Module II

Planning and Organizing I: Planning: Nature, scope, and objectives of planning, Types of plans,
Planning process, and Business forecasting. MBO: Concept, types, process, and techniques of
decision-making, Bounded Rationality.
PART 1: Planning
Definition and Meaning of Planning
Planning is the process of deciding in advance what is to be done, what is to be done, who is to do
it, how it is to be done, and when it is to be done.
Some authors defined planning as follows:

According to Harold Koontz and O'Donnell, planning is deciding in advance what is to be

done in the future. Plan the gap between where we are and where we want to go.

Alfred and Beatly defined the term planning as "the thinking process, the organized
foresight, the vision based on fact and experience that is required for intelligent action."

Stoner and Freeman defined planning as "the process of establishing goals and suitable
action for achieving these goals."

Nature of Planning

1. Planning is goal-oriented: Every plan must contribute in some positive way towards the
accomplishment of group objectives. Planning has no meaning without being related to
goals.
2. The primacy of Planning: Planning is the first of the managerial functions. It precedes all
other management functions.
3. The pervasiveness of Planning: Planning is found at all levels of management. Top
management looks after strategic planning. Middle management is in charge of
administrative planning. Lower management has to concentrate on operational planning.
4. Efficiency, Economy, and Accuracy: The efficiency of a plan is measured by its
contribution to the objectives as economically as possible. Planning also focuses on
accurate forecasts.
 5. Coordination: Planning coordinates the what, who, how, where, and why of planning.
Without coordination of all activities, we cannot have united efforts.
6. Limiting Factors: A planner must recognize the limiting factors (money, manpower, etc.)
and formulate plans in light of these critical factors.
7. Flexibility: The process of planning should be adaptable to changing environmental
conditions.
8. Planning is an intellectual process: The quality of planning will vary according to the
quality of the mind of the manager.

Objectives of Planning
As a managerial function planning is important due to the following reasons:-

1. To manage by objectives: All the activities of an organization are designed to achieve

certain specified objectives. However, planning makes the objectives more concrete by
focusing attention on them.
2. To offset uncertainty and change: Future is always full of uncertainties and changes.
Planning foresees the future and makes the necessary provisions for it.
3. To secure the economy in operation: Planning involves, the selection of most profitable
course of action that would lead to the best result at the minimum costs.
4. To help in coordination: Coordination is, indeed, the essence of management, the planning
is the base of it. Without planning it is not possible to co-ordinate the different activities of
an organization.
5. To make control effective: The controlling function of management relates to the
comparison of the planned performance with the actual performance. In the absence of
plans, management will have no standards for controlling other's performance.
6. To increase organizational effectiveness: Mere efficiency in the organization is not
important; it should also lead to productivity and effectiveness. Planning enables the
manager to measure the organizational effectiveness in the context of the stated objectives
and take further actions in this direction.
Types of Plans

