Unit III: Planning and

Decision Making

Presentation Outline
● Meaning
● Levels of Planning: Strategic,Tactical and Operational
● Steps in Planning
● Tools for Planning
● Planning Premises
● Pitfalls of Planning
● Improving Planning
● Decision Making: Meaning,Types and Process
● Decision Making Conditions- Certainty, Risk and Uncertainty
● Practical exercises on taking decision including decision making
using indicators

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 Definition
● Planning is predetermination of objectives and future course
of action to be taken to achieve defined goals effectively and
efficiently. It is the blue print of action and operation.
● Ricky W. Griffen: “Planning is setting an organization’s goals
and deciding how best to achieve them.”
● Stephen P Robins and Mary Coulter: “Planning involves
defining the organization’s goals, establishing an overall
strategy for achieving those goals and developing a
comprehensive set of plans to integrate and coordinate
organizational work.”

What Is Planning?
● Planning
● A primary managerial activity that involves:
● Defining the organization’s goals
● Establishing an overall strategy for achieving those goals
● Developing plans for organizational work activities.
● Types of planning
● Informal: not written down, short-term focus; specific to an
organizational unit.
● Formal: written, specific, and long-term focus, involves shared goals for
the organization.

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 Why Do Managers
● Purposes of Planning
●Plan?
Provides direction
● Reduces uncertainty
● Minimizes waste and
redundancy
● Sets the standards for controlling

How Do Managers Plan?

● Elements of Planning
● Goals (also Objectives)
● Desired outcomes for individuals, groups, or entire organizations
● Provide direction and evaluation performance criteria

● Plans
● Documents that outline how goals are to be accomplished
● Describe how resources are to be allocated and establish activity
schedules

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 Characteristics of Planning
1. Focus on Goal: Defines a major course of action to
achieve goals.
2. Primary Function: Pivotal role in coordinating all other
functions of management.
3. Pervasive Activity: Level of Planning depends upon
the nature and scope of work.
4. Future Oriented: Prepared for future oriented. Management
anticipates future events and situation through forecasting.
5. Continuous Activity: Never ending process
6. Intellectual Work: Planning is mental work.
7. Flexible: Adjustable
8. Efficiency and Economy: Aims to increase the working
efficiency
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9. Actionable: Result can be obtained only after
implementation.

Importance of Planning
1. Focus on Goal
2. Minimize Uncertainty
3. Maintain Effective Control
4. Innovation and Creativity
5. Organizational Effectiveness
6. Economy in Operation
7. Facilitates Coordination
8. Avoids Business Failure

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 Levels of Planning
● Strategic Plan
● Tactical Plan
● Operational Plan

Strategic Plan
● Prepared by top level management
● Focus for long term objectives
● It consists of programs, policies, and schedules to utilize the
available resources.
● Strategic plans concern with products or service, market,
competition, social responsibility, introduction of technology,
public image etc.
● High degree of uncertainty in strategic plans as it focused for
long term future course of action.

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 Tactical Plan
● Prepared by the middle level management
● Consider short term objectives
● It is the sub-division of corporate plan to implement in
practical field.
● Divisional Managers identify the priorities
● It is prepared to allocate divisional activities like production,
finance, marketing and so on
● Plays mediator role between corporate and operational plans

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Operational Plan
● Prepared by the lower level management
● Consider day to day activities
● It is the action plan of each and every activity of the
department
● Prepares schedule of each unit of work and implements
tactical plan in practical field.
● Concentrates in the best use of organizational
resources.
● Operating Level Management prepares plan and schedules of
each stage of work of a unit or department.

