UNIT-II

PLANNING

Planning is the fundamental management function, which

involves deciding beforehand, what is to be done, when is it to be done,
how it is to be done and who is going to do it.

Planning is an intellectual process which lays down an organisation’s

objectives and develops various courses of actions by which the
organisation can achieve those objectives. It chalk out exactly, how to
attain a specific goal.
Definitions
 According to Koontz 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. Planning bridges the gap from where we are and where
we want to go.”

 According to Koontz and Weihrich - “Planning involves

selecting the objectives and the actions to achieve them; it
requires decision–making, that is choosing from among
alternative future course of action.”

 According to M. E. Hurley – Planning is deciding in advance

what is to be done. It involves the selection of objectives,
policies, procedures, and programmes from among
alternatives.
Features / Characteristics of Planning
 Managerial function
 Goal oriented
 Pervasive
 Continuous Process
 Intellectual Process
 Futuristic
 Decision making
OBJECTIVES OF PLANNING
 To reduce uncertainty and change.
 To provide sense of direction.
 To encourage innovation and creativity.
 To help in coordination
 To guide decision making.
 To provide a basis for decentralisation.
 To provide economy in operation. To facilitate control.
Importance of Planning
 Minimizes Risks and uncertainty
 Focus on organizational goals
 Guiding in decision making
 Effective coordination
 Proper utilization of Resources
 Types of Plans

I. Based on levels in the Organization

a. Strategic Plans
b. Tactical Plans
c. Operational Plans
II. Based on time
 Long – term plans
 Medium –term Plans
 Short-term Plans

III. Based on functional areas

 Production Plans
 Marketing Plans
 Financial Plans
 Operational Plans
IV. Based on use / Standing plans
 Objectives
 Policies
 Procedure
 Rules
 Programme
 Schedules
 Budget
Objectives
Objectives are the expressions of what an organization wants to
achieve. Objectives are predetermined results towards which all
organized efforts are directed.

According to Farland – “Objectives are the goals, aims or

purposes that organizations wish to achieve over varying periods
of time”.

According to Koontz & O’ Donnell – “Objective is a term

commonly used to indicate the end point of a management
programme”.
Policies
A policy is a general standing plan guiding the
management in the conduct of enterprise management
operations.

According to Koontz & O’Donnell – “Policies are general

statements or understandings which guide or channel
thinking in decision making of subordinates”.
Procedures
Procedures are clear-cut administrative specifications
prescribing the chronological way repetitive activity initiated,
carried forward and controlled. They tell how a particular
activity is to be done. Hence, procedures are generally
established for repetitive work so that some steps are followed
each time that activity is performed.

Rules
A rule is a nature of a decision made by the management
regarding what is to be done and what is not to be done in each
situation. A rule is more rigid. I t may or may not be a part of a
procedure.
Programme
A Programme is a sequence of activities directed towards the
achievement of certain objectives. A programme lays down the
definite steps which will be taken to accomplish a given task.
Thus, programme is a complex set of objectives, policies,
procedures and tasks.

Schedules
A schedule specifies time limits with in which activities are to be
completed. Scheduling is the process of establishing a time
sequence of the work to be done. A schedule lays down a
timetable fixing starting and finishing data for different activities
Budget
A budget is a statement of expected results expressed in
numerical terms. A budget is an appraisal of expected expenses
projected against anticipated incomes for a certain future
period.