Strategic plans:
A strategic plan is an outline of steps designed with the goals of the entire organization as a whole
in mind, rather than with the goals of specific divisions or departments. It is further classified as
• Mission:
The mission is a statement that reflects the basic purpose and focus of the organization
which normally remains unchanged. The company's mission is the answer to the question:
why does the organization exist?
Properly crafted mission statements serve as filters to separate what is important from what
is not, clearly state which markets will be served and how, and communicate a sense of
intended direction to the entire organization.
Mission of Ford: “We are a global, diverse family with a proud inheritance, providing
exceptional products and services”.
• Objectives or goals:
Both goal and objective can be defined as statements that reflect the end towards which the
organization is aiming to achieve. However, there are significant differences between the
two. A goal is an abstract and general umbrella statement, under which specific objectives
can be clustered. Objectives are statements that describe—in precise, measurable, and
obtainable terms that reflect the desired organization’s outcomes.
• Strategies:
Strategy is the determination of the basic long-term objectives of an organization and the
adoption of action and collection of action and allocation of resources necessary to achieve
these goals. These plans provide the framework and direction for lower-level planning.
Strategic planning begins with an organization's mission. Strategic plans look ahead over
the next two, three, five, or even more years to move the organization from where it
currently is to where it wants to be. Requiring multilevel involvement, these plans demand
harmony among all levels of management within the organization. Top-level management
develops the directional objectives for the entire organization, while lower levels of
management develop compatible objectives and plans to achieve them. Top management's
strategic plan for the entire organization becomes the framework and sets dimensions for
the lower level of planning.
Tactical plans:
A tactical plan is concerned with what the lower-level units within each division must do, how
they must do it, and who is in charge at each level. Tactics are the means needed to activate a
strategy and make it work.
Tactical plans are concerned with shorter time frames and narrower scopes than strategic plans.
These plans usually span one year or less because they are considered short-term goals. Long-term
goals, on the other hand, can take several years or more to accomplish. Normally, it is the middle
manager's responsibility to take a broad strategic plan and identify specific tactical actions.
Operational plans
The specific results expected from departments, work groups, and individuals are the operational
goals. These goals are precise and measurable. “Process 150 sales applications each week” or
“Publish 20 books this quarter” are examples of operational goals.
An operational plan is one that a manager uses to accomplish his or her job responsibilities.
Supervisors, team leaders, and facilitators develop operational plans to support tactical plans (see
the next section). Operational plans can be a single-use plan or a standing plan.
1. Single-use plans apply to activities that do not recur or repeat. A one-time occurrence,
such as a special sales program, is a single-use plan because it deals with the who, what,
where, how, and how much of an activity.
i) Programme: The programme consists of an ordered list of events to be followed to
execute a project.
ii) Budget: A budget predicts sources and amounts of income and how much they are used
for a specific project.
2) Standing plans are usually made once and retain their value over a period of years while
undergoing periodic revisions and updates. The following are examples of ongoing plans:
i) Policy: A policy provides a broad guideline for managers to follow when dealing with
important areas of decision-making. Policies are general statements that explain how a
manager should attempt to handle routine management responsibilities. Typical human
resources policies, for example, address such matters as employee hiring, terminations,
performance appraisals, pay increases, and discipline.
ii) Procedure: A procedure is a set of step-by-step directions that explains how activities
or tasks are to be carried out. Most organizations have procedures for purchasing
 supplies and equipment, for example. This procedure usually begins with a supervisor
completing a purchasing requisition. The requisition is then sent to the next level of
management for approval. The approved requisition is forwarded to the purchasing
department. Depending on the amount of the request, the purchasing department may
place an order, or they may need to secure quotations and/or bids for several vendors
before placing the order. By defining the steps to be taken and the order in which they
are to be done, procedures provide a standardized way of responding to a repetitive
problem.
iii) Rule: A rule is an explicit statement that tells an employee what he or she can and
cannot do. Rules are “do” and “don't” statements put into place to promote the safety
of employees and the uniform treatment and behavior of employees. For example, rules
about tardiness and absenteeism permit supervisors to make discipline decisions
rapidly and with a high degree of fairness.

Contingency plans
Intelligent and successful management depends upon a constant pursuit of adaptation, flexibility,
and mastery of changing conditions. Strong management requires a “keeping all options open”
approach at all times — that's where contingency planning comes in.
Contingency planning involves identifying alternative courses of action that can be implemented
if and when the original plan proves inadequate because of changing circumstances. Keep in mind
that events beyond a manager's control may cause even the most carefully prepared alternative
future scenarios to go awry. Unexpected problems and events frequently occur. When they do,
managers may need to change their plans. Anticipating change during the planning process is best
in case things don't go as expected. Management can then develop alternatives to the existing plan
and ready them for use when and if circumstances make these alternatives appropriate.

Tactical Plans

1) Tactical plans describe the tactics that the managers plan to adopt to achieve the objectives
set in the strategic plan.
2) Tactical plans span a short time frame (usually less than 3 years) and are usually developed
by middle-level managers.
3) It details specific means or action plans to implement the strategic plan by units within each
division.
4) Tactical plans entail detailing resource and work allocation among the subunits within each
division.

