Chapter: 04

Planning & Decision Making

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Planning involves selecting missions and objectives and
deciding on the actions to achieve them; it requires decision
making, that is, choosing a course of action from among
alternatives

Planning is deciding in advance what is to be done in the

future.
Planning bridges the gap from where we are to where we
want to go.
It is also important to point out that planning and
controlling are inseparable—the twins of management.
Plans furnish the standards of control.
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Plans can be classified as
(1)missions or purposes,
(2)objectives or goals,
(3)strategies,
(4)policies,
(5)procedures,
(6)rules,
(7) programs, and
(8)budgets.

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1. The mission
The mission identifies the basic purpose or function or
tasks of an enterprise or agency function or tasks of an
or any part of it.
 The purpose of the courts is the interpretation of laws
and their application.
 The purpose of a university is teaching, research, and
providing services to the community.

The mission of Du Pont has been expressed as 'better things

through chemistry'.

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2. Objectives
Object are the ends toward which activity is aimed.

3. Strategies
Strategy is defined as the determination of the basic long-
term objectives of an enterprise and the adoption of
courses of action and allocation of resources necessary
to achieve these goals. Strategy is being adopted to
gain the competitive advantages by the company.

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4. Policies
Policies also are plans in that they are general statements
or understandings that guide in decision making. Not
all policies are understandings that "statements; they
are often merely implied from the actions of managers.

The practice of promoting from within the organization.

The practice may be interpreted as policy and
carefully followed by subordinates.

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5. Procedures
Procedures are plans that establish a required method of
handling future activities. They are chronological
sequences of required actions. They are guides to
action rather than to thinking, and they detail the
exact manner in which certain activities must be
accomplished.

6. Rules
Rules spell out specific required actions or nonactions,
allowing no discretion. "No smoking" is a rule. The
essence
of a rule is that it reflects a managerial decision that a
certain action must— or must not—be taken.

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7. Programs
Program is a single-use plan for a large set of
activities.
Programs are a 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.

For example, a program may be formulated by a single

supervisor to improve the morale of workers in the
parts manufacturing department of a farm machinery
company.

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8. Budgets
A budget is statement of expected results expressed in
numerical terms. It may be called a "quantified' plan.
A budget may be expressed in financial terms; in
terms of labor-hours, units of product, or machine-
hours; or in any
other numerically measurable term.
 It may deal with operation, as the expense budget
does
 it may reflect capital outlays, as the capital
expenditure budget does;
 it may show cash flow, as the cash budget does.

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 Steps in Planning

Step 1: Being Aware of Opportunities

All managers should take a preliminary look at possible
future opportunities and see them clearly and completely,
know where their company stands in light of its strengths
and weakness, understand what problems it has to solve
and why, and know what it can expect to gain. Setting
realistic objectives depends on this awareness. Planning
requires a realistic diagnosis of the opportunity situation.

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 Step 2: Establishing Objectives
The second step in planning is to establish objectives for the
entire enterprise and then for each subordinate work unit.
This is to be done for the long term as well as for the short
range. Objectives specify the expected results and indicate
the end points of what is to be done.

Step 3: Developing Premises

Premises are assumptions about the environment in which
the plan is to be carried out. Forecasting is important in
premising: What kinds of markets will there be? What
volume of- sales? What prices? What products? What costs?
What wage rates? What tax rates and policies? What are the
long-term trends?
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 Step 4: Determining Alternative Courses
The fourth step in planning is to search for and examine
alternative courses of action, especially those not
immediately apparent. There is seldom a plan for which
reasonable alternatives do not exist, and quite often an
alternative that is not obvious proves to be the best. The
planner must usually make a preliminary examination to
discover the most fruitful possibilities.

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 Step 5: Evaluating Alternative Courses
After seeking out alternative courses and examining their
strong and weak points, the next step is to evaluate the
alternatives by weighing them in light of premises and
goals.
One course may appear to be the most profitable but
may require a large cash outlay and have a slow payback;
another may look less profitable but may involve less
risk;
still another may better suit the company's long-range
objectives.

