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Management and

Entrepreneurship
Subject Code:06AL51

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Chapter – 2
PLANNING
“Successful managers deal with
foreseen problems and unsuccessful
managers struggle with unforeseen
problems”….Terry

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SYSTEM APPROACH TO MANAGEMENT EXTERNAL
ENVIRONMENT Inputs
Goal inputs of claimants 1.Human
5. Managerial Knowledge, 2.Capital
1. Employees Goals of claimants and
Governments
6. 3.Managerial
2. Consumers use of inputs(Part1 The 4.Technologica
Community
3. Suppliers 7. Other Basis of Management l
4. Stock Theory and Science)
holders

PLANNING (Part
2) Facilitated by
communicatio

ENVIRONMENT
Organizing (Part n that also

EXTERNAL
3)
ENVIRONMENT

link the
EXTERNAL

organization
Reenergizin with the
g the Staffing (Part 4)
external
system environment
(Part 1 & 7.
Leading (Part 5) Domestic and
internal
environment)
Controlling (Part
6)

To produce outputs

EXTERNAL
ENVIRONMENT
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Agenda
• Nature of planning
• Importance & Purpose of Planning
• Objectives
• Types of Plans
• Decision Making
• Steps in Planning
• Planning premises
• Hierarchy of plans

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Objectives
• To provide the students with an overview of
planning process in organizations.
• To give a snapshot of various plans that are
generally put to use in organizations.
• To provide an insight into the decision making
process and the various types of decisions.
• To enable students understand the decision making
process under states of certainty, risk and
uncertainty.

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What is Planning?
• Deciding in advance what to do, how to do it ,
when to do it and who to do it.
• A forecast for accomplishment.
• Predetermined course of action.
• To produce a scheme for future action and to bring
about specified results at a specified cost in a
specified period of time.

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Definition
• Defined in to directions by management thinkers.
– Based on futurity
– As an intellectual function
• Based on futurity:
– “Planning is a trap laid down to capture the future” (Allen)
– “Deciding in advance what is to be done in future” (Koontz)
– “Informed anticipation of future”( Haimann)
– Anticipatory decision making” (R L Ackoff)

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Definition
• As an intelligence function:
– “Planning is a thinking process, an organized foresight,
a vision based on fact and experience that is required
for intelligent action”( Alford & Beatty)
– “Deciding in advance what to do, how to do it, when to
do it and who is to do it” ( Koontz & O’ Donnell)
Planning focuses on future and it involves all the
activities that determine objectives for the future and the
appropriate means for achieving those
objectives. Outcome of planning is a plan, which is a
document that specifies the course of action the 8
organization will take.
Nature of Planning
• Provides basic foundation from which all future
management functions arise.
• Goal oriented
• All pervasive
• Intellectual exercise
• Continuous process
• Futuristic
• Integrated Process
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Planning- A bridge

Planning Where we want to


Where we are
be

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Importance of Planning
• Provides direction
• Creates a unifying frame work
• Leads to economical utilization of resources
• Reduces the risks of uncertainty
• Facilitates decision making
• Encourages Innovation & Creativity
• Improves morale
• Facilitates control

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Planning & Control – Siamese
Twins

Controlling: No undesirable
Implementati comparing deviations from
Planning
on of Plans plans with plans
results

Undesirable
deviations

Corrective
action

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Types of Plans

• Long range Vs Short range

• Strategic Vs Operational

• Corporate Vs Functional

• Proactive Vs Reactive

• Standing Vs Single Use

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Long range Vs Short range
Long range plan Point of Short range plan
distinction
Covers many years & Meaning Covers less than one year
affects many departments and is more specific &
of an organization detail
5 yrs or more Time Up to one year

Organizations linkage with Primary Linkage with various parts


external factors focus of an organization
Mission ,long term goals Deals with Current operations of
and strategies organization
Top management Prepared by Lower level executives

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Strategic Vs Operational
Strategic Plan Point of Operational Plan
distinction

5 years or more Time Under one year


horizon

Adapt to external Purpose Implement internal goals


environment based on
internal strengths
Total institutional Activity Internal tasks &
performance controlled Operations
Top management Level Middle & lower level
involved

Primarily judgmental Basis for Exact data & Standards


planning used
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Corporate Vs Functional
• Corporate Plan:
– A comprehensive plan that outlines the broad objectives
of a company as a whole and develops plans to achieve
those objectives
– Holistic and Unified focus
– Focus on organizational performance

• Functional Plan:
– Is unit planning and deals with different departments in
an isolated manner.
– Focus on departmental performance

