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.
2.0 PLANNING:
 Planning is the first managerial function to be performed.
 It is concerned with deciding in advance what is to be done in future, when, where
and by whom it is to be done.
 It is a process of thinking before doing.

2.1. DEFINITION:
According to Koontz O'Donnel - "Planning is an intellectual process, the
conscious determination of courses of action, the basing of decisions on purpose, acts and
considered estimates".
2.1.1. ADVANTAGES:
1. Reduces uncertainty
2. Ensures economical operations
3. Facilitates control
4. Improves motivation
5. Gives competitive edge
6. Avoids duplication of efforts
2.1.2. DISADVANTAGES:

1. Limitations of forecasts
 2. Rigidity in administration
3. Time consuming process
4. Costly affair
5. Influence of external factors
6. Psychological factors
2.2. NATURE AND PURPOSE OF PLANNING:
2.2.1. 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. PRIMACY OF PLANNING: Planning is the first of the managerial functions. It precedes
all other management functions.
3. 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: Efficiency of plan is measured by its
contribution to the objectives as economically as possible. Planning also focuses on accurate
forecasts.
5. CO-ORDINATION: Planning co-ordinates the what, who, how, where and why of
planning. Without co-ordination 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 the 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.
2.2.2. Purpose 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 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 CO-ORDINATION: Co-ordination 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, a 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.
2.2.3. FEATURES OF PLANNING:
 It is primary function of management.
 It is an intellectual process.
 Focuses on determining the objectives.
 Involves choice and decision making.
 It is a continuous process.
2.3. TYPES OF PLANNING:
Focus Time period
Strategic Long range (<5 yrs)
Operational Medium range (2-5 yrs)
Tactic Short range (>2 yrs)
Continge
STRATEGIC PLANNING is carried out by top-level management. Long-term plans are
drawn in this process, spanning a number of years. Additionally, an organization's
mission statement is included in the strategic plan.
TACTICAL PLANNING covers specific areas of an organization. Short-term plans are
made for up to a year in some cases. Middle-level management in an
organization executes tactical planning. Tactical plans build up towards a strategic
plan.
Specific procedures and processes make up OPERATIONAL PLANNING. It involves
outlining routine activities carried out often in an organization. Plans made could either be
single-use or continuing plans. Low-level management executes tactical planning.
CONTINGENCY PLANNING involves identifying alternative courses of action that can be
implemented if and when the original plan proves inadequate because of changing
environments.
2.3.1. STEPS INVOLVED IN STRATEGIC PLANNING PROCESS
1. GETTING PREPARED:
 Decide on the team who will be involved in the planning process, gather all needed
information ensuring all information is up to date and as accurate as possible which is
very important to ensure sound decisions results from this whole process. Identify any
specific issues that need to be addressed.
2. CLARIFY THE MISSION AND VISION STATEMENTS:
 Identify, clarify and reach consensus on the company's mission and vision statements,
corporate values and culture, the main goal of why the company exists and create an
image of what success looks like for your company.
3. IDENTIFY YOUR CURRENT AND FUTURE MARKET POSITION. (PERFORM A
SWOT ANALYSIS):
 Gather up-to-date information on internal strengths and weaknesses and external
opportunities and threats so you can develop an understanding of all critical issues.
Use the SWOT tool to organize your information
“Winners recognize their limitations but focus on their strengths;
Losers recognize their strengths but focus on their limitations”
 A weakness can be converted into strength by recognizing it and by making an effort
in that Direction.
 Opportunities and threats also need to be recognized.
Importance of SWOT analysis
 It analyses whether the business is healthy or sick.
 An organization comes to know about the internal and external factors that affect its
success or failure.
  It helps in the formation of a strategy so as to make preparations for
the possible threats from the competitors.
 It helps to evaluate a business environment in a detailed manner so as to take strategic
decisions for the future course of action.
4. AGREE ON PRIORITIES:
 As in any planning process, all priorities need to be set and agreed as well as broad
strategies for handling critical issues and what outcomes are to be sought. It is
important that you and your planning team agree on all major and key priorities.
5. PUT THE PLAN TOGETHER:
 In this step you should start putting all the bits and pieces of your plan together to
facilitate implementation and constant review.
6. DISTRIBUTE TASKS AND ASSIGN ACTIONS:
 Now that your plan has been placed together in one document, it’s time to start
assigning specific tasks to each specific team, department or individual.
7. ROLL-OUT THE PLAN:
 Now your plan needs to be communicated and circulated to everyone in your
organization to ensure alignment.
8. HOLD EVERYONE ACCOUNTABLE:
 The plan will not be effective without processes and metrics that ensures
everyone is doing their part.
 The plan needs to be constantly monitored and performance needs to be
measured through either monthly or quarterly strategy staff meetings.
 To hold people accountable and making sure that the plan activities are actually
happening and corrective actions and adjustments can be taken to rectify,
tweak and effectively manage performance in light of the strategic plan.
2.4. OBJECTIVES:
 Objectives may be defined as the goals which an organisation tries to achieve.
 Objectives are described as the end- points of planning.
 According to Koontz and O'Donnell, "an objective is a term commonly used to
indicate the end point of a management programme."
 Planning has no meaning if it is not related to certain objectives.
2.4.1. Features of Objectives:
 The objectives must be predetermined.
 A clearly defined objective provides the clear direction for managerial
effort.
 Objectives must be realistic.
 Objectives must be measurable.
 Objectives must have social sanction.
 All objectives are interconnected and mutually supportive.
  Objectives may be short-range, medium-range and long-range.
 Objectives may be constructed into a hierarchy.
2.4.2. Advantages of Objectives:
 Clear definition of objectives encourages unified planning.
 Objectives provide motivation to people in the organization.
 When the work is goal-oriented, unproductive tasks can be avoided.
 Objectives provide standards which aid in the control of human efforts in an
organization.
 Objectives serve to identify the organization and to link it to the groups upon which
its existence depends.
 Objectives act as a sound basis for developing administrative controls.
 Objectives contribute to the management process: they influence the
purpose of the organization, policies, personnel, leadership as well as
managerial control.
2.4.3. Process of Setting Objectives:
The typical MBO process consists of:
1. Establishing a clear and precisely defined statement of objectives for
the employee.
2. Developing an action plan indicating how these objectives are to be achieved.
3. Reviewing the performance of the employees.
4. Appraising performance based on objective achievement.