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 Types of Plan
● On the Basis of Hierarchy
● Corporate Plan
● Tactical Plan
● Operational Plan
● On the Basis of Use
● Single use Plan
● Standing use Plan
● On the Basis of Flexibility
● Specific Plan
● Flexible Plan

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● On the Basis of Hierarchy

● Corporate Plan

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 ● On the Basis of Use
● Single Use Plan:
● Plan is prepared for a specific purpose in non programmed situation
● Prepared for non-repetitive activities
● After completion of the defined objective such a plan becomes worthless.
● Example: Project Program and Budget
● Standing Use Plan:
● Plan is prepared for programmed decision making situation in an
organization
● Provides broad guidelines for repetitive activities
● Such Plan once developed will be implemented in the organization to
achieve organizational objectives in different situations.
● Example: Objectives, rules, policies, procedures, and strategy

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● On the Basis of Flexibility

● Specific Plan:
● Specific plan is developed for a particular department or unit about the
activities to be performed
● Members of an organization are clear about the task to be performed and
resources to be used.
● All clearly stated plans are specific plans
● Flexible Plan:
● Flexible plan is changeable on the basis of time and situation
● It is not specific in terms of procedures and allocation of resources.
● Such plan only provides guidelines to the members
● The members can modify such a plan on the basis of their facility
and requirement
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 Hierarchy of Planning
● Vision: Vision focuses to the long term objectives of the organization.
● Mission: Mission is the reason for the existence of an organization.
● Goals/Objectives: Goals are planned results to be achieved.
● Strategies: Strategy is a comprehensive master plan stating how
an organization will achieve its mission and goals.
● Policies: Comprehensive guideline for decision making that links
the formulation of strategy with its implementation.
● Procedures: Sequential steps that describe in detail how a
particular task is to be performed.
● Rules: Detailed guides to action.
● Programs: statement of activities essential to accomplish a single
use plan.
● Budgets: Short-term financial plan, which is presented in terms
of money.
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Planning Process/Steps
1. Analyze Opportunities:
2. Setting Goals:
3. Determination of premises
4. Determination of alternatives
5. Evaluation of alternatives
6. Selecting a course of action
7. Formulation of derivative plans
8. Implementation of plan
9. Reviewing the planning process

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 Tools For Planning
● Forecasting
● Network Technique
● Flow Chart
● Gantt Chart
● Break-Even Analysis
● Linear Programming
● Simulation

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Planning Premises
● Internal Premises
● External Premises
● Tangible Premises
● Intangible Premises

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 Pitfalls/Limitations/Drawbacks of
Planning
● Lack of Control
● Expensive Process
● Inflexibility
● Based on Certain Assumptions
● Delay in Action
● Incomplete Information
● Difficult to Implement
● Unwillingness to Change
● Difficult to Implement at Unit Level
● Difficult to Change with the Changing Environment
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Improving Planning
● Setting Clear Goals
● Developing Realistic Plans
● Proper Understanding
● Management Information System
● Economical
● Comprehensive
● Planning must Start at the Top
● Flexibility
● Dynamic Manager
● Careful Premising

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 Management by Objectives (MBO)
● MBO is comprehensive technique in which both top and
operational level managers jointly determined organzitional
goals and planning.

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MANAGEMENT

BY

OBJECTIVES

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 OBJECTIVE SETTING
In an MBO, good goals are SMART goals:

S specific
S

M measurable U
WORK A achievable HAVE
C
R result oriented
25 T time-related C

S
WHAT IS MBO ?
Peter Drucker, (1954, “The Practice of Management”)
S
• Is a systematic and organized approach that
allows management to focus on achievable
goals and attain the best possible results from
available resources
• Aims to increase individual and organizational
effectiveness by aligning organizational goals
and subordinate objectives
• Clarifies and quantifies objectives to allow for
monitoring, evaluation, and feedback
throughout the hierarchy of objectives
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 IN SIMPLE
WORDS,
MBO
• MBO emphasises the importance
IS…
objectives
of as a tool to be used by
managers in fulfilling their managerial
roles (accomplish their tasks)
• Divide problem into manageable, “bite-
size” chunks

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MBO; CROSS
SECTION
Visio
To n
p
Missio
Manage n
rs
Middl Manageme
Tactic
e al nt by
Objectiv
Manage Plans es
First-rs Operation Standin Single-
Level al Plans g Use
Managers Plans Plans
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 FEATURES OF MBO
Peter Drucker also stated that:
● For the business to succeed, the managers and
employees must work towards a common
goal
● Managers must identify and agree targets for
achievement with subordinates
● Managers must negotiate the support needed
to achieve the targets with subordinates
● Evaluate the objectives over time

