MBA ch3

Planning function & decision-making
 Introduction
 Meaning & importance of planning
 The planning process
 Types of plans
 Managerial decision-making
 Objectives:
 Define what planning means & why to plan?
 Identify the different aspects involved in planning
 Make a clear distinction b/n strategic & action planning
 Provide some ideas about techniques to use in planning
 Describe what planning should involve
 Discuss how planning links to monitoring & evaluation
Introduction
 Planning is a complex process that can take many forms
 There are different kinds & ways of planning
 There are many planning tools
 Knowing what kind of planning is needed for what situation is
skill in itself
 Thus, it is important to know:
 What kinds of planning are needed?
 When planning is needed?
 What are the planning tools that are appropriate?
 Managers in carrying out the actual process of planning should:
 Differentiate strategic planning from action planning
 Emphasize on the need for implementation, monitoring & evaluation
Introduction
 New managers may have limited experience in planning
 Possible they have not been involved previously:
 In running an organization, project or department
 In the planning side of the work
 Now they are faced with the task of planning for their
organizations, projects or departments
 However, they are not quite sure where to start
 Hence, they have to be exposed to the concepts & actual practices
of planning. This is because, managers:
 Need to plan strategically as well as operationally & to make a distinction b/n the
two
 Need some ideas to help them plan a planning process
 Begin the planning for an existing or a new project & organization
 Need some ideas about planning techniques
 Need to understand the r/ship b/n planning, and monitoring & evaluation
Meaning & importance of planning
What is Planning?
 Planning
 The dynamic process of making decisions today about future action
 Preparing today for tomorrow (future focus)
 The activity that allows managers to determine what they want & how to get
it
 A process of deciding what to do & how to do it before action is required
 Generally, planning is a selection or choice among alternative as to:
 What is to be accomplished/achieved? (mission, goals or objectives)
 What action should be taken? (the necessary measures to be taken)
 What resources employed? (resources necessary to reach the goals)
 How the end can be achieved/accomplished? (the specific steps/methods to
reach the goals)
 When to achieve it? (the time frame in which it will be accomplished)
 Who is to do it? (the people who will perform the task)
What is Planning?
 Thus, planning bridges the gap b/n where we are now & where we
want to be
 The outcome of the planning function is a plan, a written document
that specifies the course of action a firm will take
 Planning is the systematic process of establishing a need & then
working out the best way to meet the need, within a strategic
framework that enables to identify priority & determine
operational principles
 Planning means thinking about the future so that you can do
something about it now
 This doesn’t necessary mean that everything will go according to
plan
 However, the main perquisites are plan properly & adjust as
required without compromising the overall purpose
Nature of planning
 The contribution of planning
 Organizations exist to accomplish specific purpose or objective
 Hence, any plan has to facilitate the accomplishment of organizational
objectives
 The primacy of planning
 Planning precedes the execution of all other managerial function
 Because all other managerial functions must be planned if they are to be
effective
 Example: controlling would be unthinkable without a planning
 Because any attempt to control without a plan is meaningless
 Plans thus furnish the standards of control
 Actually, planning & controlling are inseparable
Nature of planning
 The pervasiveness/universality of planning
 All managers at all levels participate in planning
 However, the character & breadth of planning varies with each managers
authority
 Each & every aspects of human endeavor has to be planned
 Planning & information
 Basically, no plan exists without information
 To plan managers have to gather relevant information
 Therefore, information is vital for proper planning
 Planning is a continuous process
 Planning deals with the future & the future is full of uncertainties
 Hence, planning needs frequent revision in response to changes in the
internal & external environments of the organization
Nature of planning
 Planning is a means to an end
 Planning is not an end by itself but it is a means to an
end
 Planning is an instrument that pushes people towards
the achievement of objectives
 Plans are arranged in a hierarchy
 Plans are first set for the entire organization
 The corporate plan then provides the framework for
the formulation of divisional & departmental plans
Why Plan? / the importance of planning
 The combination of a good strategic framework (arrived at
through strategic planning) & a good operational/action plan
 Provides a clear understanding of what you need to do in order to achieve
your development goals
 Guides you in prioritizing & making decision
 Allows you to focus limited resources on the actions that will benefit your
work the most
 Keeps you in touch with your context- global, national & local
 Provides a tool to help you communicate your intentions to others
 Provides a coherent guide for day-to-day implementation
 Generally, it is important to think about the benefit of planning
 However, there are many excuses for not doing it & just getting on the
work
Why Plan? / the importance of planning
 Sometimes it seems easier not to plan, because:
 Good planning takes time & money
 However, if it is done well, it is worth the investment
 It is true that sometimes you can be successful – if you are lucky
 But that can be costly & confusing, as well as inefficient (poor use of
resources)& ineffectual (no achieving desired results)
 Planning is only useful if people are committed to implementation-that is
true
 But, don’t use this an excuse for not planning, along the lines of: “no-one
ever follows the plan, so why bother?
