Planning and

Decision Making
 Meaning
• Planning is the predetermination of objectives and courses of
action to be taken to achieve defined goals effectively and
efficiently.
• Planning is the intellectual process that clearly defines 6W and
1H i.e. what, where, when, who, whom, why, and how to take
any action in order to achieve planned goals
• It focuses on future courses of action. It specifies the
objectives to be achieved in the future and selects the best
course of action to achieve defined objectives.
• Rickey W. Griffin – Planning is setting of organization’s goals
and deciding how best to achieve them.
• Richard Steers – Planning is the process by which managers
define goals and take necessary steps to ensure that these goals
are achieved.
• Mary Coulter – Planning involves defining the organization’s
goals, establishing an overall strategy for achieving those goals,
and developing a comprehensive set of plans to integrate and
coordinate organizational works.
 Characteristics of Planning
• Primary Function
• Focus on goal
• Pervasive activity
• Future oriented
• Continuous activity
• Intellectual work
• Flexible
• Efficiency, Economy and Accuracy
Planning is Primary Function: Planning provides the base for another function of
management. It is followed by organising, staffing, directing and controlling. All the
managerial functions are performed within the framework of plans. Planning provides the
foundation for managerial action by specifying the objectives and the ways of achieving
them. Thus, we could say that planning is the most primary function.

Planning is Goal-Oriented: Planning seeks to achieve certain goals of the organisation.

Planning is a useful exercise when it does contribute in some positive way to the
accomplishment of desired objectives. It also ensures the actions that would lead to the
desired results quickly and economically.

Planning is Pervasive: Planning is practiced in all kinds of organisations and each and
every level of management. However, the nature and scope of planning is different at
different organisations and level of management. For example, top managers plan for the
organisation as a whole, while middle level managers propose departmental plans and
lower level manager formulate day-to-day operational planes.

Planning is Future Oriented: Planning is looking ahead and preparing for the future
which is based on proverb “look before you leap.” It is preparing organisations to meet
future challenges and opportunities. To reduce the uncertainty of the future, managers
adopt the scientific methods of forecasting. They anticipate future and incorporate
changes in their actions to achieve organisational goals effectively.
Planning is Continuous: Plans are prepared for a specific time period. At the end of
specific time new plans have to be prepared. On the same way the existing plans must be
revised, when change takes place in the conditions. Planning involves choice and it is the
process of choosing among alternative course of action. Therefore, we can say planning
is an on-going process.

Planning is an Intellectual Process: Creative thinking and imagination of planning is

a mental exercise. It depends on Intellect of an human being. If a manager had foresight,
vision and sound Judgment then he can prepare sound plans. This is only because
planning is not more guess work but involves logical and systematic thinking. A mental
predisposition to think before acting is required in planning.

Flexible: Planning is related to the future and future is uncertain. Plans will fail to
achieve the objectives if unfavourable changes take place in future. Managers have to be
ready in changing their plans so that changes do not fail the plans. Thus, planning is a
flexible activity.

Efficiency, Economy and Accuracy: Efficiency of plan is measured by its contribution