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Proactive Vs Reactive
• Proactive Planning:
– Managers challenge the future, anticipating
future contingencies and get ready with
alternative routes for unforeseen circumstances
• Reactive Planning:
– Organizations react to events as and when they
arise

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Standing Vs Single Use
• Standing Plans • Single Use plans
– Developed for – Developed to carry
activities tat recur out a course of
regularly over a action that is not
likely to be
period of time repeated in future
• Ex: • Ex:
– Objectives, Policies, – Programmes,
Procedures, Methods, Schedules, Projects,
Rules Budgets
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Hierarchy of Plans

Purpose
or Mission

Objectives

Strategies

Policies: Major or Minor

Procedures

Rules

Programs: Major or minor and supporting

Budgets: numberized programs

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Purposes / Mission
• Terms used interchangeably
• Identifies basic function or task of an enterprise or any
part of it.
• Ex:
– Business : production and distribution of goods
– State highway dept:design,building and operation of
a system of state highways
– University:Teaching & Consultancy
– Court : Interpretation of laws and their applications.
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Purpose Vs Mission
• Business:
– Purpose is to produce goods and services.
– Mission : Producing certain line of products.
• Ex:
– Du Pont : Better things through chemistry
– Hallmark: The social expression business

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Objectives / Goals
• Ends toward which the activity is aimed.
• Results to be achieved
• Endpoint of planning
• Clash of objectives amongst departments
• Ex:
– objective of a business is to make a certain profit by
producing a given line of home entertainment
equipment,while the goal of the manufacturing dept is
to produce required no. of tv’s of given design and
quality at a given cost.
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Characteristics of Objectives

• Are multiple in number


• Either tangible or intangible
• Have a priority
• Arranged in a hierarchy
• Some time clash with each other

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Requirements of Sound Objectives

• Must be both clear and acceptable


• Support one another
• Precise and measurable
• Should always remain valid

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Advantages of Objectives
• Basis for planning
• Act as motivators
• Eliminate haphazard action
• Facilitates coordinated behavior
• Basis for managerial control
• Facilitate better management
• Lessen misunderstanding& conflict
• Provide legitimacy

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Relationship of objectives and the
organizational Hierarchy

1. Socio-
economic
purpose Board of
directors
2. Mission

3. Overall objectives of the


organization (long-rage, Top-level
strategic) management

4. More specific overall objectives


(e.g, in key result areas (Some)

5. Division objectives Middle – level


(Some) managers

6. Department and Unit objectives

7. Individual objectives Lower-level


• Performance managers
• Personal development objectives
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Hierarchy objectives organizational Hierarchy


Strategies
• General programs of action and deployment of
resources to attain comprehensive objectives
• Determination of long term objectives of an
enterprise and the adoption of courses of action and
allocation of resources necessary to achieve the
goals.
• Don’t attempt to outline how to accomplish
objectives,but provides a framework for guiding
thinking and action
• Includes major policies
• Ex: GM’s Strategy:Marketing directly rather than through
distributors,Concentrating on proprietary products,or having
full line of autos.

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Vision/Purpose/Mission /Objectives
• Vision is the dream that management creates for the organization’s preferred
future.
Ex: Become world leader in health care field in a decade
• Purpose is the primary role of the organization defined by the society in
which it operates
Ex: Hospital-Provide health care
• Mission is the unique aim that sets an organization apart from the others of its
type
Ex: Hospital –to treat heart disorders only
• Objectives are the ends( specific targets)toward which enterprise activities are
aimed
• Ex: Hospital –admit certain number of indoor patients

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Policies

• General statements which guide in decision making


• All policies need not be statements.( practice over a period of
time can be interpreted as policy)
• Define an area within which a decision is to be made and
ensure that the decision will be consistent with and contribute
to ,an objective
• Ex: Recruiting only through campus for the post of probationary
officers.

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Procedures
• Establish a required method of handling future
activities.
• Guides to action ,rather than thinking
• Detail the exact manner in which certain activities
must be accomplished.
• Procedures and Policies are related
– Ex:Company policy of granting vacations, Procedures established
to implement this policy will provide for scheduling of vacations
with out disrupting the work, determining rates of vacation
pay,spelling out the means for applying vacation

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Rules
• Spell out specific required actions or non actions,
allowing no discretion.
• Are different from procedures in that they guide action
without specifying a time sequence.
• Procedure can be Sequence of rules ,but a rule may or
may not be part of procedure
– Ex:
• “No Smoking” is a rule quite unrelated to procedure.

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Programs
• Complex of goals ,policies ,procedures ,rules , task assignments ,
steps to be taken, resources to be employed and other elements
necessary to carry out a given course of action.

