UNIT-2
PLANNING AND DECISION MAKING
PLANNING
Meaning of Planning:
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According to Alford and Beatt, "Planning is the thinking process, the organized
foresight, the vision based on fact and experience that is required for intelligent
action."
According to Theo Haimann, "Planning is deciding in advance what is to be done.
When a manager plans, he projects a course of action for further attempting to achieve
a consistent co-ordinate structure of operations aimed at the desired results.
According to Billy E. Goetz, "Planning is fundamentally choosing and a planning
problem arises when an alternative course of action is discovered."
According to Koontz and O' Donnell, "Planning is an intellectual process, conscious
determination of course of action, the basing of decision on purpose, facts and
considered estimates."
According to Allen, "A plan is a trap laid to capture the future."
Planning is thus: -
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Planning is concerned with future and it helps the management to look ahead.
It involves thinking about organization’s prosperity and helps analysis of information.
It involves a predetermined course of action.
It specifies the objectives to be attained in future.
It is basically a problem of choosing from the alternative courses of action.
It relates with thinking before doing.
It involves both decision making and problem solving.
Its objective is to achieve better results.
Nature / Characteristics of Planning:
The main characteristics or nature of planning is given below:
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Planning is an Intellectual Process:
Planning is an intellectual process of thinking in advance. It is a process of deciding
the future on the series of events to follow. Planning is a process where a number of
steps are to be taken to decide the future course of action. Managers or executives
have to consider various courses of action, achieve the desired goals, go in details of
the pros and cons of every course of action and then finally decide what course of
action may suit them best.
Planning Contributes to the Objectives:
Planning contributes positively in attaining the objectives of the business enterprise.
Since plans are there from the very first stage of operation, the management is able to
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handle every problem successfully. Plan try to set everything right. A purposeful,
sound and effective planning process knows how and when to tackle a problem. This
leads to success. Objectives thus are easily achieved.
Planning is a Primary Function of Management:
Planning precedes other functions in the management process. Certainly, setting of
goals to be achieved and lines of action to be followed precedes the organization,
direction, supervision and control. No doubt, planning precedes other functions of
management. It is primary requisite before other managerial functions step in. But all
functions are inter-connected. It is mixed in all managerial functions but there too it
gets precedence. It thus gets primary everywhere.
A continuous Process:
Planning is a continuous process and a never ending activity of a manager in an
enterprise based upon some assumptions which may or may not come true in the
future. Therefore, the manager has to go on modifying revising and adjusting plans in
the light of changing circumstances. According to George R. Terry, "Planning is a
continuous process and there is no end to it. It involves continuous collection,
evaluation and selection of data, and scientific investigation and analysis of the
possible alternative courses of action and the selection of the best alternative.
Planning Pervades Managerial Activities:
From primary of planning follows pervasiveness of planning. It is the function of
every managerial personnel. The character, nature and scope of planning may change
fro personnel to personnel but the planning as an action remains intact. According to
Billy E. Goetz, "Plans cannot make an enterprise successful. Action is required, the
enterprise must operate managerial planning seeks to achieve a consistent,
coordinated structure of operations focused on desired trends. Without plans, action
must become merely activity producing nothing but chaos."
Role, Significance, Importance & Advantages of Planning:
An organisation without planning is like a sailboat minus its rudder. Without planning,
organisation, are subject to the winds of organizational change. Planning is one of the most
important and crucial functions of management. According to Koontz and O'Donnell,
"Without planning business becomes random in nature and decisions become meaningless
and adhoc choices." According to Geroge R. Terry, "Planning is the foundation of most
successful actions of any enterprise." Planning becomes necessary due to the following
reasons:
Reduction of Uncertainty
Future is always full of uncertainties. A business organisation has to function in these
uncertainties. It can operate successfully if it is able to predict the uncertainties. Some of the
uncertainties can be predicted by undertaking systematic. Some of the uncertainties can be
predicted by undertaking systematic forecasting. Thus, planning helps in foreseeing
uncertainties which may be caused by changes in technology, fashion and taste of people,
government rules and regulations, etc.
