Planning

• Definition
• In simple words, Planning is deciding in advance what
action to take, how and when to take a particular
action, and who are the people to be involved in it.
• Peter Drucker, “Planning is a process of making present
entrepreneurial decisions (Risk taking) systematically
and with best possible knowledge of their futurity,
organizing systematically the effort needed to carry out
these decisions and measuring the result of those
decisions against the expectations through an
organized systematic feedback”
 Planning

• Heinz Weihrich and Harold Koontz, “Planning

involves selecting mission and objectives and
the actions achieve them; it requires decision
making that is, choosing from alternative
future course of action.”
• Dalton E. McFarland, “Planning is a concept of
executive function that embodies the skills of
anticipating, influencing and controlling the
nature and direction of change.”
 Nature of planning

• Planning is Goal-oriented
• Planning is an intellectual or rational Process
• Planning is Primary Function
• Planning is All-pervasive
• Planning is Forward-looking
• Planning is a Perpetual process
• Planning is an Integrated Process
• Planning involves Choices
 Significance of Planning

• Focuses attention on Objectives

• Offsets uncertainty and Risk
• Provides sense of Direction
• Provides Guidelines for Decision-making
• Increases Organizational Effectiveness
• Provides Efficiency in operations
• Ensure Better Coordination
• Facilitates Control
• Encouraging Innovation and Creativity
• Facilitates Delegation
 Types of Planning

• On the basis of Organizational Level

• On the basis of Frequency of Use
• On the basis of Time Frame
 On the basis of Organizational Level

• Strategic Plans:
• Tactical Plans:
• Operational Plans:
 On the basis of Frequency of Use

• Single-use Plan
• Programs
• Budgets
• Projects
• Standing Plans
• Policies
• Procedures
• Rules
 On the basis of Time Frame

• Long-term Plans
• Intermediate-term Plans
• Short-term Plans
 Steps in the Planning process
• Analyzing opportunities
• Establishing Objectives
• Determining Planning Premises
• Identifying Alternatives
• Evaluating available Alternatives
• Selecting The most appropriate Alternative
• Implementing the Plan
• Review the Plan
Prerequisites for Effective Planning
• Establishing right climate for planning
• Clear and specific objectives
• Planning premises
• Initiative at top level
• Participation in planning process
• Communication of planning elements
• Integration of long-term and short-term plans
• An open system approach
• Management Information system
 Limitations Of Planning
• Lack of Accurate Information
• Time Consuming Process
• Expensive
• Inflexibility
• Resistance to change
• Environmental Constraints
• Lack of ability and commitment
• False sense of security
• Reluctance to establish goals
 Objectives
• Managing an organization effectively requires the
formulation of clear objectives. Objectives serve
as guidelines or roadmap for managerial effort
and action. Well thought objectives steer an
organization to success.
An objective is a goal or an end that an
organization or an individual aims at or strives to
attain. A supervisor or a team sets the objectives
and decide the process by which these objectives
can be achieved.
 Nature of Objectives
Objectives state the end result to be achieved by
the organization. They form the basis of all good
planning processes. The overall objectives of an
organization need to be supported by its sub-
objectives. Objective from a network as well as a
hierarchy.
– Hierarchy of Objectives
– The process of formulating objectives and the
organizational hierarchy
– A network of objectives
– Multiplicity of objectives
 Relationship of Objectives and
organizational Hierarchy
Level of organizational Hierarchy
Board of Directors and Top Managers
Middle Level Managers
Lower-level Objectives
Types of Objectives
Socio-economic purpose
Mission
Overall Objectives of the firm
Objectives in the key result areas
• Productivity
• Physical and Financial Resources
• Profitability and market standing
• Innovation
• Managerial performance and
Development, workers performance and
attitude
• Social Responsibility
• Quality and service issue
Division of objectives
Departmental Objectives
Objectives for subordinates
• Performance goals
Hierarchy of Objectives
The process of formulating objectives and the organizational hierarchy
 A network of objectives

• Objectives and planning programs are co-

existential and co-relational. A network of
expected results is formed with the objectives
and the program planning supporting each
another. If the objectives are not linked to one
another, then the individual goals may not be
in accordance with the overall organizational
objectives, and this will prove harmful for the
organization
 Multiplicity of objectives