According to George R. Terry-“Budget is an estimate of future

needs arranged according to an orderly basis, covering some or
all of the activities of an enterprise for definite period of time”.
 Steps in Planning Process
Step 1: Establishing Objectives
Step 2: Setting Planning Premises
Step 3: Identifying Alternatives
Step 4: Evaluating Alternatives
Step 5: Selecting the best Alternatives
Step 6: Formulation of Supporting Plans
Step 7: Implementing of Plan
Step 8: Reviewing and Follow-up Action
Step 1:Establishing Objectives
 Based on opportunities and company’s strengths and
weaknesses, Objectives are established
 Objectives can be defined as the end expected results to be
achieved during the plan period
 The firm may have one or more objectives to prepare the plan
Earning adequate profit
Desired Market share
Product Leadership
Continuous Development
Product Leadership
Consumer Satisfaction
Good will and Reputation
While setting the objectives following points are to be
considered
 Objectives should be free from personal bias
 They should be realistic and feasible
 They should be clearly defined and precisely stated
 Long-term and short term objectives should be
decided separately
 They should be expressed in quantitative and
qualitative
Step 2:Setting Planning Premises
 Planning premises means planning conditions
 All managerial plans are based on certain assumptions,
estimates and projections
 Planning premises are indication of movement or trend of
various variables during the planning period
 Planning premises are two types
i. External premises like Political stability, Govt policies
Demographic factors, Socio-cultural changes, Technological
changes, Natural calamities etc.,
ii. Internal Premises like Resource abilities, Organization rules
and policies, Organizational structure, Capital investment etc.,
Step3:Identifying Alternatives
It is obvious that the objective can be achieved in a
variety of ways.
Different ways, solutions, methods used to achieve a
particular objective can be said to be alternatives.
This step calls for undertaking the following two-sub
steps
i. Searching for Alternatives
ii. Scrutinizing for Alternatives
Step 4:Evaluating Alternatives
 Each alternative to the achievement of objectives in light of
resource capacity and constraints
 Each alternative has its plus and minus points, analyze the
require relevant , adequate and reliable data regarding
alternatives under consideration.
 Most evaluating criteria factors are
Demand
Profitability
Degree of Risk
Competition
Availability
Step5: Selecting the best Alternative
 In this step comparison is made among alternatives
to judge which alternative has the maximum capacity
to contribute actualizing the firm’s objectives.
 Various mathematical and statistical techniques are
available to facilitate selection of suitable
alternatives.
 Experience of the manager plays a crucial role at this
stage
Step 6: Formulating supporting plans
These are also called derivative plans for implementing
main plan
These supporting plans may include
 Purchasing of necessary equipment and raw
materials
 Recruitment and training of required staff
 Making contract with other parties
 Making provision for long term capital and working
capital etc.,
Step 7: Implementing of Plan
 Implementing the plan implies putting the plan in to
action.
 Sequence of activities is established for effective
implementation
 Implementation of plan includes one or more of the
following activities
i. Communicating with all departments concerned
ii. Assigning of work and delegation of authority
iii. Allocation of Resources and preparation of budgets
iv. Integration and directing efforts
v. Monitoring, measuring and correcting performance
Step 8: Reviewing and Fallow-up action
 A review of results calls for verifying whether the
plan has been formulated and implemented
successfully
 If it is observed that the plan has been implemented
successfully and is achieving objectives, further
actions are not necessary
 But, in case of serious deviations between what is
and what ought to be , necessary actions are to be
taken.
Guidelines/ Measures for Making Planning effective
 Clearly defined objectives as the base for Planning work
 Ensure suitable steps in the planning process
 Step planning premises accurately
 All plans must be realistic and practical
 All plans must be properly timed
 All plans must be based on cost-benefit analysis
 Planning should be kept in flexible
 Ensure an active involvement of the top-level management
 Establish an effective communication
 Maintain a proper integration between long- and short-term
plans
 Decision-Making
 Planning involves forecasting and decision–making. So,
planning itself consists of a bundle of decisions. When more
options /alternatives are available , a decision-maker selects
the most suitable alternative as the course of action.

 It is also interesting to note that decision is not an end result,

but it is an attempt towards a desired outcome.
 A decision is a choice made between two or more available alternatives.
Decision –making is the process of choosing the bets alternative for
reaching objectives.

 According to Kreinter - “Decision –making is a process of identifying

and choosing alternative courses of action in a manner appropriate to the
demand of situation. The act of choosing implies that alternative courses of
action must be weighted and weeded out”.