to the objectives as economically as possible. We must have the maximum results at
minimum cost. Planning also focuses on accurate forecasts. Focus of every kind of plan is
on determination of the future course of action. But, the “Course of action” can be
determined only on the basis of knowledge of future events. This automatically entails
 Importance of Planning
• Provides Direction
• Provides a unifying framework
• Economical
• Reduces the risk of uncertainty
• Facilitates decision making
• Encourages innovation and creativity
• Planning provides direction: Planning provides direction and a sense of purpose for
the organisation. Without plans and goals, organisations merely react to daily
occurrences without considering what will happen in the long-run.
• Planning provides a unifying framework: A plan helps people to set priorities and put
effort accordingly. A plan tells everyone what the organisation hopes to achieve and
what the contribution of each department must be, and who is to utilize resources to
achieve the goals.
• Planning is economical: Effective plans coordinate organisational work and eliminate
unproductive effort. Guess work is banished. Facilities are employed to the best
advantage. By focusing attention on what is to be done, how and when it is to be done,
plans help an organisation to economically utilize the physical and financial resources.
This, ultimately, improves efficiency of operations.
• Planning reduces the risks of uncertainty: Planning helps an organisation to cope with
an uncertain future. It helps management to anticipate the future and prepare for the
risks by making necessary provisions to meet the unexpected turn of events.
• Planning facilitates decision making: Decision-making involves searching of various
alternative courses of action, evaluating them and selecting the best one. Planned
targets serve as the criteria for the evaluation of different alternatives so that the best
one may be chosen.
• Planning encourages innovation and creativity: Planning involves looking ahead and
preparing for the future. The process of looking ahead, forces an organisation to be
alert of opportunities and threats in the environment.
 Limitations/Criticisms of
Planning
• Rigidity
• Costly and time consuming
• Employee resistance
• False sense of security
•Rigidity: Plans put the activities of an enterprise in a rigid framework. Everything is
spelt out in detail and deviations are not permitted. New opportunities are often ignored
or rejected because of the commitment to existing plans.
•Costly and time consuming: Planning is costly. It is expensive in terms of time spent to
formulate the plans, the manpower required to do the planning and resources needed to
execute the plan. The collection of information, evaluation of alternatives, selection of a
suitable course of action, etc., may consume lot of executive time and organisational
resources.
•Employee resistance: For any plan to succeed, you need operating people to understand
it, embrace it, and make it happen. One of the frequent complaints made against the
planning process is that it is done by specialists who are not in touch with operations. As
a result, operating people who are not involved in planning tend to resist the planning
process. Planning ‘imposed from above’ often leads to resentment and resistance from
those forced to execute.
•False sense of security: Elaborate planning may create a false sense of security in the
organisation. Managers may begin to feel that everything is well taken care of. They
begin to assume that as long as plans are adhered to, there will not be any problems. As
a result, they fail to take note of environmental changes and the need to review,
restructure and reorient the old plans in an appropriate way.
 Types of plans
Plans can be classified as
1. Missions or purposes
2. Objectives or Goals
3. Strategies
4. Polices
5. Procedures
6. Rules
7. Program
8. Budget
MISSIONS OR PURPOSES –It identifies the basic purpose or function or tasks of an
enterprise or agency or any part of it. For ex.-The purpose of state highway department
is the design, building and operations of a system of state highways. The purpose of court
is the interpretation and application of law.

OBJECTIVES OR GOALS-Objectives are the basics of every company and the desired
objective/result that the company plans on achieving, so they are the endpoint of every
planning activity. For example one of the objectives of an organization could be to
increase sales by 20%. So the manager will plan all activities of the organization with this
end objective in mind. (SMART ) goals helps in achieving it successfully.

STRATEGIES-A strategy is a complete and all-inclusive plan for achieving said objectives.
A strategy is a plan that has three specific dimensions
1.Establishing long-term objectives
2.Selecting a specific course of action
3.Allocating the necessary resources needed for the plan

POLICIES-Policies are generic statements, which are basically a guide to channelize

energies towards a particular strategy. It is an organization’s general way of
understanding, interpreting and implementing strategies. Like for example, most
companies have a return policy or recruitment policy or pricing policy etc.
PROCEDURE-Procedures are the next types of plan. They are a stepwise guide for the
routine to carry out the activities. These stepwise sequences are to be followed by all the
employees so the activities can be fulfilled in an organized manner. Take for example the
procedure of admission of a student in a college. The procedure starts with filling out an
application form. It will be followed by a collection of documents and sorting the
applications accordingly.

RULES-Rules are very specific statements that define an action or non-action. Also, rules
allow for no flexibility at all, they are final. All employees of the organization must
compulsorily follow and implement the rules. For ex- No data breaching,discipline in
behaviour

PROGRAM-Programmes are an in-depth statement that outlines a company’s policies,

rules, objectives, procedures etc. These programmes are important in the implementation
of all types of plan. They create a link between the company’s objectives, procedures and
rules.