 It is the role of the leadership in the organization to make sure that
planning is useful & gets implemented
 People implement the plan if they participate in the planning, as long as it
makes sense & is possible
Other importance of planning
 Provide direction & sense of purpose
 It is through planning that we can establish our objective
 Plans focus attention on specific targets
 It provides direction & a common sense of purpose
 This shared purpose enables both managers & employees to coordinate,
unite, & guide their actions
 Reduces uncertainty by anticipating the future & preparing for
change
 Planning is based on systematic & careful forecasts of future states of the
economy, markets, technology, etc. to reduce uncertainties
 Anticipating & preparing for possible future changes enables managers to
control their environment to some extent
 Thus, planning answers “what if” questions in order to reduce the risk of
unpredictable future through developing alternatives
 Provides basis for controlling
 Standards/controlling mechanisms/ are developed during planning
 It specifies what is to be accomplish & provides a standard for measuring
progress
 Forces managers to see the organization as a system
 Planning for one part affects the operations of the other & the whole
organization so far as parts of an organization are interdependent
 Promotes efficiency
 Planning provides the opportunity for a greater utilization of
the available organizational resources- determination of:
 How much resources are necessary to reach the goals?
 How to use these resources?
 Provides the basis for cooperative & coordinated effort
 Management exists because the work of individuals and groups in organization
must be coordinated
 This can be done through planning by defining the objectives of the organization &
the means for their achievement
 Develops the ability of managers
 The act of planning involves high level of intellectual activity- deal abstract
&uncertain ideas
 Planning makes managers proactive rather than reactive (make things happen rather
than let things happen)
 Planning develops managers ability to think futuristically & sharpens managers
ability to think critically
 Provides guideline for decision making
 Decisions in an organization will be made in alignment with the plan & in
accordance with desired outcomes
 Planning serves as a framework for decision making- managers think analytically
& evaluate alternatives to make decisions
Limitation of planning
 It is a difficult & complicated task
 Involves interdependent decisions
 Requires patience & commitment from those who are involved in the
planning process
 Affected by rapid changes in technology, customers, tastes & preferences
 It is expensive & time consuming
 Requires much financial, physical, human & time resources
 Thus, collecting of the necessary data, organizing, analysis & interpreting
consumes much time & other resources
 It is affected by external factors
 External factors can put strain on the success of planning
 Government intervention- investment, taxation & labor laws, etc.
 Natural calamities, etc.
The planning process
 As a managerial activity planning has its own process/series of steps
 These steps are interrelated & there is no rigid boundary among these
steps
Establishing objectives
 Objective setting is an important first step in the planning process
 Objectives specify the expected results & indicate what is to be done
 Objective can be set after:
 Assessing the present situation & anticipating future conditions
 Assessing organizational strengths & available opportunities
 Organizational objectives are arranged in hierarchy:
 Objectives for the entire organization
 Objectives for different divisions
 Objectives for departments & units, etc.
