Fundamentals of Management and

Organizational Behaviour

Overview of
Unit
Planning
2 (Part 1)
PLANNING & DECISION MAKING
 CONCEPT
 Planning is deciding in advance what to do and how to do.
 Before doing something, the manager must formulate an idea of how to work on a
particular task. Thus, planning is closely connected with creativity and innovation.
 Planning seeks to bridge the gap between where we are and where we want to go.
 It requires taking decisions since it involves making a choice from alternative courses
of action.
 Planning, thus, involves setting objectives and developing appropriate courses of
action to achieve these objectives.
IMPORTANCE OF PLANNING
1. Planning provides directions: By stating in advance how work is to be done planning provides direction for
action. Planning ensures that the goals or objectives are clearly stated so that they act as a guide for deciding what
action should be taken and in which direction.
2. Planning reduces the risks of uncertainty: By deciding in advance the tasks to be performed, planning shows
the way to deal with changes and uncertain events.
3. Planning reduces overlapping and wasteful activities: It helps in avoiding confusion and misunderstanding.
Since planning ensures clarity in thought and action, work is carried on smoothly without interruptions.
4. Planning promotes innovative ideas: It is the most challenging activity for the management as it guides all
future actions leading to growth and prosperity of the business.
5. Planning facilitates decision making: Planning helps the manager to look into the future and make a choice from
amongst various alternative courses of action.
6. Planning establishes standards for controlling: Planning involves setting of goals. Planning provides the goals
or standards against which actual performance is measured.
PLANNING PROCESS
1. Setting Objectives: The first and foremost step is setting objectives. Every organisation must have
certain objectives. Objectives may be set for the entire organisation and each department or unit within
the organisation. Objectives or goals specify what the organisation wants to achieve. It could mean an
increase in sales by 20% which could be objective of the entire organisation.
2. Developing Premises: Planning is concerned with the future which is uncertain and every planner is
using conjecture about what might happen in future. Therefore, the manager is required to make certain
assumptions about the future. These assumptions are called premises. Assumptions are the base
material upon which plans are to be drawn. The base material may be in the form of forecasts, existing
plans or any past information about policies.
3. Identifying alternative courses of action: Once objectives are set, assumptions are made. Then the
next step would be to act upon them. There may be many ways to act and achieve objectives. All the
alternative courses of action should be identified. The course of action which may be taken could be
either routine or innovative.
4. Evaluating alternative courses: The next step is to weigh the pros and cons of each alternative. Each
course will have many variables which have to be weighed against each other. The positive and negative
aspects of each proposal need to be evaluated in the light of the objective to be achieved. In financial plans,
for example, the risk-return trade-off is very common. The more risky the investment, the higher the returns
it is likely to give. To evaluate such proposals detailed calculations of earnings, earnings per share, interest,
taxes, dividends are made and decisions taken.
5. Selecting an alternative: This is the real point of decision making. The best plan has to be adopted and
implemented. The ideal plan, of course, would be the most feasible, profitable and with least negative
consequences. Most plans may not always be subjected to a mathematical analysis. In such cases,
subjectivity and the manager’s experience, judgement and at times, intuition play an important part in
selecting the most viable alternative.
6. Implementing the plan: This is the step where other managerial functions also come into the picture. The
step is concerned with putting the plan into action, i.e., doing what is required.
7. Follow-up action: To see whether plans are being implemented and activities are performed according to
schedule is also part of the planning process. Monitoring the plans is equally important to ensure that
objectives are achieved.
 DECISION MAKING
Decision-making has great importance for
success of organization in contemporary
management system. Managers have to take
critical decisions at every stage. Decision-
making pervades through all managerial
functions such as planning, organizing,
staffing, directing and control. Decision
making is commitment to something and a
principle or course of action. It is selecting
the best among alternative courses of
action.
DECISION MAKING PROCESS
1. Identification of problems: the first step of decision-making is identification of problems. First of all,
managers must identify the problem. The problem has to be found and defined. Symptoms are
identified and problems should be judged, symptoms are not problems. They are warning signs of
problems. So, managers should search for symptoms for identification of problems. Such symptoms
can be falling of sales, profit etc. It is said that problem identified is half solved is identification of
problem should be effective.
2. Analysis of problem: after identification of problems, the problem should be analyzed by the decision
maker. It is the assembly of fact and clarifying it. Relevant information must be collected and analyzed
according to the complexity and nature of problems.
3. Developing the alternative solution: after identification and analysis of problems different probable
solutions have to be developed which is known as developing the alternative solutions. There may be
many alternative past experience, expert opinion, discussions etc which may be helpful to develop the
alternative.
4. Evaluation of the best alternative: after developing the alternative solution evaluation of the best
alternative is done. It is determined that which alternative has how much advantage and
disadvantages. in other words, alternatives are evaluated in so many factors like cost factors, risk ,
benefits, facilities etc. therefore it is very important.
5. Selection of the best alternative: after evaluating alternative, the best alternative is to be selected
from various alternative. After developing alternative, the managers should taste each of them by
imagining things that he has already put in effect. He should try to foresee the desirable consequences
of adopting each alternative. It is done for best selection. Therefore, it is very important.
6. Implementation of the best alternative: after selection of the finest alternative, it must be used in
the organization effectively. Effectiveness of decisions in achieving the desired goals depends upon its
implementation. It they are not implemented effectively then best results can’t be obtained. Therefore,
proper implementation of the best alternative is necessary.
7. Review of implementation: it is the last step of decision-making process. When the implementation
of the best alternative is reviewed, the process of decision-making is finished. The result of
implementation should be monitored and evaluated through which effectiveness can be measured.
TYPES OF DECISION
 Programmed and non-programmed decisions: Programmed decisions are those that are made in harmony to
policy, procedure and rules. These decisions are regular and cyclical and programmed decision is comparatively
easy to make. Non-programmed decisions are new and non-repetitive. If a problem has not arisen before or if there
is no precise method for handling it, it must be tackled by non-programmed decision. For programmed decision,
there are definite rules exists and therefore it is not possible for two persons to find different solutions to the some
problem. In case of non-programmed decision, there are no set rules to deal with the problem.
 Major and minor decisions: Major decisions are taken cautiously and intentionally by the application of human
judgment and experience where as minor decisions are made almost subconsciously using rules. The decisions that
impact for long term on departments are categorized as major decision. Alternatively, corporate decisions that do
not have long term effect are known as minor decisions. Some of major decision example in organization includes
diversification of existing product lines, adopting new technology are the major decisions. The decision to obtain
raw materials is a minor decision, Major decisions are made at top level and minor decisions are taken at lower
level in the organizational ladder.
 Simple and complex decisions: Another category of decision making is to take simple and complex decision.
Simple decision is taken in situation where there few variables considered for solving a problem. If the variables
are many, then it is an intricate decision.