1) Setting objectives: For Management by Objectives (MBO) to be effective, individual

managers must understand the specific objectives of their job and how those objectives fit in
with the overall company.
 Objectives set by the board of directors.
  The managers of the various units or sub-units, or sections of an organization should
know not only the objectives of their unit but should also actively participate in
setting these objectives and make responsibility for them.
 Management by Objective (MBO) systems, objectives are written down for each level
of the organization, and individuals are given specific aims and targets.
 Managers need to identify and set objectives both for themselves, their units, and their
organizations
2) Developing action plans: Actions plans specify the actions needed to address
each of the top organizational issues and to reach each of the associated goals, who will
complete each action and according to what timeline. An overall, top-level action plan
that depicts how each strategic goal will be reached is developed by the top level
management. The format of the action plan depends on the objective of the organization.
3) Reviewing Progress: Performance is measured in terms of results. Job performance is the
net effect of an employee's effort as modified by abilities, role perceptions and results
produced. Effort refers to the amount of energy an employee uses in performing a
job. Abilities are personal characteristics used in performing a job and usually do not
fluctuate widely over short periods of time. Role perception refers to the direction, in which
employees believe they should channel their efforts on their jobs, and they are defined by the
activities and behaviours they believe are necessary.
4) Performance appraisal: Performance appraisals communicate to employees how
they are performing their jobs, and they establish a plan for improvement.
 Performance appraisals are extremely important to both employee and
employer, as they are often used to provide predictive information related to possible
promotion.
 Appraisals can also provide input for determining both individual and
organizational training and development needs.
 Performance appraisals encourage performance improvement. Feedback on
behaviour, attitude, skill or knowledge clarifies for employees the job
expectations their managers hold for them.
 In order to be effective, performance appraisals must be supported by
documentation and management commitment.
Advantages Setting Objectives:
 Motivation – Involving employees in the whole process of goal setting and increasing
employee empowerment. This increases employee job satisfaction and commitment.
 Better communication and Coordination – Frequent reviews and interactions between
superiors and subordinates helps to maintain harmonious relationships within
the organization and also to solve many problems.
 Clarity of goals
 Subordinates have a higher commitment to objectives they set themselves than those
imposed on them by another person.
 Managers can ensure that objectives of the subordinates are linked to the
organization's objectives.
Limitations:
There are several limitations to the assumptive base underlying the impact of
managing by objectives, including:
 It over-emphasizes the setting of goals over the working of a plan as a driver of
outcomes.
 It underemphasizes the importance of the environment or context in which the goals
are set. That context includes everything from the availability and quality of
resources, to relative buy-in by leadership and stake-holders.
 Companies evaluated their employees by comparing them with the "ideal" employee.
Trait appraisal only looks at what employees should be, not at what they should do.
When this approach is not properly set, agreed and managed by organizations, self-
centred employees might be prone to distort results, falsely representing achievement
of targets that were set in a short-term, narrow fashion. In this case, managing
by objectives would be counterproductive.
2.5. MANAGEMENT BY OBJECTIVES (MBO):
Accordingly, to Odiorne “MBO is a process whereby the superior and subordinate
managers of an organisation jointly identify common goals, define each individual’s major
areas of responsibilities in terms of the results expected of him, and use these measures as
guides for operating the unit and assessing the contribution of each of its members”.