Better Utilization of Resources
An important advantage of planning is that it makes effective and proper utilization of
enterprise resources. It identifies all such available resources and makes optimum use of these
resources.
Increases Organizational Effectiveness
Planning ensures organizational effectiveness. Effectiveness ensures that the organisation is
in a position to achieve its objective due to increased efficiency of the organisation.
Reduces the Cost of Performance
Planning assists in reducing the cost of performance. It includes the selection of only one
course of action amongst the different courses of action that would yield the best results at
minimum cost. It removes hesitancy, avoids crises and chaos, eliminates false steps and
protects against improper deviations.
Concentration on Objectives
It is a basic characteristic of planning that it is related to the organizational objectives. All the
operations are planned to achieve the organizational objectives. Planning facilitates the
achievement of objectives by focusing attention on them. It requires the clear definition of
objectives so that most appropriate alternative courses of action are chosen.
Helps in Co-ordination
Good plans unify the interdepartmental activity and clearly lay down the area of freedom in
the development of various sub-plans. Various departments work in accordance with the
overall plans of the organisation. Thus, there is harmony in the organisation, and duplication
of efforts and conflict of jurisdiction are avoided.
Makes Control Effective
Planning and control are inseparable in the sense that unplanned action cannot be controlled
because control involves keeping activities on the predetermined course by rectifying
deviations from plans. Planning helps control by furnishing standards of performance.
Encouragement to Innovation
Planning helps innovative and creative thinking among the managers because many new
ideas come to the mind of a manager when he is planning. It creates a forward-looking
attitude among the managers.
Increase in Competitive Strength
Effective planning gives a competitive edge to the enterprise over other enterprises that do
not have planning or have ineffective planning. This is because planning may involve
expansion of capacity, changes in work methods, changes in quality, anticipation of tastes
and fashions of people and technological changes etc.
Delegation is Facilitated
A good plan always facilitates delegation of authority in a better way to subordinates.
LIMITATIONS OF PLANNING:
1. Costly process: planning involves too much expenditure. Money and effort both are required in
planning. Planning includes collecting information, data forecasting and evaluation of alternatives. It
requires salary and allowances to the experts in the process of providing services.
So, planning has been accepted as costly process by small and medium size organization
2. Time consuming: planning is the time consuming process. It delays the business activity to come
in action. In the process of planning following the procedures of planning takes a lot of time which
may create problem to the organization where immediate action has to be made. So in such
situation planning is not suitable.
3. Unsuitable in emergency situation: as planning is time consuming, it is not suitable in emergency
situation because quick decisions is desirable in emergency situation buts planning delays the
emergency demand in organization
4. Lack of reliable data and problem of accurate premises: For planning assumptions have to be
developed for future action but future is uncertain and unpredictable. To make reliable data and
accurate premises is necessary., in the lack of reliable data and accurate premises, there is chance of
business loss and failure
5. Problem of rapid change: Planning is the game of prediction. Rapid changes may occur in macro
and micro level environment of business. planning is to be made in a flexible way to compress the
plans in the future
6. Internal rigidity: internal rigidity may be related to organizational and human psychology policy,
procedure and capital investment which create problem in the process of implementation. Staff may
not like the changes that may occur frequently in the working procedure. So rigidity may create
problem in planning.
7. Encourage false sense of security: Planning encourages false sense of security against future risk
and uncertainty. As future is uncertain, it is unpredictable. Therefore, planning cannot give accurate
and reliable results.