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MBO AIM
● Short and long-term planning
● Optymalization of organization structure
● Better work and collaboration quality

Appraisal based on objective results

BONUSES

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 MBO PRINCIPLES
1. Cascading of organizational goals
and objectives
2. Specific objectives for each team member
3.Participative decision making
4.Explicit time period
5.Performance evaluation &
feedback

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CASCADING OF OBJECTIVES

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 ADVANTAGES OF MBO
● Improves employee motivation
● Improves communication in the organisation
● Flags up and highlights training needs required
to achieve objectives
● Improves overall performance and efficiency
● Attainment of goals can lead to the satisfaction
of Maslow’s higher order needs

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DISADVANTAGES OF MBO
● May demotivate staff if targets are too high and unrealistic, also if
imposed rather than agreed
● Requires the cooperation of all employees to succeed
● Can be bureaucratic and time consuming (meetings, feedback)
● Can encourage short-term rather a more focused long-term
growth
● Objectives may go out of date and can restrict staff initiative and
creativity
● Setting targets for certain specialised employees may be difficult

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 IS MBO SUITABLE FOR EVERY
BUSINESS?
● MBO could be suitable for a medium to
large business, using a democratic approach
to management and operating in a stable
market
● The overriding issues therefore are size of
the business, the leadership style it uses and
the rate of change in the market it operates.

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HOW MBO WORKS

● Jointly identify common goals.

● Define major areas of
responsibilityin terms of results
expected.
● Use measurements as guides for operating
and assessing contributions of members.

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 UNDERLYING PURPOSES OF
MBO

1. Clarify organization’s goals and plans at all

levels.
2. Gain better motivation and participation
from organization’s members.

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MBO; FRAMEWORK
CONCEPT
Supervisor

Jointly plan Individually act Jointly control

• Setting •Performing •Reviewing

and objectives tasks results
• Setting (subordinate) •Discussing
standards •Providing implications
• Choosing support •Renewing MBO
actions (supervisor) cycle

Subordinate

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 PHASES OF MBO
1. Top management team studies system.
2. Team sets up methods of
measuring performance.
3. Goal-setting sessions are held at all levels
of organization.

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STEPS FOR
MBO
STEP 1: SET GOALS STEP 2: DEVELOP PLANS
• Corporate Strategic goals
• Departmental goals Action Plans
• Individual goals

Review Progress &

Take Corrective Action

Appraise
Performanc STEP 3: REVIEW PROGRESS
e
STEP 4: APPRAISE
OVERALL PERFORMANCE
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 ESSENTIAL STEPS FOR MBO
● Set Goals (The most difficult step)
● What are we trying to accomplish?
● Develop Action Plans
● “What do we need to do to get there?”
● Groups and individuals
● Review Progress
● “How are we doing?”
● Periodically (How Often?)
● Does plan need to be tweaked?
● Appraise Performance
● Rewards?

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SOURCES OF MBO FAILURES

1. Lack of top management commitment and
follow through on MBO.
2. Employees’ negative beliefs about
management’s sincerity in its efforts to
include them in the decision-making
process.

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 Strategic Planning
● Strategic Planning is the comprehensive master plan for
achieving mission and objectives
● Formulation
● Identifying Organization’s Current Mission, Goals and
Strategies
● Analyze the External Environment
● Identifying Opportunities and Threats
● Analyzing Internal Environments
● Identifying Strengths and Weaknesses
● Formulating Strategies

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Implementation of Strategic Plan

● Strategy Implementation is the method by which strategies
are operationalized. For this, managers should form
organization structure, divide works and allocate resources.
● Implementation of Strategic Plan
● Organizational Structure and Design
● Communication
● Technology
● Organizational Resources
● Group and Teamwork
● Motivating Employees
● Leadership
● Monitoring and Evaluation
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 McKinsey 7-s Framework
● Strategy
● Structure
● Systems
● Style
● Staff
● Shared Values
● Skills

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Decision Making

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 Meaning of Decision Making
● Decision making is a process of identifying and defining the
problems, developing alternative solutions, evaluating them in
terms of possible consequence and choosing the best solution
among them and effectively to achieve the defined objectives.