 Strategic and tactical or operational decisions: Strategic decision is making good choice of actions concerning
allocation of resources and contribution to accomplish targeted goals of organization. Strategic decisions are major
and non-programmed decisions and have long term impact. A strategic decision may involve major removal from
earlier system. For example, modification in the product mix. Strategic decisions are taken by senior management.
Tactical or operational decision is stemmed from strategic decision. It is associated with daily working of the
organization and is made in the context of established policies and procedures such as taking decisions for
provisions of air conditioning, parking facilities. Such types of decision are taken by the lower level managerial
staff.

 Individual and group decisions: Decision may be taken either by an individual or group. Decisions which are
routine in nature, with few variables and exact procedures exists to deal with them are taken by individuals.
Decisions which have their impact on other departments, which may result into some transformation in the
organization, are taken by groups.
DECISION MAKING TECHNIQUES
1. Marginal Analysis: This technique is used in decision-making to figure out how much extra output will result if
one more variable (e.g. raw material, machine, and worker) is added.
2. Financial Analysis: This decision-making tool is used to estimate the profitability of an investment, to calculate the
payback period (the period taken for the cash benefits to account for the original cost of an investment), and to
analyze cash inflows and cash outflows.
Investment alternatives can be evaluated by discounting the cash inflows and cash outflows (discounting is the
process of determining the present value of a future amount, assuming that the decision-maker has an opportunity to
earn a certain return on his money).
3. Break-Even Analysis: This tool enables a decision-maker to evaluate the available alternatives based on price,
fixed cost and variable cost per unit. Break-even analysis is a measure by which the level of sales necessary to cover
all fixed costs can be determined.
4. Ratio Analysis: It is an accounting tool for interpreting accounting information. Ratios define the relationship
between two variables. The basic financial ratios compare costs and revenue for a particular period.
5. Operations Research Techniques: One of the most significant sets of tools available for decision-makers is
operations research. An operation research (OR) involves the practical application of quantitative methods in the
process of decision-making.
6. Linear Programming: Linear programming is a quantitative technique used in decision-making. It involves
making an optimum allocation of scarce or limited resources of an organization to achieve a particular objective. The
word ‘linear’ implies that the relationship among different variables is proportionate.
7. Waiting-line Method: Waiting lines (or queuing) occur whenever the demand for the service exceeds the service
facilities. Since a perfect balance between demand and supply cannot be achieved, either customers will have to wait
for the service (excess demand) or there may be no customers for the organization to serve (excess supply).
8. Game Theory: The primary aim of game theory is to develop rational criteria for selecting a strategy. It is based on
the assumption that every player (a competitor) in the game (decision situation) is perfectly rational and seeks to win
the game.
9. Simulation: This technique involves building a model that represents a real or an existing system. When the model
is programmed through the computer, a set of outputs is obtained.
10. Decision Tree: A decision tree is a graphical representation of alternative courses of action and the possible
outcomes and risks associated with each action.