Steps involved in Planning:
Planning is a process which embraces a number of steps to be taken. Planning is an
intellectual exercise and a conscious determination of courses of action. Therefore, it requires
courses of action. The planning process is valid for one organisation and for one plan, may
not be valid for other organizations or for all types of plans, because various factors that go
into planning process may differ from organisation to organisation or from plan to plan. For
example, planning process for a large organisation may not be the same for a small
organisation. However, the major steps involved in the planning process of a major
organisation or enterprise are as follows:
Establishing objectives
The first and primary step in planning process is the establishment of planning objectives or
goals. Definite objectives, in fact, speak categorically about what is to be done, where to
place the initial emphasis and the things to be accomplished by the network of policies,
procedures, budgets and programmes, the lack of which would invariably result in either
faulty or ineffective planning.
It needs mentioning in this connection that objectives must be understandable and rational to
make planning effective. Because the major objective, in all enterprise, needs be translated
into derivative objective, accomplishment of enterprise objective needs a concrete endeavor
of all the departments.
Establishment of Planning Premises
Planning premises are assumptions about the future understanding of the expected situations.
These are the conditions under which planning activities are to be undertaken. These
premises may be internal or external. Internal premises are internal variables that affect the
planning. These include organizational polices, various resources and the ability of the
organisation to withstand the environmental pressure. External premises include all factors in
task environment like political, social technological, competitors' plans and actions,
government policies, market conditions. Both internal factors should be considered in
formulating plans. At the top level mainly external premises are considered. As one moves
downward, internal premises gain importance.
Determining Alternative Courses
The next logical step in planning is to determine and evaluate alternative courses of action. It
may be mentioned that there can hardly be any occasion when there are no alternatives. And
it is most likely that alternatives properly assessed may prove worthy and meaningful. As a
matter of fact, it is imperative that alternative courses of action must be developed before
deciding upon the exact plan.
Evaluation of Alternatives
Having sought out the available alternatives along with their strong and weak points, planners
are required to evaluate the alternatives giving due weight-age to various factors involved, for
one alternative may appear to be most profitable involving heavy cash outlay whereas the
other less profitable but involve least risk. Likewise, another course of action may be found
contributing significantly to the company's long-range objectives although immediate
expectations are likely to go unfulfilled.
Evidently, evaluation of alternative is a must to arrive at a decision. Otherwise, it would be
difficult to choose the best course of action in the perspective of company needs and
resources as well as objectives laid down.
Selecting a Course of Action
The fifth step in planning is selecting a course of action from among alternatives. In fact, it is
the point of decision-making-deciding upon the plan to be adopted for accomplishing the
enterprise objectives.
Formulating Derivative Plans
To make any planning process complete the final step is to formulate derivative plans to give
effect to and support the basic plan. For example, if Indian Airlines decide to run Jumbo Jets
between Delhi an Patna, obliviously, a number of derivative plans have to be framed to
support the decision, e.g., a staffing plan, operating plans for fuelling, maintenance, stores
purchase, etc. In other words, plans do not accomplish themselves. They require to be broken
down into supporting plans. Each manager and department of the organisation is to contribute
to the accomplishment of the master plan on the basis of the derivative plans.
Establishing Sequence of Activities
Timing an sequence of activities are determined after formulating basic and derivative plans,
so that plans may be put into action. Timing is an essential consideration in planning. It gives
practical shape and concrete form to the programmes. The starting and finishing times are
fixed for each piece of work, so as to indicate when the within what time that work is to be
commenced and completed. Bad timing of programmes results in their failure. To maintain a
symmetry of performance and a smooth flow of work, the sequence of operation shaped be
arranged carefully by giving priorities to some work in preference to others. Under sequence
it should be decided as to who will don what and at what time.
Feedback or Follow-up Action
Formulating plans and chalking out of programmes are not sufficient, unless follow-up action
is provided to see that plans so prepared and programmes chalked out are being carried out in
accordance with the plan and to see whether these are not kept in cold storage. It is also
required to see whether the plan is working well in the present situation. If conditions have
changed, the plan current plan has become outdated or inoperative it should be replaced by
another plan. A regular follow-up is necessary and desirable from effective implementation
and accomplishment of tasks assigned.
