UNIT-II

PLANNING
• Nature and purpose of planning – planning
process – types of planning – objectives –
setting objectives – policies – Planning
premises – Strategic Management – Planning
Tools and Techniques – Decision making steps
and process
 INTRODUCTION
• Planning is basic of all Management functions.
• Lots of planning activities are done by the
management people at all levels.
• Planning is the process of selecting an
objectives and determining the course of
action to achieve these objective.
• Planning bridges the gap between where we
are and where we want to go.
 Definition - Planning
Knootz and O’Donnell
• “ Planning is deciding in advance what
to do, how to do it, when to do it, and who is
to do it.
• It is the selection among alternative course
of action for the enterprise as a whole and
each department within it”
 PLANNING PROCESS
• Planning is a step by step process.
• Planning process is suitable for large scale
organization and many not suitable for small
scale organization
• The various factors involved into planning
process may vary from Organization to
organization , plan to plan.
• With minor modifications the planning
process is applicable for all types of plans
 Steps In Planning
Identification of Opportunities

Establishment of Objectives

Developing Planning Premises

Identification of Alternatives

Evaluation of Alternatives

Selecting an Alternatives

Formulating Derivative plans

Establishing Sequence of Activities

 Identification of Opportunities
• Identification of the opportunity is the starting point
of planning.
• First of all, we should identify the possible future
opportunities and analyze them clearly and
completely.
We have to identify the following:
• Where we stand?
• What is our strength and Weakness?
• What problem we wish to solve and why?
• What we expect to gain?
 Establishment of Objective Or Goals
• Next step in planning is to establish objectives for entire
organization and then for each subordinate unit
• Objective specify and indicate the results expected
1. What is to be done?
2. Where is the primary emphasis to be places?
3. What is to be accomplished by various types of plans?
• Objective should be specified in all Key Result Areas.
• KRA are important for organization in achieving its
objectives
• KRA may be - Profitability, Sales, Research and
Development, Manufacturing, etc…
• Overall objective shape the structure of other
subsidiary objectives of the organization
• They are divided into three objectives
1.Departmental
2.Sectional
3.Individual
• Overall objective give directions to all other plans of
major departments
• Departmental objective must confirm the overall
objective
• There will be a hierarchy of objective in
organization
 Developing Planning Premises
• Planning premises provides the basic frame work in
which the plan operate
• These premises may be Internal or External.
• Internal Premises includes: Organizational policies,
resources, Sales forecast and the ability of the
organization to withstand the environmental pressure.
• External Premises includes the factors in task
environment: Political, Social, Technological,
Competitors, plan and action, Govt. policies, etc..
• The nature of planning premises differs at different
levels of planning.
• At the top level, it is externally focused.
• At the Bottom level, it is internally focused.
 Identification of Alternatives
• Next step in planning is Identifying the alternative course of
action.
• Based on Organizational Objective and Planning premises,
various alternatives of plans can be identified.
• Particular objective can be achieved through number of
alternatives
• All alternatives cannot be analyzed.
• Some alternatives can be rejected in preliminary stage itself
by considering the preliminary criteria
1. Minimum investment required 2. Matching with present
business 3. Market conditions 4.Government controlled
5.Skilled workers 6. Techniques available
• Only the alternative which meet the preliminary criteria
may be chosen for detailed analysis.
 Evaluation of Alternatives
• Each alternative course of action is evaluated on the
basis of profitability, capital investment, goal and risk
involved.
• Each alternative have some advantages and Dis
advantages.
• Some alternative may be more profitable but at the
same time it have more risk factors(requires large cash
with slow payback) and another one may be less profit,
less risk factor
• In evaluating alternatives, sometimes intangible factors
such as public relations, goodwill of company, employee
morale are also considered.(difficult to understand)
• Thus the evaluation work become more complex.
• More sophisticated techniques of planning and decision
making have been developed(advanced)
 Selecting the Alternative
• After evaluation of various alternatives, most
appropriate course of action is selected
• If more than one alternative is suitable than
many alternatives may be chosen for execution
• When the situation changes and the selected
plan does not provide the best, the other
alternative may be tried
 Formulation of Derivative plans
• Derivative plans are formulated on the basis of
major plan.
• There are several minor plans required to
support the major plans. These plans are
known as Derivative Plans.
• Various Derivative plans are planning for
buying Equipments, buying raw materials,
recruiting and training the persons, developing
a new product etc.
 Establishing Sequence of activities