METHODS-Methods prescribe the ways in which in which specific tasks of a procedure

must be performed. Also, methods are very specific and detailed instructions on how the
employees must perform every task of the planned procedure. So managers form methods
to formalize routine jobs.
Methods are very important types of plan for an organization. They help in the following
• BUDGET-A budget is a statement of expected results the
managers expect from the company. Budgets are also a
quantitative statement, so they are expressed in numerical
terms. A budget quantifies the forecast or future of the
organization. There are many types of budgets that
managers make. There is the obvious financial budget,
that forecasts the profit of the company. Then there are
operational budgets generally prepared by lower-level
managers.
 Steps in planning process
• Being aware of opportunity
• Establishing objectives or goals
• Developing planning premises
• Determining alternatives
• Evaluating alternatives
• Selecting the best alternative
• Formulation of supporting plan
• Establishing sequence of activities
BEING AWARE OF OPPORTUNITIES
Awareness of possible opportunities is very important for the planning process. It leads
to the formulation of plans by providing clues whether opportunities exist for taking up
a particular plan.
Perception of opportunities includes a preliminary look at possible opportunities and
the ability to see them clearly and completely.
During this stage, managers create a foundation from which they will develop their
plans to achieve goals. They examine the current state of where the organization stands
in the light of its strength and weaknesses.

Setting Objectives
The second step in the planning process is to establish objectives for the entire
organization and then for each subordinate work unit.
Organizational goals provide direction to and control the objectives of subordinate
departments.
The organizational goals and objectives should be specified in all key result areas.
Key result areas are those which are important for an organization in achieving its
objectives. KRA can be identified on the basis of organizational objectives.
For example, for an organization KRA’s (key result areas) may be profitability, sales,
research and development, manufacturing, and so on.
Developing Planning Premises
After establishing goals and objectives, the next step is to develop planning premises,
that is, the conditions under which planning activities will be undertaken.
Planning premises are assumptions about the environment in which the plan is to be
carried out. Planners need to do realistic forecasting to develop planning
premises,which also act as Principle of planning premises.
The forecasting process involves;
(i) calculation of probable future events.
(ii) analyzing changes in consumer attitude, technology, competitive forces, government
policies, etc.
(iii) developing the basis for decision making and planning by systematic investigations.

Identifying Alternative Courses of Action

The next step is determining available alternative ways of achieving objectives.
Alternatives can be identified based on the planning premises and objectives of the firm.
It is important to note that the number of alternatives should be reduced to the most
promising and fruitful ones by preliminary analysis.
Managers should search for and examine alternative courses of action. Alternatives can
be discovered through research, experimentation, and experience
Evaluating Alternative Course of Action
The planner must evaluate the alternatives in the light of premises and goals. Evaluation
can be done by finding out the available alternatives and having made an analysis of their
strong and weak points.
Evaluation is not an easy process because alternatives have so many variables and
limitations.
Some alternatives can be compared easily, some may appear to be the most profitable and
will be too expensive. Some may be less desirable or efficient than others. the best one is
which better suits the organization’s immediate goals.

Selecting One Best Alternative

This is the point at which the plan is adopted – the point of decision-making. Selecting the
most appropriate alternative involves choosing the plan.
Normally, managers will select the alternative that, in their judgment, will best enable the
organization to accomplish its goals.

Formulation of Supporting Plan

After formulating the main plan/basic plan, various sub-plans (derivative plans) are
derived so as to support the main plan.
Derivative plans are specific plans which are departmental specific.
In an organization, there can be various derivative plans like planning for buying
equipment, collecting raw materials, recruiting and training personnel, developing a new
• Quantifying plan by budgeting/establishing sequence of activities
After formulating basic and derivative plans, the sequence of activities
is determined so that plans are put into action efficiently and
effectively.
Based on plans at various levels, it can be decided who will do what
and at what time so plans can be implemented in the right way.
The finance and account department prepare budgets for the various
period so plans get more concrete meaning for implementation.
 Decision making
• Decision making is the core of planning. Unless a decision
has been made, a plan cannot be implemented in the field.
• So we can say that planning and decision-making, both
are interrelated.
• Decisions can be made without planning but planning
cannot be done without making decisions.
• Decision making can also be classified into three
categories based on the level at which they occur.
Strategic decisions set the course of organization(Top
level). Tactical decisions are decisions about how things
will get done (Mid level). Finally, operational decisions are
decisions that employees make each day to run the
organization.(Operational level)
• Acc to Fayol “Decision making is the process of making
choices by identifying a decision, gathering information,
and assessing alternative resolutions”
Amanda is a sales manager whose reps need new laptops
because their old ones are outdated and inadequate for
doing their job.