 According to Koontz and weihrich – Decision-making is a selection of a

course of action from among alternatives; it is the core of planning

 In simple words Decision-making is an act of selecting a suitable solution

to the problem from various available alternative solutions to guide actions
towards achieve desired objectives.
Features / Characteristics of Decision-Making
 Decision-making is a goal –oriented function

 It is an intellectual and analytical process

 It is basically a choosing process from many alternatives

 It is a pervasive function ,it is applicable to all human activities

 It is based on some assumptions

 It is a complex and dynamic process

 It involves commitment of time

 Steps in Decision –Making Process

Step1:Defining the Problem

Step2:Analysing the Problem

Step3:Developing Alternative Solutions

Step4:Evaluating Alternatives

Step5:Selecting the Best Alternative

Step6:Implementing the Decision

Step7:Evaluation/Review of Decisions
Types of Managerial Decisions
1.Strategic and Operational Decisions

2.Major and Minor decisions

3.Programmed and Non – Programmed decisions

4.Simple and Complex Decisions

5.Long-term and Short-Term Decisions

6.Individual and Group Decisions

1.Strategic and Operational Decisions
Strategic decisions are integrated and more comprehensive in
nature. These decisions are closely related to the company’s
mission and objectives, and they have a significant on the
company’s survival and growth. Strategic decisions are made by
the top-level executives.

Operational decisions are concerned with the organisation’s day-

to-day operations. Such decisions tend to be simple, less-risky,
short-term and repetitive nature.
2.Major and Minor decisions
Major decisions are closely related to company’s overall
policies, strategies, and operations. They are significant,
non frequent decisions that top management takes.

Minor decisions are related to departments and

divisions. They are repetitive and less significant and
are taken by the middle level management.
3.Progarmmed and Non-Programmed decisions
Progarmmed decisions are taken as per company’s plan or
programme (i.e., according to the policies, schedules, rules,
schedules, budgets and procedures).They are closely related to
routine operations.

Non-programmed decisions, on the other hand, are concerned

with non-repetitive operations.

For example, developing a new product, Take overs,

Establishment of new plant etc.

These Non-programmed decisions are to be novel, risky, non-

frequent, complex and more crucial
4.Simple and Complex Decisions
Simple decisions involve a few variables while complex
decisions involve many variables. Most business
decisions are complex, modern /advanced techniques
are used to make such decisions. For examples ,
increasing the price is a complex decision, while
announcing a holiday on a significant national event or
festival is a simple decision.
5.Long-term and Short-term Decisions
Long-term decisions constitute the long-term plan.
Normally, they have long-lasting impacts on company’s
operations. Short-term decisions have short run impact
on company’s operations.
For example, entering international market is a long-
term decision while over time wage decision is short-
term.
6.Individual and Group Decisions
When a decision is taken by an individual employee or
a manager, it is an individual decision. Mostly all simple,
routine, short term and programmed decisions tend to
be individual decisions. When decision making involves
a group of persons, it is a group decision. Mostly all
strategic, risky, and major decisions are taken by group.
 Management by Objectives(MBO)
Peter F. Drucker
in “Practice of Management”.(1954)

Management by Objectives (MBO) is an objective- based

managerial philosophy and approach. Objective setting is
the central theme in MBO. The entire MBO philosophy
depends on deciding and achieving objectives.
Other names of Management by Objectives are

 Management by Results
 Goals Management
According to Koontz and Weihrich- ‘’MBO is a comprehensive
managerial system that integrates key managerial activities in a
systematic manner, consciously directed towards effective and
efficient achievement of organizational objectives.

Finally, MBO is an objective-based philosophy and approach in

which superior and subordinates jointly identify common
objectives, set results for subordinates, assess contributions of
everyone, and integrate the individual with the organisation for
achieving objectives effectively in time.
MBO implies mainly focus on three aspects
1.Objectives
2.Participation
3.Integration
Features / Characteristics of MBO
 Subordinate’s participation in Goal setting.
 It is a continuous process
 Periodic review of performance
 Individual performance targets derived from overall objectives
of the organization.
 It aims at radical realignment of relations between superiors
and subordinates.
Steps in MBO Process
Step1: Setting Overall organisational Objectives

Step2: Setting up subordinate’s Goals

Step3: Matching Objectives and Resources

Step4: Developing Action Plans

Step5: Periodic Review

Step6: Performance Appraisal

Advantages of MBO
1.Produces clear and measurable performance goals.
2.Result oriented Planning.
3.Basis for Organizational change.
4.Provide yardsticks for systematic evaluation of Performance.
5. Role of ambiguity and confusion are avoided.
6. Improve better relations between superiors and subordinates.