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 Step 6: Selecting a Course
This is the point at which the plan is adopted—the real point
of decision making. Occasionally, an analysis and evaluation
of alternative courses will disclose that two or more are
advisable, and the manager may decide to follow several
courses rather than the one best course.

Step 7: Formulating Derivative Plans

When a decision is made, planning is seldom complete, and a
seventh step is indicated. Derivative plans are almost
invariably required to support the basic plan.

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 Step 8: Quantifying Plans by Budgeting
After decisions are made and plans are set, the final step
in giving them meaning, is to quantify them by converting
them into budgets. The overall budget of an enterprise
represents the sum total of income and expenses, with
resultant profit or surplus, and the budgets of major
balance sheet items such as cash and capital expenditure.

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Strategic Plans
Strategic plans are the plans developed to achieve strategic
goals. More precisely, a strategic plan is a general plan outlining
decisions of resource allocation, priorities, and action steps
necessary to reach strategic goals. These plans are set by the
board of directors and top management, generally have an
extended time horizon.

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Tactical Plans
A tactical plan, aimed at achieving tactical goals, is developed to
implement specific parts of a strategic plan. Tactical plans
typically involve upper and middle management and, compared
with strategic plans, have a somewhat shorter time horizon and
a more specific and concrete focus.

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Operational Plans
An operational plan focuses on carrying out tactical plans to
achieve operational goals. Developed by middle and lower-level
managers, operational plans have a short-term focus and are
relatively narrow in scope. Each one deals with a fairly small set
of activities.

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Contingency planning refers to the determination of
alternative courses of action to be taken if an
intended plan of action is unexpectedly disrupted or
rendered inappropriate. Contingency planning is a
useful technique for helping managers cope with
uncertainty and change.

Contingency planning is becoming increasingly

important for most organizations, especially for those
operating in particularly complex or dynamic
environments. Few managers have such an accurate
view of the future that they can anticipate and plan
for everything.
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Decision making is defined as the
selection of a course of action from,
among alternatives; it is at the core
of planning.
Managers sometimes see decision
making as their central job because
they must constantly choose

what is to be done,
who is to do it, and
when, where, and occasionally
even how it will be done.

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The decision-making process includes recognizing and
defining the nature of a decision situation, identifying
alternatives, choosing the “best” alternative, and putting it
into practice will be done.

The word best, of course, implies effectiveness.

We should also note that managers make decisions
about both problems and opportunities.
Of course, it may take a long time before a manager can
know if the right decision was made.
It is also part of everyone's daily life.

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Programmed decision
A programmed decision is one that is relatively
structured or recurs with some frequency (or both).
Example of a programmed decision is the reordering
of standard inventory items.
 This kind of decision is used for routine and repetitive
work;
 It relies primarily on previously established criteria.
 It is, in effect, decision making by precedent.

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Non-programmed decision
Nonprogrammed decisions, on the other hand, are
relatively unstructured and occur much less often.
Example – Taking decision to develop a new product.
 Nonprogrammed decisions are used for
unstructured, novel, and ill-defined situations of a
nonrecurring nature.
 Intuition and experience are major factors in
nonprogrammed decisions.
 Most of the decisions made by top managers
involving strategy and organization design are
nonprogrammed.

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The nature of problems and decision making
in the organization

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Most decisions are neither completely programmed
nor completely nonprogrammed; they are a
combination of both.
As the Figure indicates, most nonprogrammed
decisions are made by upper-level managers; this is
because upper-level managers have to deal with
unstructured problems.
Problems at lower levels of the organization are often
routine and well structured, requiring less decision
discretion by managers.

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Steps in Rational Decision Making

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 WHAT IS MBO ?
Peter Drucker, (1954)
• MBO is a process by which managers and subordinates
work together in identifying goals and setting up objectives
and making plan together in order to achieve these
objectives.
• It is a management model that aims to improve
performance of an organization by clearly
defining objectives that are agreed to by
both management and employees.
• It is a systematic and organized approach that allows
management to focus on achievable goals and attain the
best possible results from available resources.
 Advantages of MBO

Improves employee motivation

Improves communication in the
organisation
Improves overall performance and
efficiency
Attainment of goals can lead to the
satisfaction of employees
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