-- Ex: Introducing new product in the market


• Essential ingredients are : Time phasing, Budgeting
• Absence of the above ingredients is a hope.

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Budgets
• A statement of expected results expressed in numerical terms.
• Referred as numberized program
• Expressed in financial terms( Cash flows), labor hours, units of
production, etc
• Fundamental planning instrument
• Control devices

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Steps in Planning
Being Aware of Opportunity Comparing alternatives in light of
In light of: goals sought
The Market Which alternative will give us the
Competition best chance of meeting our goals at
What customer want the lowest cost and highest profit?
Our strengths
Our weaknesses

Choosing an Alternative
Setting objectives or Goals Selecting the course of action we
Where we want to be and what will pursue
we want to accomplish and
when

Formulating supporting plans


Such as plan to
Considering planning Buy equipment
premises Buy materials
In what environment – internal Hire and train workers
or external – will our plans Develop a new product
operator?

Numerizing plans by Marking


Budgets
Identifying Alternatives Develop such budgets as:
What are the most promising Volume and price of sales
alternatives to accomplishing Operating expenses
our objectives? Necessary for plans
Expenditures for capital 34
Equipment
Planning Premises
• Assumptions about the organizations future.
• Basis for plan formulation.
– Ex: Information pertaining to population trends, Production
costs, material availability, governmental controls.
• Classification of Planning premises
– External & Internal
– Quantitative & Qualitative
– Controllable & Non controllable

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Internal & External Premises
• Internal:
– Sales forecasts, Policies of the organization., skill sets of the
employees, values of the management, etc
• External:
– General business & economic environment ,Technological
changes, Government policies, population growth, political
stability, sociological factors, demand for industry’s product.

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Quantitative & Qualitative Premises

• Quantitative: Measurable characters


– Population growth, industry demand, capital and resources
invested in the organization, etc
• Qualitative: Not measurable
– Political stability, sociological factors, attitudes,
philosophies, etc

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Controllable & Non Controllable
Premises
• Controllable:
– Company’s advertising policy, skills of work force,
availability of resources, attitude and behavior of the
management, etc
• Non Controllable:
– Strikes, Wars, natural calamities, emergencies, legislations,
etc

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Decision Making
• Essential part of management
• Taking conscious and sub conscious decisions
is every day phenomenon
• Permeates all managerial functions
• Ex: In directing – determining the course, deciding the
orders and instructions to be given, providing dynamic
leadership.
• In controlling – laying down of performance standards,
strategic control points, procedure for control

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Meaning of a Decision

• Choice between two or more alternatives


• Implies three things
– Choosing,
– Availability of alternatives,
– Having a purpose

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Types of Decisions

• Programmed & Non Programmed

• Major and Minor

• Individual and Group

• Simple and Complex

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Programmed and Non
Programmed
• Decision made in • Decisions are novel
accordance with some and non repetitive
policy , procedure or • No cut and dry method
rule. available.
• Repetitive • Ex: Allocation of
• Ex: Pricing Ordinary resources in
customers’ orders. organizations
• Salary payments to • What to do about a
employees failing product line

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Major and Minor Decisions
• The relative significance of a decision can be
measured in the following ways:
• Degree of futurity of decision
• Impact of the decision on other functional areas
• Recurrence of decisions
• Qualitative factors that enter the decision

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Routine and Strategic Decisions
• Tactical decisions • Require lengthy
• Supportive in nature, deliberations
rather than central • Influence the
• Relate to present organization in a
• Require little major way
deliberations • Ex: Changing the
• Ex: Deputing product line.
employees to attend
conferences
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Individual and Group Decisions

• Problem is of routine • Strategic decisions


nature • Influence will be
• Analysis is simple across the departments
• Definite procedures to • Ex: Dialectic method
deal with problem
• Devils advocacy
exists.

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Simple and Complex Decisions

• Variables to be considered for solving a problem

are less -----Simple decision


– Ex: When taking decision based on rules
• Variables to be considered are many for solving a
problem------Complex decision
– Ex: When taking decision to arrest the sales
decline.
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Rational Decision Making
1. Recognizing the problem
2. Deciding priorities among problems
3. Diagnosing the problem
4. Developing alternative solutions or courses of action
5. Measuring and comparing the consequences of
alternative solutions
6. Converting the decision into effective action and
follow-up of action.