The plan should be communicated to all persons concerned in the organisation. Its objectives
and course of action must be clearly defined leaving no ambiguity in the minds of those who
are responsible for its execution. Planning is effective only when the persons involved work
in a team spirit and all are committed to the objectives, policies, programmes, strategies
envisaged in the plan.
Management Planning Principles
Planing is a dynamic process, it is very essential for every organisation to achieve their
ultimate goals, but, there are certain principles which are essential to be followed so as to
formulate a sound plan. They are only guidelines in the formulation and implementation of
plans. These principles are as follows:
1. Principle of Contribution: The purpose of planning is to ensure the effective and
efficient achievement of corporate objectives, in-fact, the basic criteria for the
formulation of plans are to achieve the ultimate Objectives of the company. The
accomplishment of the objectives always depends on the soundness of plans and the
adequate amount of contribution of company towards the same.
2. Principle of Sound and Consistent Premising: Premises are the assumptions
regarding the environmental forces like economic and market conditions, social,
political, legal and cultural aspects, competitors actions, etc. These are prevalent
during the period of the implementation of plans. Hence, Plans are made on the basis
of premises accordingly, and the future of the company depends on the soundness of
plans they make so as to face the state of premises.
3. Principle of Limiting factors : The limiting factors are the lack of motivated
employees, shortage of trained personnel, shortage of capital funds, government
policy of price regulation, etc. The company requires to monitor all these factors and
need to tackle the same in an efficient way so as to make a smooth way for the
achievement of its ultimate objectives.
4. Principle of Commitment: A commitment is required to carry-on the business that is
established. The planning shall has to be in such a way that the product diversification
should encompass the particular period during which entire investment on that
product is recovered.
5. Principle of Coordinated Planning: Long and short-range plans should be
coordinated with one another to form an integrated plan, this is possible only when
latter are derived from the former. Implementation of the long-range plan is regarded
as contributing to the implementation of the short-range plan. functional plans of the
company too should contribute to all others plans i.e. implementation of one plan
should contribute to all the other plans, this is possible only when all plans are
consistent with one another and are viewed as parts of an integrated corporate plan.
6. Principle of Timing: Number of major and minor plans of the organisation should be
arranged in a systematic manner. The plans should be arranged in a time hierarchy,
initiation and completion of those plans should be clearly determined.
7. Principle of Efficiency: Cost of planning constitute human, physical and financial
resources for their formulation and implementation as well. Minimizing the cost and
achieving the efficient utilization of resources shall has to be the aim of the plans.
Cost of plan formulation and implementation, in any case, should not exceed the
organisations output's monetary value. Employee satisfaction and development, and
social standing of the organisation are supposed to be considered while calculating the
cost and benefits of plan.
8. Principle of Flexibility: Plans are supposed to be flexible to favour the organisation
to cope-up with the unexpected environments. It is always required to keep in mind
that future will be different in actuality. Hence companies, therefore, require to
prepare contingency plans which may be put into operation in response to the
situations.
9. Principle of Navigational Change: Since the environment is always not the same as
predicted, plans should be reviewed periodically. This may require changes in
strategies, objectives, policies and programmes of the organisation. The management
should take all the necessary steps while reviewing the plans so that they efficiently
achieve the ultimate goals of the organisation.
10. Principle of Acceptance: Plans should be understood and accepted by the employees,
since the successful implementation of plans requires the willingness and cooperative
efforts from them. Communication also plays a crucial role in gaining the employee
understanding and acceptance of the plans by removing their doubts and
misunderstanding about the plans also their apprehensions and anxieties about
consequences of plans for achievement of their personal goal.
DECISION MAKING:
Meaning
The English word 'Decision' originated from the Latin word 'decisio' which means "to cut
from."
'To decide' means "to come to a conclusion" or "to pass a resolution."