Operational Plans
1) Operational plans are short-term (less than a year) plans developed to create specific action
steps that support the strategic and tactical plans.
2) The manager usually develops them to fulfill his or her job responsibilities.
3) They are developed by supervisors, team leaders, and facilitators to support tactical plans.
4) They govern the day-to-day operations of an organization.
5) Operational plans can be −
• Standing plans − Drawn to cover issues that managers face repeatedly, e.g. policies,
procedures, rules.
• Ongoing plans − Prepared for single or exceptional situations or problems and are
normally discarded or replaced after one use, e.g. programs, projects, and budgets.

Planning Process
The steps involved in the planning process are:
1) Perception of Opportunities:
Although preceding actual planning and therefore not strictly a part of the planning process,
awareness of an opportunity is the real starting point for planning. It includes a preliminary
look at possible future opportunities and the ability to see them clearly and completely,
knowledge of where we stand in the light of our strengths and weaknesses, an understanding
of why we wish to solve uncertainties, and a vision of what we expect to gain. Setting realistic
objectives depends on this awareness. Planning requires a realistic diagnosis of the opportunity
situation.
2) Establishing Objectives:
The first step in planning itself is to establish objectives for the entire enterprise and then for
each subordinate unit. Objectives specifying the results expected indicate the end points of
what is to be done, where the primary emphasis is to be placed, and what is to be accomplished
by the network of strategies, policies, procedures, rules, budgets, and programs.
Enterprise objectives should give direction to the nature of all major plans which, by reflecting
these objectives, define the objectives of major departments. Major department objectives, in
turn, control the objectives of subordinate departments, and so on down the line. The objectives
of lesser departments will be better framed, however, if subdivision managers understand the
overall enterprise objectives and the implied derivative goals and if they are given an
opportunity to contribute their ideas to them and to the setting of their own goals.
3) Considering the Planning Premises:
Another logical step in planning is to establish and obtain an agreement to utilize and
disseminate critical planning premises. These are forecast data of a factual nature, applicable
basic policies, and existing company plans. Premises, then, are planning assumptions – in other
words, the expected environment of plans in operation. This step leads to one of the major
principles of planning.
The more individuals charged with planning understand and agree to utilize consistent
planning premises, the more coordinated enterprise planning will be.
Planning premises include far more than the usual basic forecasts of population, prices, costs,
production, markets, and similar matters.
 Because the future environment of plans is so complex, it would not be profitable or realistic
to make assumptions about every detail of the future environment of a plan.
Since agreement to utilize a given set of premises is important to coordinate planning, it
becomes a major responsibility of managers, starting with those at the top, to make sure that
subordinate managers understand the premises upon which they are expected to plan. It is not
unusual for chief executives in well-managed companies to force top managers with differing
views, through group deliberation, to arrive at a set of major premises that all can accept.
4) Identification of alternatives:
Once the organizational objectives have been clearly stated and the planning premises have
been developed, the manager should list as many available alternatives as possible for reaching
those objectives.
The focus of this step 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 more common problem is not finding alternatives, but reducing the number of alternatives
so that the most promising may be analyzed. Even with mathematical techniques and the
computer, there is a limit to the number of alternatives that may be examined. It is therefore
usually necessary for the planner to reduce by preliminary examination the number of
alternatives to those promising the most fruitful possibilities or by mathematically eliminating,
through the process of approximation, the least promising ones.
5) Evaluation of alternatives
Having sought out alternative courses and examined their strong and weak points, the
following step is to evaluate them by weighing the various factors in the light of premises and
goals. One course may appear to be the most profitable but require a large cash outlay and a
slow payback; another may be less profitable but involve less risk; still, another may better suit
the company in long–range objectives.
If the only objective were to examine profits in a certain business immediately, if the future
were not uncertain, if cash position and capital availability were not worrisome, and if most
factors could be reduced to definite data, this evaluation should be relatively easy. But typical
planning is replete with uncertainties, problems of capital shortages, and intangible factors,
and so evaluation is usually very difficult, even with relatively simple problems. A company
 may wish to enter a new product line primarily for purposes of prestige; the forecast of
expected results may show a clear financial loss, but the question is still open as to whether the
loss is worth the gain.
6) Choice of alternative plans
An evaluation of alternatives must include an evaluation of the premises on which the
alternatives are based. A manager usually finds that some premises are unreasonable and can
therefore be excluded from further consideration. This elimination process helps the manager
determine which alternative would best accomplish organizational objectives.
7) Formulating Supporting Plans
After decisions are made and plans are set, the final step to give them meaning is to number
them by converting them to budgets. The overall budgets of an enterprise represent the sum
total of income and expenses with resultant profit or surplus and budgets of major balance
sheet items such as cash and capital expenditures. Each department or program of a business
or other enterprise can have its own budget, usually for expenses and capital expenditures,
which tie into the overall budget.
If this process is done well, budgets become a means of adding together the various plans and
important standards against which planning progress can be measured.
8) Establishing a sequence of activities
Once plans that furnish the organization with long- and short-range direction have been
developed, they must be implemented. Obviously, the organization can not directly benefit
from the planning process until this step is performed.