 However, there must be coherence & consistency b/n the objectives
Developing premises
 Planning premises are assumptions about the environment within which
the plan is to be carried out
 Thus, managers have to investigate the firm’s environment to know factors
that facilitate or impede the attainment of the objectives
 Examining external & internal factors which affect the performance of
the organization (i.e., SWOT)
 The key element of planning at this stage is forecasting
 Because the future is so complex, it would not be realistic to make detailed
assumption about the future environment of the plan
 Therefore, premises are limited to assumptions that are critical to plan (i.e.,
those that most influence its operation)
Determining alternative actions
 There are several alternative courses of actions that are available to a
manager to reach a goal
 Usually the most common problem is not finding alternative but reducing
number of alternatives so that the most promising may be identified
Evaluating alternative courses of action
 Having sought out alternative courses, managers evaluate the benefits &
disadvantages of alternative courses in light of their weight to goals &
premises
 Because there are so money alternative courses in most situations &
evaluation can be extremely difficult
 This is a step in planning process that operation research & computing
techniques have their primary application to the field of management
Selecting a course of action
 This is the point at which the plan to be adopted is chosen or selected real
point of decision-making
 The analysis of each alternatives benefits & disadvantages should result in
determining one course of action that appears better than the others
Converting plans in to budgeting
 Plans will have meaning when they are changed into numbers
 Budgeting is setting important standards against which plans can be measured
Implementing the plan
 After the optimum alternative has been selected, the manager needs to
develop an action plan to implement it
 This is a step where by the entire organization will be in motion or real
operation
 Implementation involves determining:
 Who will be involved (employee)
 What resource will be assigned (other resources excluding people)
 How the plan will be evaluated (procedures)
 What look like the reporting procedures (hierarchy of r/nships)
Controlling & evaluating the results
 Controlling & evaluating refers to:
 Monitoring the progress that is bring made, evaluating the reported
results, making any necessary modification
 The plan may have to be modified since: the environment constantly change and the plan
itself may not quite “perfect” during its development
Types of plan
 Plans can be classified on different bases or dimensions:
 Scope/breadth, time & use (i.e., repetitiveness )
 Scope / breadth dimension refers to the :
 Comprehensiveness of the plan
 Level of management where the plan is formulated
 Based on scope/ breadth, plan can be classified into: strategic, tactical &
operational – hierarchy of plan
Strategic plan- is organization wide plan that is formulated by top-level
management in consultation with the board of directors & middle level managers
 Characteristics of strategic plan:
 It require looking outside the organization for threat & opportunities
 It require looking inside the organization for strength & weakness
 It takes/ covers a relatively long time horizon (>= 5 years)
 It tends to be top management responsibility
 It is expected in a relatively general (non-specific) terms
 It serves as a premise for tactical plans
Types of plan
Tactical plan – refers to the implementation of activities & the allocation of
resources necessary for the achievement of the organization’s objectives
 Characteristics of tactical plan:
 It is an intermediate plan
 It is specific & goal oriented than strategic plan
 It is developed by middle level management in consultation with lower
level management
 It supports the implementation of the strategic plans
 It is concerned with shorter time frame (1-5 years)
 It serves as a premise for operational plans
 It is narrower in scope but more detailed than strategic plan
 Example
 What is the best pricing policy?
 Which market is suitable for marketing our products?
Types of plan
Operational plan – is concerned with the day to day activities of the organization
and formulated by the lower level management in consultation with middle level
management
 Characteristics of operational plan:
 It spells out specifically what must be accomplished to achieve specific
goals
 It is concerned with the efficient day to day use of resources allocated to a
department manager’s area of responsibility
 It has relatively short time frame (<=1year)
 It is the most detailed (specific) & narrowest plan
 Example
 What production technique is best?
 What material are needed for operation?
 Unless operational goals are achieved, tactical & strategic plans will
not be successful- goals will not be achieved
Types of plan
Time dimension – refers to the periods for which the planning is intended. Based
on the length of time a plan covers, three type of plans are identified:
 Long range (five years or more)
 Medium range (b/n one & five years)
 Short-range (one year or less)
 Note:
 All strategic plans are long range plans
 All tactical plans are medium-range plans
 All operational plans are short term- range plans
Use dimension- refers to the extent to which plans will be used on a
recurring basis, i.e., frequently
 Based on this dimension, there are two types of plans:
 Standing plan
 Single use plans
Types of plan
Standing plans:– provide an ongoing guidance for performance recurring
activities
 They are formulated to be used again & again for the day to
day operations of the organizations –for repetitive actions
 They are valuable under relatively stable situations
 Once established, they allow managers to conserve time used
decision-making of similar activities
 Example
 A bank can easily approve or reject loan if criteria are
established in advance to evaluate credit ratings, collateral
assets, etc.