● According to Koontz and Weihrich, ‘’Decision making is

selecting of a course of action from among alternative. ’

● According to Ricky Griffin- ‘’Decision making is the act of

choosing one alternative from among a set of alternative.’

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Types of Decisions
● Programmed and Non-Programmed Decisions
● Programmed decisions are taken for regular and repetitive
problems
● Non-Programmed Decisions are needed for unique or new
problems
● Routine and Basic Decisions
● Routine Decisions are related with day to day operations
● Basic Decision is for long run survival and growth of
business
● Organizational and Personal Decision
● Organizational Decisions are formal or official decisions
● Personal Decisions are informal or unofficial decisions

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 ● Individual and Group Decisions
● In Individual Decision, single person is involved in decision
making process
● In Group Decision, a group of persons are involved in
decision making process
● Policy and Operational Decision
● Policy Decision is taken by considering the long term
functioning
● Operating Decision is taken for the implementation of plans and
policies formulated by the top level management.

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Approaches to Decision
Making/Decision Making Models
Rational Decision Making
● Choose the alternative with highest
payoff
● Evaluate all alternative
simultaneously
● Use goals that are clear, compatible,
and agreed-upon
● Can process information about all
alternatives and their outcomes
● Process factual information
● Evaluate alternatives against a set
of
50 absolute standards
Behavioral Decision Making
● Choose the alternative that is
good enough
● Evaluate alternatives
sequentially
● Use goals that are ambiguous,
in conflict, and lack consensus
● Have limited information
processing abilities
● Process perceptually distorted
information
● Evaluate alternatives against an
implicit favorite alternative

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 Decision making under Different
Conditions
● Decision making under Certainty
● Easier
● Accurate, measurable and reliable information about
alternatives
● Decision making under Risk
● Riskier
● Manager predict alternatives after probability estimate that a
given alternative will lead to the desired outcome or goal
● Manager faces the situation where it is difficult to predict an
alternative outcome with certainty
● Decision making under Uncertainty
● Uncertain
● Neither feel certainty nor can estimate probability
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● Manager does not know all the alternatives

Barriers to Decision Making

● Availability of Finance
● Existing Business Policy
● Employees’ Abilities and Feelings
● Legislation
● Not Supportive Technology
● Economic Climate

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 Types of Problems
Structured Problem
● Straightforward, familiar
and easily defined
● Certain rules, process and
procedure to solve such
problem
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Unstructured Problem
● Unusual and happen
seldom so that managers
have little information,
rule and procedure to solve
such problems
● Need to engage in
discussion with colleagues
to solve such problems
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 Decision Making Style

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● Directive Style
● Low tolerance for ambiguity and make rational decisions
● Generally efficient and logical
● Based on limited information and assessing few alternatives
● Efficient and logical decision
● Analytic Style
● High tolerance for ambiguity and are rational in making
decisions
● Collect more information and consider more alternatives while
making decisions

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 ● Conceptual Skills:
● High tolerance for ambiguity and make intuitive judgments
● Collect more and more information, focus on long-term,
and have broader outlook
● Behavioral Skills:
● Humane in nature
● Work well with other people, communicate their ideas and get
view from others
● Short-term-based-style and people like to work with such
decision makers
● Minimize future risks of uncooperative behavior of the
employees
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Nature of Decision Making

● Selective Process
● Decision making is a selective process. It is the process of
analyzing and selecting a course of action from many
alternatives to solve the problem. It requires relevant
information, analytical ability and judgmental capacity from
the part of manager.
● Goal Oriented Process
● Decision maker focuses on the organization objectives. In
course of functioning many problems may arise in the
organization.The management has to solve all the problem in
proper time and also in a systematic manner by considering
organization goals.