Management by Objectives
MBO was first popularized by Peter Drucker in 1954 in his book 'The Practice of Management’.
It is a process of agreeing within an organization so that management and employees buy into the
objectives and understand what they are. It has a precise and written description of objectives
ahead, and timelines for their motoring and achievement.
The employees and manager agree to what the employee will attempt to achieve in the period
ahead and the employee will accept and buy into the objectives.
Definition
“MBO is a process whereby the superior and the managers of an organization jointly identify its
common goals, define each individual’s major area of responsibility in terms of results expected
of him, and use these measures as guides for operating the unit and assessing the contribution of
each of its members.”

Features of MBO

1. MBO is concerned with goal setting and planning for individual managers and their units.
2. The essence of MBO is a process of joint goal-setting between a supervisor and a subordinate.
3. Managers work with their subordinates to establish performance goals that are consistent with
their higher organizational objectives.
4. MBO focuses attention on appropriate goals and plans.
5. MBO facilitates control through the periodic development and subsequent evaluation of
individual goals and plans.

MBO Examples
If this sounds like something you’d like to try, you may be wondering what examples of objectives
you could set.
While specific objectives may differ depending on your industry, product, and specific company,
there are some blanket objectives that you can begin with. While any department can use MBO,
we’ll take a look at three specific instances.
Sales MBO Examples

• Decrease the sales cycle from four to two months

• Increase the average sales to $10,000
• Bring in 15 new customers during a specific time period

Marketing MBO Examples

• Increase social media likes by 40%

• Increase time spent on the website by five minutes
• Generate 500 new leads per month
 • Get five media placements

Customer Service BMO Examples

• Decrease call time to under five minutes

• Increase customer satisfaction by 30%
• Reduce manager call intervention by 10%
• Human Resources MBO Examples
• Improve retention rate by 15%
• Implement a leadership training program for remarkable employees
• Increase employee satisfaction by 30%