• After formulating basic and derivative plans, the
sequence of activities is determined
• Sequence of activities means plans are put into
actions.
• While Framing derivative plans, a
built-in-mechanism should be created for
periodic review and updating of new plans.
• Starting and finishing time are fixed to indicate
when and within what time that work is to be
started and completed.
Managing by Objective
(MBO)
 Introduction
• MBO was conceptualized by peter. F. Drucker.
• MBO is a management system in which each
member of the organization effectively participates
and involves
 KOONTZ &WEIHRICH -Definition
It is defined as a comprehensive managerial
system that integrates many key managerial
activities in a systematic manner and that is
consciously directed towards the effective and
efficient achievement of organizational and
individual objective.
 Features of MBO
• MBO is Goal oriented rather than work
–oriented approach.
• MBO Integrates individual goal with the
organizational goal.
• MBO tries to combine the long range goal with
short range goal of organization.
• MBO involves the participation of subordinate
managers in the goal setting process.
• A high degree of motivation and satisfaction is
available to the employees through MBO.
• Periodic review of performance is an important
feature of MBO because it provides basis for
planning and corrective action
• MBO Provides a guidelines for systems and
procedure to achieve the objectives.
Process of MBO
 Setting Preliminary Objectives:
● Setting of objectives starts from the top-level
management. Then it moves downwards.
● Organizational objective states why the
business is started and existed.(continued)
● Long term objective are laid down(made) in the
key result areas.
● Short term objectives are taking into account to
achieve the long term objective.
● These objectives are preliminary and tentative
subjected to modification.
 Fixing Key result area
• Key Result Areas are used to measured the
organizational health
• KRA are identified based on the Organizational
Objectives.
Some examples are
• Profitability
• Market standing
• Innovation
• Productivity
• Market performance
• Public Responsibility.
● These areas may vary for different organization
 Setting subordinate’s Objectives
• Organizational Objectives are achieved through
individuals.(workers)
• So each individual must know what he is expected
to achieve.
• During setting of objectives, we should consider
the organizational goals, subordinates ability and
resources available to him.
• There should be a Open discussion between
superior and his subordinates.
• Allocation of resources should be made in
consultation with subordinates
 Recycling objectives
• Under MBO, goal setting is not the direction from
the top level management only.
• It is a two way process.
• Superior suggest a goal that is acceptable to the
sub-ordinates.
• Thus setting objectives are not only a joint process
but also an interactive one.
 Matching the resources with Objectives
• Objectives should be carefully matched with the
available resources.
• If resources are not adequately available, the
objectives of an organization are changed
accordingly.
• Allocation of resources should be done in
consultation with the subordinates.
 Periodic Performance review
• At specified intervals, the superior and subordinates
should hold meetings. In this meeting they discuss
the progress in the accomplishment of objectives.
• Reviews are made to identify shortcomings and to
take timely steps to improve the results. (weakness)
• Feedback is provided to each individuals to facilitate
self regulation and control.
 Appraisal
• Appraisal tries to measure whether the subordinates is
achieving the objective or not.
• At the end of the fixed period, there should be a meeting
between the superior and subordinates.
• If subordinates do not achieve the objectives, then the
superior should identify what are the problems and how
these problems can be overcome.
• Main purpose of the appraisal is to find out the
shortcomings in achieving the objectives and also to
remove them accordingly.
 Benefits of MBO
It helps the manager to think about planning for end result
It helps manager to clarify the organizational roles, authorities
and responsibilities.
It provides opportunity for personnel satisfaction like
Participation in Objective setting.
MBO results a better communication between superior and
sub-ordinates and reduces Conflict.
MBO helps in developing effective control by measuring results
and take corrective action if any deviation arise from plans.
Management take the decision very quickly because person
know the purpose of taking the decision and doesn’t oppose the
decision.
 Weakness of MBO
MBO fails to explain the philosophy because Most of the
executives do not know what is MBO, how MBO works.
MBO doesn’t provide any guidelines for setting
goals.(practical)
MBO emphasis only on short term objective and doesn’t
consider the long term objective.
MBO is a time consuming process. At the initial stage,
several meeting may conducted to develop confidence in
subordinates.
DECISION
MAKING
 DECISION MAKING:
● It is defined as the process of choosing a course of
action among alternatives to achieve a desired goal
● The management executive take number of
decisions every day
● A decision may be direction to other to do or not
to do
● Decision may be rational or irrational
● Decision-making is blend of thinking, deciding and
acting
 DEFINITIONS