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 ● Human and Rational Process
● Decision making is a mental or human process and is needed in
all type of organization .A manager has to make mental exercise
to study the impact of the courses of action before taking a
decisions. Hence, a decision making is common in all type of
organization.
● Continuous Process
● Decision making is a continuous process. In the
course of regular performance, many problem may arise in
different time and situation .manager have to solve those
problem in a proper time. so that ,organization performance is
smooth.

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● Dynamic Process
● Decision making is a dynamic process. It is essential to consider time
factor and enlisting environment, whenever any course of action is
taken for implementation. Manager have to take decision at a right
for its effectiveness. Beside, they have to consider future
environment , which may affect future activities.
● Freedom to Decision Maker
● Manager have freedom to take any kind of decisions.
A manager may take any course of action to solve a problem by
using his/her own logic, knowledge and experiences.Thus, the
decision maker has the freedom to take any course of action but he
has to consider organizational objectives.

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 Importance of Decision Making
• Decision Making is essential in each level
Pervasive management
of
Function
• Inseparable part of management
Indiscipline
functions
Components
Evaluation of Managerial • Time Consuming process and decision
makers
Function spend more time to select the best alternatives
• Selecting a best course of action from among
Selection of Best many alternatives
Alternatives
Establishment of Plans and • Establishment of plans and policies is the initial
Policies part of decision making

Successful Operation of • Decision making is successful in operation of the

61 Business business

Decision Making Process

1. Identification of Problems
2. Analysis of Problems
3. Development of Alternatives
4. Evaluation of Alternatives
5. Selection of Best Alternatives
6. Implementation of Alternatives
7. Review of Implementation

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 Methods of Group Decisions
There are six methods of making decisions by groups
● Decision by lack of response
● Decision by authority rule
● Decision by minority rule
● Decision by majority rule
● Decision by consensus
● Decision by unanimity

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Issues Relating to Group Decision

Making
● Time Constraints
● Evaluation apprehension
● Conformity to peer pressure
● Groupthink
● Group polarization

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 Group Decision Making Techniques
● Brainstorming
● Nominal Group Technique (NGT)
● The Delphi Technique
● The step Ladder Technique

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Group
Decisions
Disadvantages
● Social pressure to confirm
Advantages
● Information ● Minority Domination

● Alternative ● Time Demand

● Understanding and
Acceptance
● Commitment

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 Tools for Decision Making
● Simulation: In this technique, related variables and their
interrelationship are put into a system to find out the
outcome.
● Payoff Matrix: In payoff matrix, probability of different
alternatives and their expected values are taken into
consideration.
● Decision Tree: In Decision tree, managers use graphical tool
to study alternative solution available.
● Queuing Model: Queuing model is used to optimize the waiting
lines in the organization so that better service can be provided
to the customers
● Game Theory: Game Theory intends to predict how a
competitor will react with various activities that an organization
undertakes.
● Accounting Tools: Managers collect, analyze and interpret financial
information and data.
● Linear Programming: Use for optimizing the profit or
minimizing the operating cost.
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Decision Making for Today’s World

Guidelines for making effective decisions:
1. Understand cultural differences.
● In some cases, there is no best way to make decisions. The best way may
depend on the values, attitudes, and beliefs that prevail in a specific
culture.
2. Know when it’s time to stop.
● Good decision makers are not afraid to change their minds. They do not
become attached to one course of thinking.

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 Decision Making for Today’s World
3. Use an effective decision-making process.This process has six
characteristics:
● It focuses on what is important.
● It is logical and consistent.
● It acknowledges both subjective and objective thinking and blends
analytical with intuitive thinking.
● It requires only as much information and analysis as is necessary to resolve
a particular dilemma.
● It encourages and guides the gathering of relevant information and
informed opinion.
● It is straightforward, reliable, easy to use, and flexible.

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Decision Making for Today’s World

4. Build an organization that can spot the unexpected and
quickly adapt to the changed environment. Karl Weick calls
such organizations highly reliable organizations (HROs) and says
they share five habits:
 Are not tricked by their success.
 Defer to the experts on the front line.
 Let unexpected circumstances provide the solution.
 Embrace complexity.
 Anticipate, but also recognize their limits.

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