Decision making means to select a course of action from two or more alternatives. It is done
to achieve a specific objective or to solve a specific problem.
Definition of Decision Making
According to James Stoner,
"Decision making is the process of identifying and selecting a course of action to solve a
specific problem."
According to Trewartha and Newport,
"Decision making involves the selection of a course of action from among two or more
possible alternatives in order to arrive at a solution for a given problem."
FEATURES OR CHARACTERISTICS OF DECISION
MAKING:
(i) Decision making is a process of selection or choice among alters native courses of action.
The need for decision making arises only when more than one alternative exists for doing the
work.
(ii) The aim of decision making is to find out the best possible course of action. It is a rational
and purposeful activity designed to attain well-defined objectives.
Decisions relate means to ends. In order to identify the best alternative, it is necessary to
evaluate all available alternatives. As decision making is always purposeful, there may just be
a decision not to decide.
(iii) Decision making is an intellectual or rational process. As a mental exercise, it involves
considerable deliberation and thoughtful consideration of various factors influencing the
choice. It is the end process preceded by reasoning and judgment.
(iv) Decision making involves a certain commitment. A decision results into the commitment
of resources and reputation of the organisation.
This commitment may be for short term or long term depending upon the type of decision.
Decision making involves a time dimension and a time lags.
(v) Decision making is always related to the situation or the environment. A manager may
take one decision in a particular situation and an opposite decision in a different situation. In
some situations, there may just be a decision not to decide.
(vi) Decision making is a pervasive function of management. This function is performed by
managers at all levels though the nature of decisions may differ from one level to another.
Decision making is a continuous process.
(vii) Decision making is a human and social process. It involves the use not simply of the
intellectual abilities but also of intuition, subjective values and judgment.
It is not a purely intellectual process. Perception and human judgment are indispensable and
no technique can replace them. But knowledge and experience also provide basis for correct
decisions.
(viii) The choice in decision making implies freedom to choose from among alternative
courses of action without coercion. It also implies uncertainty about the final outcome.
When there is no choice of action, no decision is necessary. The need for making any
decision occurs only when some uncertainty as to outcome exists.
Types of decision making
1. Programmed and non programmed decisions: Programmed decisions are those which
are normally repetitive in nature and are taken as a routine job and responsibilities. These
types of decisions are made by middle level management in accordance with some policies,
rules and procedures. They have short term impact. For example: – granting a leave to an
employee, purchasing office materials etc. non programmed decisions are non repetitively
taken by top executives. They need to collect data and analyze then and forecast the strategic
plans
2. Major and minor decisions: among different decisions some decisions are considerably
more important than others and are prioritized. They are called major decisions. For example,
replacement of man by machine, diversification of product etc. contrary to that, some of the
remaining decisions are considerably less important than others and are not so prioritized.
They are minor decisions. For example, store of raw materials etc.
3. Routine and strategic decisions: Routine decisions are those decisions which are
considered as tactical decisions. They are taken frequently to achieve high degree of
efficiency in the organizational activities. For example, parking facilities, lighting and
canteen etc. strategic decisions are those which are related to lowering the prices of products,
changing the product etc. they take more fund and degree of partials.
4. Organizational and personal decision: Organizational decision is taken by top
executives. For official purpose. They affect the organizational activities directly. Authority
is also delegated. Personal decisions are concerned to an employee. The executives whenever
takes the decisions personally that is known as personal decisions
5. Individual and group decisions: When a single employee is involved in decision making
it is called individual decision. They are taken by ole proprietor when the problem is of
routine nature. On the other hand when the decision is of group taken in a large organization
where important and strategic decisions are taken the it is a group decision
6. Policy and operating decisions: Policy decisions are taken by top level management to
change the rules, procedures, organizational structure etc and they have a long tern effect.
Operational decisions are taken by low level management which have short term effect and
which affect the day to day operation of the organization.