MBO provides specific objectives for each succeeding level (i.e., divisional, departmental,
individual in the organisation). In other words MBO is a process by which objectives cascade
down through the organisation as depicted in Fig.
2.5.1. Advantages of MBO:
 The need to clarify objectives is stressed and suggestion for improvement is obtained
from all levels of management.
 All managers have a clear idea of the important areas of their work and of the
standards required.
 The performance of staff can be assumed and their needs for improvement
highlighted.
 Greater participation may improve morale and communication.
 It makes individuals more aware of organisational goal.
2.5.2. Disadvantages of MBO:
 It takes a few years to be effective.
 Some companies always tend to raise goals. If these are too high, employees become
frustrated.
 Appraisals are sometimes made on personality traits rather than on
performance.
 Some employees do not want to be held responsible and goals forced upon them may
lead to ill-feeling.
2.5.3. BENEFITS OF MANAGEMENT BY OBJECTIVES:
1. IMPROVES MANAGEMENT: Objectives cannot be established without
planning, and results-oriented planning is the only kind that makes sense. MBO forces
managers to think about planning for results, rather than merely planning work or
activities. In order to make objectives realistic, Management by Objectives also requires that
managers think of the way they will accomplish results and the resources and assistance they
will require.
2. ENCOURAGES PERSONAL COMMITMENT: MBO encourages employees to
commit themselves to their goals because they have before them clearly defined objectives.
Moreover, the fact that they often participate in goal- setting, improves their commitment to
work. As a matter of fact, people become enthusiastic when they control their own fate.
3. CLARIFIES ORGANIZATION: MBO forces management to clarify
organizational roles and structures. So far as possible, organizational positions are
built around the key results expected of the people occupying them. Moreover, the companies
that embark on MBO programs can easily discover deficiencies in their organization and
take necessary steps to rectify.
4. DEVICE FOR ORGANIZATIONAL CONTROL AND SYSTEMATIC
EVALUATION: It serves as a device for organizational control integration. MBO helps in
making a more systematic evaluation of performance.
5. DEVELOPS EFFECTIVE CONTROL: There is no better incentive for self-control and
no better way to know the standards for control than having a set of clean goals. When each
and every employee knows what to achieve, control becomes very easy and automatic.
6. IMPROVING PRODUCTIVITY: Management by Objectives helps in improving
productivity as the management team concentrates on the important task of reducing
costs.
7. MOTIVATING THE SUBORDINATES: It stimulates the subordinates’
motivation.
8. PERSONAL SATISFACTION: It provides greater opportunity to managers for personal
satisfaction on account of participation in objective setting and rational performance
appraisal.
9. LOCATING WEAK AND PROBLEM AREAS: It helps in locating weak and problem
areas because of improved communication and organization structure
2.5.4. WEAKNESSES OF MANAGEMENT BY OBJECTIVES:
With all its advantages, a system of MBO may also have a number of weaknesses,
arising out of the inability in applying the MBO concepts judiciously. The
weaknesses are;
1. Failure to teach the philosophy of MBO which is built on concepts of
self-control and self-direction that are aimed at making managers as
professionals.
2. Failure to give proper guidelines to goal setters by making them well aware of
the corporate goals in advance.
3. Difficulty in setting verifiable goals which help in the process of control.
4. Emphasis on short-run goals often jeopardizes the achievement of the long-
term objectives.
5. The danger of inflexibility also causes a serious problem since managers may
strive for goals that have been made obsolete by revised corporate objectives,
changed premises, or modified policies.
2.6. POLICIES:
Policies are general statements or understandings that guide managers’ thinking in decision
making. They usually do not require action but are intended to guide managers in their
commitment to the decision they ultimately make.
The essentials of policy formation may be listed as below.
 A policy should be definite, positive and clear. It should be understood by
everyone in the organization.
 A policy should be translatable into the practices.
 A policy should be flexible and at the same time have a high degree
of permanency.
 A policy should be formulated to cover all reasonable anticipatable conditions.
  A policy should be founded upon facts and sound judgment.
 A policy should conform to economic principles, statutes and regulations.
 A policy should be a general statement of the established rule.
Importance of Policies:
 Policies are useful for the following reasons:
 They provide guides to thinking and action and provide support to the
subordinates.
 They delimit the area within which a decision is to be made.
 They save time and effort by pre-deciding problems and
 They permit delegation of authority to mangers at the lower levels.
2.7. STRATEGIC MANAGEMENT:
 The term 'Strategy' has been adapted from war and is being increasingly used in
business to reflect broad overall objectives and policies of an enterprise.