Steps in MBO:
The steps in management by objectives are:
Determining Organizational Goals – Setting Organizational Purpose
The very first step in the MBO process is defining organizational goals. These goals must be clear
and concise and different kinds of managers must be involved when setting goals. Goals can be
either long-term goals or short-term goals.
These goals are concerned with organizational growth, profit, and production, etc
The characteristics of an ideal organizational goal must be:
Clear, concise, and without any confusion
Challenging yet motivating for the workers and operational staff
Within the skills and competence of the operational unit
Consistent throughout the goal-setting sessions
In short, the objective setting must be according to the mnemonic S.M.A.R.T which means:
Specific: The objective must clearly state the area of the organization that needs improvements
Measurable: Organizational goals must be set in a way that later they can be measured by some
kind of performance indicator.
Agreed-Upon: It’s important that the objectives are communicated to all levels and all levels must
agree upon those objectives. It means the objectives must be accepted by two levels, those who
created the objectives and those who are going to work and achieve objectives.
Realistic: Objectives must be realistic meaning that objectives are set by keeping the available
resources in mind and what can possibly be achieved.
Time-Bound: There must be an end period when the performance can be measured or when the
objectives must be fulfilled.
Determining Employees’ Objectives – Developing Action Plans
After determining the organizational goals, the next step Is to set the individual’s goals or more
clearly employees’ goals. It is the responsibility of the manager to ask employees about what goals
they can accomplish within a specific period and what resources will they use to achieve those
goals.
Constant Monitoring Progress and Performance
The process of MBO is not just set for providing additional effectiveness to managers across the
organization, but it is also equally important for constantly monitoring the progress and
performance of the employees.
Some of the important things that can help managers to monitor performance and progress are:
Checking less-effective or ineffective programs by performing a comparison of performance with
already prepared objectives
Using ZBB (Zero Based Budgeting)
For measuring plans and individuals, implementing MBO concepts
Defining short term and long term plans, objectives, and goals
Installing efficient and effective controls
Eventually, composing the completely sound structure of the organization with all things at
appropriate places such as responsibilities, decision making, and so on
In this phase, subordinates and superiors regularly conduct meetings to see the progress and
performance.
Performance Evaluation
As per the basic concept of MBO, the performance evaluation comes under the responsibility of
concerned managers and is made by their participation. Keep in the mind, performance evaluation
is one of the most important factors of the organization that can help to operate certain objectives
smoothly.
Providing Feedback – Performance Review
The psychologically influential factor of MBO is providing continuous feedback to employees
regarding their performance and individual goals so that they can monitor, correct, and extra
improve their skills and mistakes.
Mostly, the feedback is provided in periodic meetings held by supervisors and their subordinates
to review the performance and progress towards the achievement of goals. At one point, feedback
helps individuals know their weaknesses.
While on the other hand, it also motivates already potential individuals to enhance and develop
their performance additionally.
The main purpose of feedback is to identify the deviations and shortcomings to improve the quality
rather than focusing on criticism.
Feedback is provided in a face-to-face meeting held by superiors for the subordinates. These
feedback meetings are held at different intervals like 3 months, 6 months, or 9 months depending
on the organization’s structure.
The Performance Appraisal – Recycling
Performance appraisals are the final step of the process of Management by Objectives. By
definition, a day-by-day review of the employee’s performance across the organization can be
called a performance appraisal.
Performance appraisal is associated with the term performance evaluation, but in some cases,
both differ from each other.
At this step, rewards of MBO appraisal are decided for individuals based on their performance.
This helps motivate employees to work with more passion.
Not only appraisal but at the step new objectives are set or current objectives are modified (if
needed) along with their approaches to improve the overall performance. This phase helps
employees identify their areas of excellence and weaknesses.
It means MBO helps employees and superiors in career advancement, skill improvement, and self-
improvement.

Here are some common types of Management by Objectives:

1. Individual MBO: This is the most basic form of MBO, where each individual employee
sets their own objectives and goals in collaboration with their manager. These objectives
are aligned with the organization's overall goals.
2. Departmental MBO: In this variation, objectives are set for entire departments or
functional units within the organization. Departmental objectives are aligned with the
organization's strategic goals, and all members of the department work collectively to
achieve them.
3. Top-Down MBO: In this approach, senior management sets objectives and goals for the
organization, and these objectives are cascaded down through the hierarchy to individual
employees. It ensures alignment with the organization's overall strategy but may not
involve as much employee input in goal-setting.
4. Participatory MBO: This approach emphasizes involving employees at all levels in the
goal-setting process. It encourages collaboration and input from employees, making them
more engaged in achieving the objectives.
 5. SMART MBO: SMART stands for Specific, Measurable, Achievable, Relevant, and
Time-bound. This type of MBO emphasizes setting objectives that meet these criteria to
ensure clarity and effectiveness in goal achievement.
6. Project-Based MBO: In this variation, MBO is applied to specific projects or initiatives
within the organization. Teams or project managers set objectives for their projects, which
contribute to the overall organizational goals.
7. Continuous MBO: Instead of an annual or periodic review, continuous MBO involves
regular, ongoing monitoring and adjustment of objectives. This approach is more adaptable
to rapidly changing business environments.
8. 360-Degree MBO: In this type of MBO, feedback and input are gathered from various
sources, including peers, subordinates, and customers, in addition to the manager. This
comprehensive feedback helps in setting well-rounded objectives and assessing
performance from multiple perspectives.
9. Outcome-Based MBO: This approach focuses on the outcomes or results achieved rather
than the specific tasks or activities. It encourages employees to be innovative and find the
most efficient ways to achieve the desired results.
10. Profit-Centered MBO: In organizations where profitability is a primary concern, this type
of MBO emphasizes setting objectives related to revenue, cost control, and profit margins.
11. Social Responsibility MBO: For organizations with a strong emphasis on corporate social
responsibility, this type of MBO includes objectives related to sustainability,
environmental impact, and social contributions.
12. Strategic MBO: This approach closely aligns MBO with the organization's long-term
strategic goals and vision. It ensures that objectives are not only achievable but also
contribute to the organization's long-term success.
The choice of MBO type depends on the organization's goals, culture, and specific needs. Some
organizations may use a combination of these types to create a customized MBO system that best
suits their circumstances.
Planning Techniques of Decision Making
Planning techniques are essential components of the decision-making process, helping individuals
and organizations organize their thoughts, set objectives, and determine the best course of action.
Here are some planning techniques commonly used in decision-making:
1. SWOT Analysis: SWOT stands for Strengths, Weaknesses, Opportunities, and Threats.
This technique involves identifying internal strengths and weaknesses and external
opportunities and threats to assess the current situation and make informed decisions.
2. PESTEL Analysis: PESTEL is an acronym for Political, Economic, Social,
Technological, Environmental, and Legal factors. This technique helps organizations
analyze and consider the various external factors that may impact their decisions.
3. Scenario Planning: This technique involves creating different scenarios or future
situations based on various assumptions. Decision-makers can then evaluate how their
decisions would perform under each scenario, allowing for more robust decision-making
in uncertain environments.
4. Decision Trees: Decision trees are graphical representations of decisions and their
potential outcomes. They help decision-makers visualize the choices available and the
consequences of each choice, especially in situations with multiple decision points and
uncertain outcomes.
5. Cost-Benefit Analysis (CBA): CBA involves quantifying the costs and benefits associated
with each decision option. It helps decision-makers determine which option offers the best
value or return on investment.
6. Decision Matrices: Decision matrices help evaluate alternatives by comparing them
against multiple criteria. Each alternative is scored against each criterion, and the one with
the highest total score is considered the best option.
7. Prioritization Matrices: Similar to decision matrices, prioritization matrices are used to
rank options based on specific criteria. This technique is useful when you need to prioritize
a list of tasks or projects.
8. Force Field Analysis: Developed by Kurt Lewin, this technique involves identifying the
forces driving a decision (driving forces) and those opposing it (restraining forces). It helps
in understanding the factors that influence a decision's success.
9. Critical Path Analysis (CPA): CPA is a project management technique used to identify
the most critical tasks in a project and determine the sequence and dependencies of tasks
to ensure timely project completion.
 10. Gap Analysis: Gap analysis compares the current state of an organization or situation with
its desired future state. It identifies the gaps or discrepancies and helps formulate plans to
bridge them.
11. Fishbone Diagram (Ishikawa or Cause-and-Effect Diagram): This tool is used to
identify and visualize the root causes of a problem or an issue. It's particularly useful for
problem-solving and decision-making.
12. Gantt Charts: Gantt charts are visual tools that help plan and schedule tasks and activities
over time. They provide a clear timeline and help in resource allocation and project
management.
13. Mind Mapping: Mind maps are graphical representations of ideas, concepts, and
relationships. They are helpful for brainstorming, organizing thoughts, and exploring
different aspects of a decision.
14. Benchmarking: Benchmarking involves comparing your organization's performance,
processes, or practices with those of industry leaders or competitors. It helps identify areas
for improvement and informs decision-making.
15. Nominal Group Technique (NGT): NGT is a structured group technique that encourages
equal participation in decision-making. Group members generate ideas individually, which
are then discussed and prioritized as a group.
16. KPIs (Key Performance Indicators): Identify and define key performance indicators that
align with your objectives. Regularly monitor these indicators to track progress and inform
future decisions.

PART- 2: Organizing

Organizing: Concept, nature, process, and significance. Principles of an organization Span of

Control, Departmentation, Types of organization. Authority Responsibility, Delegation and
Decentralization, Formal and Informal Organization