes of explanation.

Section One: The Business

A.
B.
C.
D.
E.
F.
G.
H.
I.

Description of the business.

Product/services
Market
Location of the business
Competition
Management
Personnel
Application and expected effect of loan
Summary

F. Cash Flow Projection

1. Details by month for first year.
2. Details by quarter for second, third, fourth and
fifth years.
3. Notes of explanation.
G. Deviation Analysis
H. Historical Financial Reports for existing business.
4. Balance sheet for the past five years.
5. Income statement for the past five years.
6. Tax returns.

Steps in Business Planning

1. Evaluate your personal resources and interests,
and the resources of the community.
-. Do you have the necessary funds?
-. Do you have the skills or management
experience?
-. Does the government provide financial and
technical assistance?
-. Are raw materials available?
-. Are you interested in such business?
-. Do you have good human relationships?

Section Three: Supporting

Documents
These consists of personal resumes, personal
balance sheets, cost of living budget, credit cards,
letter of reference, job descriptions, letter of
intents, copies of leases, contacts, legal
documents and anything else relevant to the
plans.

2. Analyze your market.

- Is there a good demand for your product or
service?
- How many competitors are there in the market?
- What is your estimated share in the market?
- Who are your customers?
- Are they interested in the existing product or
service?
- Is it possible for you to offer a better quality or a
lower price?
- Is there a reasonable profit?

3. Choose a proper business location.

- Is it near your prospective customers?
- Are there facilities like electricity, water,
transportation and communication?
- Is the place clean, decent and peaceful?
- Do you have good alternatives in case the best
location is expensive?
- Is it accessible to raw materials and supplies?

4. Prepare a financial plan.

- What are your objectives?
- How much money do you need?
- How will you spend the money?
- What are your expenses?
- How soon can you recover your money or
investment?
5. Prepare a production plan.
- Is it more economical to rent or buy production
equipment?
- Can you ensure or improve your product design or
quality?
- Can your production facilities meet demand?
- Do you have inventory control?
-

6. Prepare an organizational plan.

- What type of business organization is most suitable?
- Do you know the corresponding laws, policies and
requirements for your business organization?
- Are you aware of the advantages and disadvantages
of each type of business organization?
- Who will be the officers and employees of your
enterprise? What are their duties and responsibilities?
7. Prepare a management plan.
- What are your goals and objectives?
- What are your strategies?
- Do you have business policies for your customers?
- Do you have human resources development for your
employees?
- What is your program of social responsibility?

The Importance of Business

Planning
Planning can eliminate business risks.
Planning can minimize cost of production.
Planning can detect the weakness of the business
operations.
Successful planning is highly dependent on
adequate and accurate information. This is much
needed in knowing the needs of consumers, and
the strengths and weakness of competitors.

Decision Making
Good or bad results of their decisions are the
products of how they made the decisions.
There are people who are paid to make decisions.
These are the managers especially the top ones.
Managers have to follow logical or systematic
steps in making decisions.
In decision making, decision makers must be
careful and rational in order to avoid very
expensive mistakes.

Steps in Decision Making

Decision making is a process of choosing intelligently
from among alternatives. This rational process involves
seven steps:
1. Define the problem.
-. The root cause of the problem must be identified.
2. Gather data about the problem.
-. Research for the real cause or causes of the problem.
3. Organize and analyze the data.
- Through this, the real cause or causes of the problem
can be made clear and specific.

4. Develop alternative solutions.

- There are several possible alternative solutions
that will prevent the managers form solving their
problems too quickly or prematurely.
5. Analyze the alternatives.
- The alternative must be implementable and
effective in solving the problem.
6. Select the best alternative.
a. Presence of risk
b. Economy of effort

c. Time factor
d. Availability of resources
7. Implement and monitor decision.
- Resources and schedules have to be mobilized to
support the decision.
- Adjustments and corrections have to be made in
the process of implementation to eliminate or
minimize the negative effects of decision.

Summary:
1. Top management is inlvoved in long range
planning and covers corporate mission,
objectives and major policies and strategies.
2. Types of plans are: strategic, tactical and
operating. There are 2 types of operating plan,
single use plan and the ongoing plan.
3. Some principles of planning are: planning must
be realistic, must be based on felt needs, it must
be flexible, it must be demoratic, it must start
with simple projects, and it must include social
responsibility.
4. Basic steps in planning are: establish the
objectives, evalutae the environment, determine
the best alternative strategy, implement the
action plan and evaluate the results.

5. The planning barriers are: incompetence in planning,

lack of dedication, incomplete and inaccurate
information, short sightedness and dependence on the
planning department.
6. The types of planning tools are: quantitative palnning
tools which include PERT-CPM and break-even analysis
and extrapolation; and the qualitative planning tools
whicj include the Delphi technique, brainstorming,
quality circle and management by objective.
7. A sound business plan should be objective, clear,
logical, simple, flexible, stable, complete and integrated.
8. Steps in business planning are: 1. evaluate personal
resources and interests, and the resources of the
community; 2. analyze the market; 3. choose proper
business location; 4. prepare a financial plan; 5. prepare
a production plan; 6. prepare an organizational plan; and
7. prepare a management plan.

9. Business planning is important for the following

reasons: eliminates risks, minimizes production
cost, and detects the weak points of the business
operations.
10. Management cannot avoid making decisions. It
is part of its existence. For managers to make good
decisions, they have to follow the steps in decision
making: 1. define the problem; 2. gather data
relevant to the problem; 3. organize and analyze
the data; 4. develop alternative solutions; 5.analyze
the alternatives; 6. choose the best alternative; 7.
implement and monitor the decision.