Literally speaking, the term 'Strategy' stands for the war-art of the military general,
compelling the enemy to fight as per out chosen terms and conditions.
 According to Koontz and O' Donnell, "Strategies must often denote a general
programme of action and deployment of emphasis and resources to attain
comprehensive objectives".
 Strategies are plans made in the light of the plans of the competitors
because a modern business institution operates in a competitive
environment.
 They are a useful framework for guiding enterprise thinking and action.
 A perfect strategy can be built only on perfect knowledge of the plans of others in the
industry.
 This may be done by the management of a firm putting itself in the place of a rival
firm and trying to estimate their plans.
2.7.1. Characteristics of Strategy:
 It is the right combination of different factors.
 It relates the business organization to the environment.
 It is an action to meet a particular challenge, to solve particular problems or to attain
desired objectives.
 Strategy is a means to an end and not an end in itself.
 It is formulated at the top management level.
 It involves assumption of certain calculated risks.
2.7.2. Types of Strategies:
According to Michel Porter, the strategies can be classified into three types. They are
1. Cost leadership strategy
2. Differentiation strategy
3. Focus strategy
1. Cost Leadership Strategy:
 This generic strategy calls for being the low-cost producer in an industry for a given
level of quality. The firm sells its products either at average industry prices to earn a
profit higher than that of rivals, or below the average industry prices to gain market
share. In the event of a price war, the firm can maintain some profitability while
the competition suffers losses. Even without a price war, as the industry
matures and prices decline, the firms that can produce more cheaply will remain
profitable for a longer period of time. The cost leadership strategy usually
targets a broad market. Some of the ways that firms acquire cost advantages are by
improving process efficiencies, gaining unique access to a large source of lower cost
materials, making optimal outsourcing and vertical integration decisions, or avoiding
some costs altogether. If competing firms are unable to lower their costs by a similar
amount, the firm may be able to sustain a competitive advantage based on cost
leadership
2. Differentiation Strategy:
 A differentiation strategy calls for the development of a product or service that offers
unique attributes that are valued by customers and that customers perceive
to be better than or different from the products of the competition. The value added by
the uniqueness of the product may allow the firm to charge a premium price for it.
The firm hopes that the higher price will more than cover the extra costs incurred in
offering the unique product. Because of the product's unique attributes, if suppliers
increase their prices the firm may be able to pass along the costs to its customers who
cannot find substitute products easily.
3. Focus Strategy:
 The focus strategy concentrates on a narrow segment and within that
segment attempts to achieve either a cost advantage or differentiation. The premise is
that the needs of the group can be better serviced by focusing entirely on it. A firm
using a focus strategy often enjoys a high degree of customer loyalty, and this
entrenched loyalty discourages other firms from competing directly. Because of their
narrow market focus, firms pursuing a focus strategy have lower volumes and
therefore less bargaining power with their suppliers.
2.8. PLANNING TOOLS AND TECHNIQUES:
ENVIRONMENT ASSESSMENT TECHNIQUES
1. Environmental Scanning
2. Forecasting
3. Benchmarking
TECHNIQUES FOR ALLOCATING RESOURCES
4. Budgeting
5. Scheduling
 6. Breakeven Analysis
7. Linear Programming
CONTEMPORARY PLANNING
8. Project Management
9. Scenario Planning
1. ENVIRONMENTAL SCANNING:
Careful monitoring of an organization's internal and external environments for detecting
opportunities & threats that influence its current and future plans.
 COMPETITOR INTELLIGENCE
Gathering information about competitors — who they are, what they are doing.
 GLOBAL SCANNING
Screening a broad scope of information on global forces that might affect the
organization.
2. FORECASTING
A prediction, projection, or estimate of some future activity, event, or occurrence.
TYPES OF FORECASTS:
1. Economic Forecasts: Predict a variety of economic indicators, like money
supply, inflation rates, interest rates, etc.
2. Technological Forecasts: Predict rates of technological progress and innovation.
3. Demand Forecasts: Predict the future demand for a company’s products or services.
TYPES OF FORECASTING METHODS:
1. Qualitative Methods: These types of forecasting methods are based on judgments,
opinions, intuition, emotions, or personal experiences and are subjective in nature. They do
not rely on any rigorous mathematical computations.
2. Quantitative Methods: These types of forecasting methods are based on mathematical
(quantitative) models, and are objective in nature.
They rely heavily on mathematical computations.
FORECASTING TECHNIQUES:
a) QUANTITATIVE FORECASTING
Applying a set of mathematical rules to a series of hard data to predict outcomes (e.g.,units to
be produced).
b) QUALITATIVE FORECASTING
 Using experts’ judgments and opinions.