 The major types of standing plans are policies, rules, & procedures
 Exercise: briefly discuss standing plans such as policy, rule & procedure
Types of plan
Policy
 Is a general guide that specifies the broad parameters within which organizational
members is expected to operate in pursuit of organizational goals
 Is a general statement or understanding which guide or channels thinking & actions
in decision- making to achieve organizational goals
Rules
 Spells out specific required actions or non-action, i.e., action that must be or
must not be taken
 Involves allowing no discretion, in a given situation
 Example – no smoking, photographing prohibited, etc.
Procedures
 Are statements that detail the exact manner in which certain activities must be
accomplished
 Put the process order of activities to be carried out to do a task
 Are chronological sequences of required actions
 Provide detailed step by step instructions as to what should be done
 Example: material procurement, university admission, bidding etc.
Types of plan
Single use plans:– are aimed at achieving a specific goals & will dissolve when
the goal has been accomplished
 They are designed to accomplish a specific objectives usually in a
relatively shorter period of time & non repetitive
 They are detailed courses of action that probably will not be repeated in the
same form in the future
 Example- a plan to build a new warehouse-location, placing a man on the moon, etc.
 The major types of single use plans are programs, projects, & budgets
Program:
 Is a comprehensive plan that coordinates a complex set of activities related to a
major non-recurring goals
 Is a complex of goals, policies, procedures, rules, task assignments, resources to be
employed & other elements necessary to carryout a given course of action
 Note: single use plan may use standing plans & other single use plans to be
effective
 Single use plan = standing plans + single use plan
 A program may be repeated with modification but not as it is
Types of plan
Project:
 Is a plan that coordinates a set of limited scope activities that are
non-recurring goals
 Project are the smaller & separate portion of a program
 Each project has limited scope & distinct directives concerning
assignment & time
 Each project will become the responsibility of designed personnel
who will be given specific resources & deadlines
 Example: building a warehouse can be taken as a program
 Typical projects might include:
 The preparation of layout drawings
 A report on labor drawings
 Transferring stock from existing facilities to the new installation
Types of plan
Budget:
 Is statement of expected results expressed in numerical terms
 Is a statement of financial resources set aside for specific activities
in a given period of time
 Is a single use plan that commits resources to an activity over a
given period
 May be expressed in monetary units, labor hours, unit of products.
Machine hours, etc.
 Is also used as a control device
Decision Theory
Decision making can be defined as the process of choosing
between alternatives to achieve a goal.
Decision making is a conscious human process involving
both individual and social phenomenon based upon factual
and value premises which concludes with a choice of one
behavioral activity from among one or more alternatives
with the intention of moving toward some desired state of
affairs.
Decision making is the process of identifying problems
and opportunities, develop alternative solution, select best
alternatives and implement it.
Decision Theory
It is part of all managers’ job and common core to other
functions.
For instance, top level management makes decision on dealing with
mission of organization and its strategies.
 Middle level management, focus on implementing strategies,
budgets and resource allocation.
First level management deals with repetitive day to day operations
-Decision making has three elements
1. when manager make decisions; they are choosing or selecting from among
alternatives
2. when manager make decisions; when there are no alternatives, there is no
decision-making , rather it become mandatory
3. When managers make decisions, they have purpose in mind. The purpose in
mind is organizational objectives.
Decision making process
1. Identification of Alternatives
Three means for generating alternatives are particularly well-known.
These are brainstorming, synectics, and nominal grouping.
2. Evaluation of Alternatives
Operation research techniques like pay-off matrix, decision trees,
queuing theory, linear programming, simulation, etc. will help you in
your task of evaluation of alternatives.
3. Selection of an Alternative
Organizational objectives, Resource constraints and political
considerations are examples of confounding factors which must be
carefully weighed. At this point, sound judgment and experience play
important roles.
4. Implementation of Decision
PROGRAMMED AND NON PROGRAMMED DECISIONS
 While programmed decisions are typically handled through
structured or bureaucratic techniques (standard operating
procedures),
 non-programmed decisions must be made by managers using
available information and their own judgment.
 An important principle of organization design that relates to
managerial decision making is Gresham's Law of Planning.