Steps of Decision Making Process:
Following are the important steps of the decision making process. Each step may be
supported by different tools and techniques.
Step 1: Identification of the purpose of the decision:
In this step, the problem is thoroughly analysed. There are a couple of questions one should
ask when it comes to identifying the purpose of the decision.
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What exactly is the problem?
Why the problem should be solved?
Who are the affected parties of the problem?
Does the problem have a deadline or a specific time-line?
Step 2: Information gathering:
A problem of an organization will have many stakeholders. In addition, there can be dozens
of factors involved and affected by the problem.
In the process of solving the problem, you will have to gather as much as information related
to the factors and stakeholders involved in the problem. For the process of information
gathering, tools such as 'Check Sheets' can be effectively used.
Step 3: Principles for judging the alternatives:
In this step, the baseline criteria for judging the alternatives should be set up. When it comes
to defining the criteria, organizational goals as well as the corporate culture should be taken
into consideration.
As an example, profit is one of the main concerns in every decision making process.
Companies usually do not make decisions that reduce profits, unless it is an exceptional case.
Likewise, baseline principles should be identified related to the problem in hand.
Step 4: Brainstorm and analyse the different choices:
For this step, brainstorming to list down all the ideas is the best option. Before the idea
generation step, it is vital to understand the causes of the problem and prioritization of causes.
For this, you can make use of Cause-and-Effect diagrams and Pareto Chart tool. Cause-andEffect diagram helps you to identify all possible causes of the problem and Pareto chart helps
you to prioritize and identify the causes with highest effect.
Then, you can move on generating all possible solutions (alternatives) for the problem in
hand.
Step 5: Evaluation of alternatives:
Use your judgement principles and decision-making criteria to evaluate each alternative. In
this step, experience and effectiveness of the judgement principles come into play. You need
to compare each alternative for their positives and negatives.
Step 6: Select the best alternative:
Once you go through from Step 1 to Step 5, this step is easy. In addition, the selection of the
best alternative is an informed decision since you have already followed a methodology to
derive and select the best alternative.
Step 7: Execute the decision:
Convert your decision into a plan or a sequence of activities. Execute your plan by yourself
or with the help of subordinates.
Step 8: Evaluate the results:
Evaluate the outcome of your decision. See whether there is anything you should learn and
then correct in future decision making. This is one of the best practices that will improve your
decision-making skills.
IMPORTANCE OF DECISION MAKING:
1. Better Utilisation of Resources
Decision making helps to utilise the available resources for achieving the objectives of the
organisation. The available resources are the 6 Ms, i.e. Men, Money, Materials, Machines,
Methods and Markets. The manager has to make correct decisions for all the 6 Ms. This will
result in better utilisation of these resources.
2. Facing Problems and Challanges
Decision making helps the organisation to face and tackle new problems and challenges.
Quick and correct decisions help to solve problems and to accept new challenges.
3. Business Growth
Quick and correct decision making results in better utilisation of the resources. It helps the
organisation to face new problems and challenges. It also helps to achieve its objectives. All
this results in quick business growth. However, wrong, slow or no decisions can result in
losses and industrial sickness.
4. Achieving Objectives
Rational decisions help the organisation to achieve all its objectives quickly. This is because
rational decisions are made after analysing and evaluating all the alternatives.
5. Increases Efficiency
Rational decisions help to increase efficiency. Efficiency is the relation between returns and
cost. If the returns are high and the cost is low, then there is efficiency and vice versa.
Rational decisions result in higher returns at low cost.
6. Facilitate Innovation
Rational decisions facilitate innovation. This is because it helps to develop new ideas, new
products, new process, etc. This results in innovation. Innovation gives a competitive
advantage to the organisation.
7. Motivates Employees
Rational decision results in motivation for the employees. This is because the employees are
motivated to implement rational decisions. When the rational decisions are implemented the
organisation makes high profits. Therefore, it can give financial and non-financial benefits to
the employees.