3. BENCHMARKING: (ROLE MODEL)

Measurement of the quality of a firm's policies, products, programs,
strategies, etc., and their comparison with standard measurements, or similar
measurements of the best-in-class firms.
SIX STEPS TO BETTER BENCHMARKING:
1. Identify (what is to be benchmarked).
2. Data collection.
3. Data analysis.
4. Reporting.
5. Learning from best practices.
6. Planning and implementing improvement actions
TECHNIQUES FOR ALLOCATING RESOURCES:
THE ASSETS OF THE ORGANIZATION
 Financial: debt, equity, and retained earnings
 Physical: buildings, equipment, and raw materials
 Human: experiences, skills, knowledge, and competencies
 Intangible: brand names, patents, reputation, trademarks, copyrights, and
databases.
4.BUDGETS:
Numerical plans for allocating resources (e.g., revenues, expenses, and capital
expenditures).
TYPES OF BUDGETS:

5.SCHEDULES:
Plans that allocate resources by detailing;
-What activities have to be done?
-The order in which they are to be completed.
-Who is to do each?
 -When they are to be completed. It includes,
 GANTT CHARTS
 LOAD CHARTS
 PERT NETWORK ANALYSIS
 GANTT CHART: A chart that depicts progress in relation to time, often used in
planning and tracking a project.

 LOAD CHART: A modified Gantt chart that lists entire departments or

specific resources on the vertical axis. Allows managers to plan and control capacity
utilization.