To make it simple, assume it’s not economical to add

memory to the old computers and it’s the company’s
policy to purchase, not lease.

Now we have a problem—a disparity between the sales

reps’ current computers (existing condition) and their
need to have more efficient ones (desired condition).
Amanda has a decision to make.
 Decision Making Process

• Identify a problem
• Identify decision criteria
• Allocate weights to the criteria
• Develop alternatives
• Analyze alternatives
• Select an alternative
• Implement the alternative
• Evaluate decision effectiveness
 TYPES OF DECISIONS
• Programmed And Non-Programmed Decisions
• Operational and Strategic Decisions
• Organizational and Personal Decisions
• Tactical and Operational Decisions
• Major and Minor Decisions
1. Programmed And Non-Programmed Decisions: Programmed decisions are routine and
repetitive in nature. These decisions deal with common and frequently occurring problems
in an organization such as buying behaviour of consumers, sanctioning of different types
of leave to employees, purchasing decisions, salary increment, etc. Non-programmed
decisions are not routine or common in nature. These are related to exceptional situations
in which guidelines or routine management is not set. For example, problems arising from
a decline in market share, increasing competition in the business environment.

2. Operational and Strategic Decisions:Operational decisions are just the normal

functioning of the organization. These decisions do not require much time and take a
shorter time as compared to other decisions taken. Ample of responsibilities are delegated
to subordinates. Strategic decisions include all present issues and problems. The main
idea is to achieve better working conditions, better equipment, and efficient use of existing
equipment, etc

3. Organizational and Personal Decisions:If the decision is taken collectively keeping in

mind the organizational goal, it is known as the organization goal, and if the manager
takes any decision in the personal capacity (affecting his/her life). It is known as personal
decisions. These decisions may sometimes affect the functioning of the organization as
well.
4. Tactical and Operational Decisions:Decisions that are pertaining to various policy
matters in the organization are known as policy decisions. These are taken by top
management and do have a long-term impact on the organization. For example,
decisions regarding the location of the plant or volume of production. Operational
decisions are all day-to-day decisions that need to be taken for the proper functioning
and operation of the organization. For example, the Calculation of bonuses given to
each individual is an operational decision.
5. Major and Minor Decisions:These are classified as the type of decision-making in
management where decision-related to purchase of new premises is a major decision.
These are taken by top management whereas the purchase of stationery is a minor
decision. Minor decisions can be taken by the superintendent.
Decision making biases and
errors
Overconfidence: Occurs when decision makers think they know more than they do or
hold unrealistically positive views of themselves and their performance.

Immediate gratification: Describes decision makers who want immediate rewards but
want to avoid immediate costs. For these individuals, decision choices that provide
quick payoffs are more appealing than those with payoffs in the future.

Anchoring effect: Describes when decision makers fixate on initial information—such

as first impressions, ideas, prices, and estimates—and then fail to adequately adjust
for subsequent information

Selective perception occurs when decision makers organize and interpret events
based on their biased perceptions, which influence the information they pay attention
to, the problems they identify, and the alternatives they develop.

Confirmation bias describes decision makers who seek out information that reaffirms
their past choices and who discount information that contradicts past judgments.
Such people tend to accept, at face value, information that confirms their
preconceived views and are critical and skeptical of information that challenges these
views.

Randomness bias describes when decision makers try to create meaning out of
Framing bias occurs when decision makers select and highlight certain aspects of a
situation while excluding others. By drawing attention to specific aspects of a situation
and highlighting them, they downplay or omit other aspects, distort what they see, and
create incorrect reference points.

Availability bias occurs when decision makers focus on events that are the most recent
and vivid in their memory. As a result, their ability to recall events objectively results in
distorted judgments and probability estimates.

Representation bias describes how decision makers assess the likelihood of an event
based on how closely it resembles other events and then draw analogies and see identical
situations where they don't necessarily exist. This can also be referred to as the manager
representing the team and thus can be biased in the decisions due to the authority he/she
holds.

Sunk costs error occurs when decision makers forget that current choices can't correct
the past. They incorrectly fixate on past expenditures of time, money, or effort rather than
on future consequences when they assess choices.

Self-serving bias Decision makers exhibiting self-serving bias take credit for their
successes and blame failures on outside factors.