● According to Koontz and weihrich “

Decision-making is defined as selection
of course of action from among
alternatives”.
TYPES OF
DECISION
 TYPES OF DECISION/KINDS OF DECISION:
1) Programmed and Non-Programmed decisions
2) Organizational and Personal decisions
3) Tactical (Policy) and Operational decisions
4) Major and Minor decisions
Programmed and Non-Programmed decisions:
Programmed decisions:
● Programmed decisions are called Routine decisions

or structured decisions
● These types of decisions are taken frequently and

they are repetitive in nature

● These decisions are taken by middle or lower level

manager
● They have short term impact

● This decision is taken within the preview of the

policy of the organization

EX:
1. Making purchase order

2. Sanctioning the different types of leaves

3. Increments in salary

● Managers follow the established clear-cut

procedure to deals the above issue

● Managers know in advance what decisions has to

be taken in particular set of conditions and they

need not ask anything from their superiors
Non-Programmed decisions:
● Non- Programmed decisions are called Strategic-

decisions or basic decisions or policy decisions

● These types of decisions are taken by management

people whenever the need arises

● These decisions deals with unique or unusual or

non routine problems and these problems cannot

be tackled in a predetermined manner.
● There are no readymade answers for such

problems
● A careful analysis is made by the management

before taking a decisions.

● This decisions has long-term impact on business
EX:
1. Issues related to industrial relation problems

2. Declining market share

3. Increasing competition

4. Problems with collaborator

Major and Minor decisions:
Major decisions:
● Decision pertaining(related) to purchase new

factory premises is a major decision

● Major decision are taken by top management

Minor decisions:
● Decision pertaining(related) to Purchase of office

stationery is a minor decision

● Minor decision can be taken by office

superintendent
Organizational and personal decisions:
Organization decisions:
● Organization decisions are taken by individual in his

official capacity
● These decisions are based on rationality,

judgement and experience

Ex:
1.Introducing a new incentive system
2.Transferring an employee,
3.Reallocation of employees
● Such decisions affect the organization function

directly
Personal decisions:
● If decisions taken by the executive in the personal

capacity it is known as personal decision.

● Sometimes these decisions may affect functioning

of organization
Ex:
If an executive leaves the organization it may affect
the organization.

● The authority of taking organizational decisions

may be delegated, where as personal decisions
cannot be delegated.
Tactical (Policy)and Operational decisions:
Tactical decisions:
● Decisions pertaining(related) to various policy

matters of the organization are policy decisions

● They are taken by top management after careful

analysis and evaluation of various alternatives

● These decisions have long term impact

Ex:
1.Decision regarding location of plant,
2.Capital expenditure(upgrade)
3.Volume of productions and channel of
distribution
Operational decisions:
● Operational decisions relate to day-to-day

functioning or operation of business

● Middle and lower level managers take these

decisions.
Ex:
1.Sending of sample food products to the
government investigation center.
Decision Making under
Different Condition
• Decision making means the selection of right
alternative from various available alternatives.
• Today’s decision will affect the future action.
• If it is a long term decision making process, the
reflection of future should be considered in
today’s decision to avoid more deviation from
the original one.
• Decision making involves three process
1.Condition of perfect certainty
2.Condition of risk
3.Condition of Complete uncertainty.
 Certainty
• Manager of the Organization knows the nature of
the work.
• certainty exists due to its nature. (confidence)
• Manager can use a deterministic model.(rules and
logic)
• He does not need to analyze each element of work.
• Payoff table method is followed.
• In payoff table method, the outcomes of a
decision are made based on the demand of
the product in the form of high, moderate, low
• First, the highest demand of the product is
considered, then, the next highest is
considered and so on.
• Leads to get more profit to the Organization.
 Risk
• Most of the Organization make the decision
based on the condition of risk.
• The decision maker knows the alternatives but
not know the consequences with certainty.
• They can estimate the probability of each
outcome (expectation)
• The probability of risk is calculated as the
percentage of times a particular outcome with
repeated action will occur.
• Three methods to determine the probability
• Apriori probability
• Emprical probability
• Subjective probability
 Apriori
• This probability is obtained by inferences from
assumed conditions.(conclusion)

Empirical
• Determined by collecting and recording actual
experience for a period of time.
• This probability provides quantitative
information about the event.
 Subjective
• In some cases, the manager do not get
sufficient numerical data to calculate the
probability of event using empirical and apriori
method.
• In this situation, manager makes his decision
based on his own judgement.
• Accuracy-less.
 Uncertainty
• If managers of organization do not have
information about the outcome of the
decisions, then he will run the organization
under uncertainty condition.
• They may need to be creative and seize (grab)
opportunities.