 This law states that there is a general tendency for programmed
activities to overshadow non-programmed activities.
 Hence, if you have a series of decisions to make, those that are more
routine and repetitive will tend to be made before the ones that are
unique and require considerable thought.
 This happens presumably because you attempt to clear your desk so
that you can get down to the really serious decisions. Unfortunately,
the desks very often never get cleared.
DECISION MAKING CONDITIONS
 A decision-maker may not have complete knowledge about decision
alternatives (i.e., High Problem, Complexity) or about the outcome
of a chosen, alternative (i.e., High Outcome Uncertainty).
 These conditions of knowledge are often referred to as states of
nature and have been labeled:
 Decisions under Certainty.
 Decisions Under Risk
 Decisions under Uncertainty
Decision making under certainty:
 A decision is made under conditions of certainty when a manager
knows the precise outcome associated with each possible alternative
or course of action.
 In such situations, there is perfect knowledge about alternatives and
their consequences.
 Exact results are known in advance with complete (100 per cent)
certainty. The probability of specific outcomes is assumed to be
equal to one.
 A manager is simply faced with identifying the consequences of
available alternatives and selecting the outcome with the highest
benefit or payoff.
 In practice, managers rarely operate under conditions of certainty.
The future is only barely known.
Decision making under risk:
 A decision is made under conditions of risk when a single action
may result in more than one potential outcome, but the relative
probability of each outcome is known.
 Decisions under conditions of risk are perhaps the most common.
 In such situations, alternatives are recognized, but their resulting
consequences are probabilistic and doubtful.
 While the alternatives are clear, the consequence is probabilistic and
doubtful. Thus, a condition of risk may be said to exist.
 In practice, managers assess the likelihood of various outcomes
occurring based on past experience, research, and other information.
 A quality control inspector, for example, might determine the
probability of number of `rejects' per production run.
Decision making under uncertainty:
 A decision is made under conditions of uncertainty when a single
action may result in more than one potential outcome, but the
relative probability of each outcome is unknown.
 Decisions under conditions of uncertainty are unquestionably the
most difficult.
 In such situations a manager has no knowledge whatsoever on
which to estimate the likely occurrence of various alternatives.
 Decisions under uncertainty generally occur in cases where no
historical data are available from which to infer probabilities or in
instances which are so novel and complex that it is impossible to
make comparative judgments.
 Selection of a new advertising program from among several
alternatives might be one such example.
Models of Decision Making Process
 There are three suggested models of the decision making process
which is about how decisions are made and should be made.
 Each model differs on the assumptions it makes about the person or
persons making the decision
 These three models are:
 The econologic model, or the economic man,
 The bounded rationality model or the administrative man; and
 The implicit favorite model or the gameman.
I. Econologic Model or Economic Man Model
 The econologic model represents the earliest attempt to model
decision process.
 Briefly, this model rests on two assumptions:
 It assumes people are economically rational; and
 That people attempt to maximize outcomes in an orderly and
sequential process.
2. Bounded Rationality Model or Administrative Man Model
 The bounded rationality model, also known as the administrative
man model.
 It assumes that people, while they may seek the best solution,
usually settle for much less because the decisions they confront
typically demand greater information processing capabilities than
they possess.
 The concept of bounded rationality attempts to describe decision
processes in terms of three mechanisms:
 Sequential attention to alternative solutions: People examine
possible solutions to a problem sequentially.
 If the first solution fails to work it is discarded and the next
solution is considered.
 When an acceptable (that is, `Good enough' and not necessarily
the best') solution is found, the search is discontinued.
Implicit Favorite Model or Gamesman Model
 This model deals primarily with non-programmed decisions.
 Non-programmed decisions are decisions that are novel or
unstructured.
 The implicit favorite model developed by Soelberg (1967) emerged
when he observed the job choice process of graduating business
students and noted that, in many cases, the students identified
implicit favorites very early in the recruiting and choice process.
 However, they continued their search for additional alternatives and
quickly selected the best alternative candidate, known as the
confirmation candidate.
 Next, the students attempted to develop decision rules the
demonstrated unequivocally that the implicit favorite was superior
to the alternative confirmation candidate.

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Planning function & decision-making

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