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Flow diagram of Rational
decision making process
Recognizing
Diagnozing Developing
problems
the problem Alternative
Deciding
solutions
priorities

Decision
Measuring and
implementation
Comparing
&
alternatives
follow up
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Recognizing the problem
• Deviation from past experience
• Ex: Employees’ turnover has grown
• Deviation from plan
• Ex: Department is exceeding its budget
• Other people bringing problems to manager
• Ex: Customers complaining about late
deliveries
• Competitors out performance
• Ex: Other companies developing new
processes

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Deciding priorities
• Some problems can be solved at the subordinate
level
• Some problems can be referred upwards
• Some problems can be deferred and allowed to be
solved without any effort
• Ex: Napolean’s 3 week delay in looking at mail

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Diagnosing the Problem
• Symptoms of problem can mislead
• Careful diagnosis is a pre requisite
– Ex: Sales Decline
• Reasons could be:
– Poor selling procedures, sharp competition,
saturation of old markets
– Real reason---Changes in customers demand
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Developing alternative solutions

• For every problem there are alternative solutions.

– Ex: Manager considering a proposal to raise


production to meet increased demand

– Alternatives: build a new plant, buy better


equipment, add extra shift, authorize overtime

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Measuring & Comparing
alternative solutions
• Involves “quality” and “acceptability” of various
alternative solutions.
• Quality involves assessing tangible and intangible
out comes
– Ex: Calculating the cost of various alternatives
– Good industrial relations in a particular area
– Industrial Relations Vs Low local taxes
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Measuring & Comparing
alternative solutions
• Technical matters –Quality is important

– Ex: Engg., Production

• Human matters –Acceptability is important

– Ex: Working conditions, office layout

• Another alternative is Pilot testing

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Converting Decision to Action &
Follow up
• Translation requires effective communication of
decision to employees in clear and un ambiguous
manner.
• Ensure employee acceptance
• Ensure employee participation in the
implementation

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Decision Making Models
• Economic man model
– Developed by classical economists
– Selects the alternative which gives the maximum
advantage( Rational decision)
– Gathers complete information
– Mentally stores this information completely
– Can recall when required
– Rank all alternatives on the basis of merits

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Decision Making Models
• Administrative Man model
– Also called bounded rationality model
– Proponent---Herbert Simon
– No ability to “Maximize”, but can only
“Satisfice”
– No ideal Alternative
– Choose the best alternative amongst the
available alternatives
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Decision Making Models
• Social man Model
– Developed by classical psychologists
– Proponent ----- Freud
– Guided by emotions, feelings, social pressures
– Unconscious desires guide decision making
– Rational decision making is only a myth.

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Environment of decision making
• Certainty

• Risk

• Uncertainty

• Turbulence

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Certainty
• The decision maker can specify the consequences
of a particular decision.
• Ex: Company has to make shipments to many
customers from various warehouses
• Least cost distribution pattern
• Variables: Types of transport available, Costs per
unit for each type from each source to each
destination , etc
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Risk
• Consequences of a particular decision cannot be
specified with certainty but can specified with
known probability values
• Alternative evaluation is done by calculating the
expected value of the payoff associated with
alternative
• Expected payoff is the sum of the value of each
possible outcome times its associated probability.

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Uncertainty
• Exists when the decision maker does not even know
the probabilities associated with the possible out comes
• Identifies possible outcomes and their related payoffs
• Criteria used to arrive at decisions are Maximin,
Maximax, Minimax Regret

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Turbulence
• Situation where the environment is itself rapidly
changing or uncertain
• Decision making under the condition of complete
ignorance
• Possible outcomes and their payoffs cannot be
determined.

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The continuum of Decision-
Making conditions
Certainty Risk Uncertainty Turbulence

High Low
MANAGERIAL CONTROL

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Difficulties in Decision Making

• Incomplete Information
• Unsupporting Environment
• Non acceptability by the subordinates
• Ineffective Communication
• Incorrect timing

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References
• Principles of Management-P C Tripathi, P N Reddy; 3rd
Edn.,TMH
• Management-Stephen Robbins; 8th Edn.,PHI
• Management-VSP Rao, V H Krishna; Excel
• Essentials of Management-Koontz,Weihrich;5th Edn.,TMH
• Management – James A F Stoner, R Edward Freeman,
Daniel R Gilbert;6th Edn., PHI
• Principles of management: a modern approach-Henry
Albers, 4th Edn,,John Wiley & sons
• Fundamentals of management-Donnelly, Gibson,Ivancevich
,10th Edn,.Irwin Mc Graw

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Web References
• www.12manage.com
• www.cliffsnotes.com
• www.swlearning.com
• www.gutenburg.org
• www.cheathouse.com
• www.business.com
• www.businessmanagement.suite101.com
• www.greatmanagement.org
• www.harehall.co.uk

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Question Bank. doc

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