 PROGRAM EVALUATION AND REVIEW TECHNIQUE (PERT):

A model for project management designed to analyze and represent the task involve
in completing a project.
STEPS IN DEVELOPING A PERT NETWORK:
1. Identify every significant activity that must be achieved for a project to be completed.
2. Determine the order in which these events must be completed.
3. Diagram the flow of activities from start to finish, identifying each activity and its
relationship to all other activities.
4. Compute a time estimate for completing each activity.
5. Using the network diagram that contains time estimates for each activity, determine a
schedule for the start and finish dates of each activity and for the entire project.
6. BREAK EVEN:
The break even is the point at which the cost or expenses is equal to revenues.
7. LINEAR PROGRAMMING:
A mathematical method for determining a way to achieve a best outcome using proportional
relationships between two variables.
8. CONTEMPORARY PLANNING TECHNIQUES;
1. Project management: Project management is the discipline of planning, organizing,
securing and managing resources to bring about successful completion of project.
2. Scenario planning: A consistent view of what the future is likely to be

 SCENARIO PLANNING: An attempt not tries to predict the future but to reduce
uncertainty by playing out potential situations under different specified conditions.
 CONTINGENCY PLANNING: Developing scenarios that allow managers
determine in advance what their actions should be should a considered event actually
occur.
2.9. DECISION MAKING:
 The word decision has been derived from the Latin word “decidere” which means
“cutting off".
 Thus, decision involves cutting off of alternatives between those that are
desirable and those that are not desirable.
 In the words of George R. Terry, "Decision-making is the selection based on some
criteria from two or more possible alternatives".
2.9.1. Characteristics of Decision Making:
 Decision making implies that there are various alternatives and the most
desirable alternative is chosen to solve the problem or to arrive at expected results.
 The decision-maker has freedom to choose an alternative.
 Decision-making may not be completely rational but may be judgemental and
emotional.
 Decision-making is goal-oriented.
 Decision-making is a mental or intellectual process because the final decision is made
by the decision-maker.
 A decision may be expressed in words or may be implied from behaviour.
 Choosing from among the alternative courses of operation implies uncertainty about
the final result of each possible course of operation.
 Decision making is rational. It is taken only after a thorough analysis and
reasoning and weighing the consequences of the various alternatives.
2.9.2. Types of Decisions:
Programmed decisions: Programmed decisions are routine and repetitive and are made
within the framework of organizational policies and rules. These policies and rules
are established well in advance to solve recurring problems in the organization.
Programmed decisions have short-run impact. They are, generally, taken at the lower
level of management.
Non-Programmed Decisions: Non-programmed decisions are decisions taken to meet non-
repetitive problems. Non-programmed decisions are relevant for solving unique/ unusual
problems in which various alternatives cannot be decided in advance. A common
feature of non-programmed decisions is that they are novel and non-recurring and
therefore, readymade solutions are not available. Since these decisions are of high
importance and have long-term consequences, they are made by top level management.
Strategic and Tactical Decisions: Organizational decisions may also be classified as
strategic or tactical.
2.9.3. DECISION MAKING PROCESS:

1. Specific Objective: The need for decision making arises in order to achieve
certain specific objectives. The starting point in any analysis of decision making involves
the determination of whether a decision needs to be made.
2. Problem Identification: A problem is a felt need, a question which needs a solution. In the
words of Joseph L Massie "A good decision is dependent upon the recognition of the
right problem". The objective of problem identification is that if the problem precisely
and specifically identifies, it will provide a clue in finding a possible solution. A
problem can be identified clearly, if managers go through diagnosis and analysis of the
problem. Diagnosis: Diagnosis is the process of identifying a problem from its signs and
symptoms.
3. Search for Alternatives: A problem can be solved in several ways; however,
all the ways cannot be equally satisfying. Therefore, the decision maker must try to find out
the various alternatives available in order to get the most satisfactory result of a decision. A
decision maker
4. Evaluation of Alternatives: After the various alternatives are identified, the next step is
to evaluate them and select the one that will meet the choice criteria. /the decision maker
must check proposed alternatives against limits, and if an alternative does not meet them,
he can discard it. Having narrowed down the alternatives which require serious
consideration, the decision maker will go for evaluating how each alternative may
contribute towards the objective supposed to be achieved by implementing the decision.
5. Choice of Alternative: The evaluation of various alternatives presents a clear picture as to
how each one of them contribute to the objectives under question. A comparison is made
among the likely outcomes of various alternatives and the best one are chosen.
6. Action: Once the alternative is selected, it is put into action. The actual process of
decision-making ends with the choice of an alternative through which the objectives can be
achieved.
7. Results: When the decision is put into action, it brings certain results. These results
must correspond with objectives, the starting point of decision process, if good
decision has been made and implemented properly. Thus, results provide indication
whether decision making and its implementation is proper.
2.9.4. RATIONAL DECISION-MAKING MODEL:
The Rational Decision-Making Model is a model which emerges from
Organizational Behaviour. The process is one that is logical and follows the orderly path from
problem identification through solution. It provides a structured and sequenced approach to
decision making. Using such an approach can help to ensure discipline and consistency is
built into your decision-making process.
1. Defining the problem: This is the initial step of the rational decision-making
process. First the problem is identied and then defined to get a clear view of the situation.
2. Identify decision criteria: Once a decision maker has defined the problem, he
or she needs to identify the decision criteria that will be important in solving
the problem. In this step, the decision maker is determining what’s relevant in
making the decision. This step brings the decision maker’s interests, values, and personal
preferences into the process.
3. Weight the criteria: The decision-maker weights the previously identified criteria in
order to give them correct priority in the decision.
4. Generate alternatives: The decision maker generates possible alternatives that
could succeed in resolving the problem. No attempt is made in this step to appraise these
alternatives, only to list them.
5. Rate each alternative on each criterion: The decision maker must critically
analyse and evaluate each one. The strengths and weakness of each alternative becomes
evident as they compared with the criteria and weights established in second and third steps.
6. Compute the optimal decision: Evaluating each alternative against the weighted criteria
and selecting the alternative with the highest total score.
2.9.5. DECISION MAKING UNDER VARIOUS CONDITIONS:
The conditions for making decisions can be divided into three types.
a) Certainty, b) Uncertainty and c) Risk
a) Certainty: In a situation involving certainty, people are reasonably sure about what will
happen when they make a decision. The information is available and is considered to be
reliable, and the cause-and-effect relationships are known.
b) Uncertainty: In a situation of uncertainty, on the other hand, people have only a meager
database, they do not know whether or not the data are reliable, and they are very unsure
about whether or not the situation may change. Moreover, they cannot evaluate the
interactions of the different variables. For example, a corporation that decides to expand its
operation to an unfamiliar country may know little about the country, culture, laws, economic
environment, and politics. The political situation may be volatile that even experts
cannot predict a possible change in government.
c) Risk: In a situation with risks, factual information may exist, but it may be incomplete. to
improve decision making One may estimate the objective probability of an outcome
by using, for example, mathematical models on the other hand, subjective probability, based
on judgment and experience may be used All intelligent decision makers dealing with
uncertainty like to know the degree and nature of the risk they are taking in choosing a course
of action. One of the deficiencies in using the traditional approaches of operations research
for problem solving is that many of the data used in model are merely estimates and others
are based on probabilities. The ordinary practice is to have staff specialist’s conic up with
best estimates.
Define “Mission”: Mission may be defined as “a statement which defines the role that an
organization plays in the society”
Define “objectives”: The term “objective” or “goals” are often used interchangeably.
Objective are the end results towards which the activities of attain its objectives.
What is mean by strategy: Strategy of an organization is the programmers of action and
deployment of resources to attain its objectives.
Define “policies”: Policies are general statement or understanding which provide guidance in
decision making to various managers.
What is procedure: Procedure is a chronological order of action required to
implement a policy and to achieve an objective.
What is programme: Programme is a broad term which includes goals, polices, procedure,
rules, task assignment, step to be taken, resources to be employed to carry out a given course
of action.