• Organizations plan to achieve many goals and

objectives. However, if there are too many objectives,
there may not be adequate attention paid to any of
them, and this will make planning ineffective. It is
generally assumed that managers can effectively take
up only few objectives at particular point of time. If
they pursue too many objectives, then the drive
required to finish the task only gets diluted. Though
there is no fixed number of objectives that an
organization can have, the number dependents on how
many tasks the manager can handle themselves and
how much they delegate to their subordinates.
 Evolving Concepts in MBO
• Heinz Weihrich And Harold define
Management By Objectives as, “A compressive
managerial system that integrates many key
managerial activities in a systematic manner
and that is consciously directed towards the
effective and efficient achievement of
organizational and individual objectives”.
 Early Impetus to MBO
• One of the earliest management thinkers to use this
term was Peter F. Drucker. MBO first gain recognition
way back in 1954 with the +publication of his book The
Practice of Management. Drucker considered MBO as a
means of managerial self-direction and self-control. He
emphasized the importance of setting objectives in all
areas where performance is critical for the survival and
success of the enterprise.
• According to Drucker, the relationship of each
individual’s objectives to the common goal is of
primary importance.
 MBO on Performance Appraisal
• Douglas McGregor, advocates the use of MBO as
performance planning and appraisal system. In
his classic article published in the Harvard
Business Review in 1957, criticized traditional
appraisals programs that focused on personality
traits for evaluating subordinates. He suggested,
subordinate should plan their short-term
objectives themselves and their superiors should
then review these objectives. This system
emphasized self-appraisal and self –development.
 Emphasis on short term Objectives
and Motivation
• Performance level were higher when people
worked towards specific objectives than when
they were simply asked to do their best.
Therefore goal setting is an important factor in
motivating employees.
Inclusion of long-range planning in the
MBO process
• In many MBO programs that stress on
motivation and performance appraisal, only
short term objectives tend to be focused
upon. For instance, a production manager, in
an effort to reduce maintenance costs, may
neglect the necessary expenses for keeping
the machines in good working condition. The
breakdown of machinery may not be evident
earlier, but it can result in costly repair later.
 The system Approach to MBO
MBO has come a long way- from being considered as a
way of promoting managerial self control to being used
in appraising performance, both at the individual and
collective levels, in motivating individuals and in
strategic planning. There are many activities that can
be integrated with the MBO process. Function such as
planning, controlling and directing have the highest
degree of integration in the process. But other
managerial functions like organizing and staffing can
also be integrated. Therefore MBO needs to be viewed
as a comprehensive system. (Design of orgn structure,
portfolio management, management development,
budgeting, career development, compensation)
 The Process of MBO

• Developing overall organizational goals

• Establish specific goals for various
departments, subunits, and individuals
• Formulating action plans
• Implementing and maintaining self control
• Doing periodic review
• Appraising performance
• Feedback
Developing overall organizational goals

• The first step consist of the managers

determining the mission and strategic goals of
the organization. Goals should be based on what
the organization can and should accomplish.
While setting organizational goals, the
organizations strengths and weaknesses have to
be considered with regard to opportunities and
threats. Managers must also determine the
method by which the goals have to be achieved.
The responsibility for achieving specific goals
should be assigned to particular individuals
 Establish specific goals for various
departments, subunits, and individuals
• At this stage the managers set goals for
various organizational levels such that each
goal is in accordance with the organizations
overall goals.
 Formulating action plans

• In this step, the managers develop action

plans. Action plans convey what is to be done
and how, when , where and by whom the
goal is to be achieved. The focuses of the
action plans are developed by subordinates in
conjunction with their superiors
Implementing and maintaining self control

• The employees should be given considerable

freedom to implement their plans. The main
aim of MBO is supposed to be to help
subordinates by providing them with a clear
idea of what they need to achieve. The
process gives the subordinate a sense of
direction and helps them in evaluating their
own performance. The responsibility of the
superiors is restricted to keeping track of the
subordinates progress
 Doing periodic review

• Monitoring performance at regular intervals is

essential during the plan implementation
stage to ensure that the objectives are
achieved. Reviews help managers to give
timely feedback to subordinates, measure
results, identify and remove obstacles, solve
problems, and make changes in the action
plan
 Appraising performance

• At the end of the MBO process, which usually

takes one year, the final performance is matched
with the previously formulated objectives. The
managers evaluate each subordinate’s
performance during the year. The focus of
performance appraisal is to check the extent to
which the formulated objectives have been
achieved, to see if there has been any shortfall in
the achievement of goals, to discover the reasons
for the shortfall, and to decide on the action
required to prevent such shortfall in the future
Feedback
 Benefits of MBO

• Better Management
• Clarity in organizational Action
• Encouragement of personal commitment
• Personal satisfaction
• Basis for organizational change
• Development of effective controls
 Better Management

• MBO helps managers to allocate resources

and plan activities effectively. As part of the
process, managers should decide on the
methods of accomplishing the objectives
through the proper allocation of resources.
 Clarity in organizational Action

• MBO helps to identify the key areas at which

the organizational efforts need to be directed.
 Encouragement of personal commitment

• In an MBO program, the employees have the

responsibility of setting their own objectives.
This encourages them to show a commitment
to achieving the goals
 Personal satisfaction

• Employees are satisfied since they are allowed

to participate in setting their objectives and
appraising their performance. this satisfaction
motivates them to perform better
 Basis for organizational change

• The MBO process stimulate organizational

change. It provides the framework and
guideline for a planned change and helps to
overcome resistance to change
 Development of effective controls

• Effective control is possible because MBO

makes the management state the objectives
clearly. The availability of clearly stated
objectives gives the direction for effective
control and helps the manager take corrective
action in case of deviation
 Limitations of MBO

• Failure to teach MBO philosophy

• Failure to give guidelines to goal setters
• Difficulty in goal setting
• Emphasis on short term goals
• Inflexibility
• Other dangers
 Failure to teach MBO philosophy

• Manager should communicate the benefits of

the MBO process to their subordinates. Failure
to understand and make others understand
the philosophy of MBO leads to the failure of
the MBO process itself
 Failure to give guidelines to goal setters

• MBO require that adequate guideline be

provided to those who are expected to set
goals, just like any other kind of planning. Put
in other wards, manager must understand the
corporate goals and how their own activities
contribute to the achievement of these goals
 Difficulty in goal setting

• MBO emphasis on setting verifiable goals

against which performance can be measured.
But setting such goals is a difficult task
 Emphasis on short term goals

• For quick results, managers emphasize more

on short term goals and giving less emphasis
to long term goals. Therefore, top
management should ensure that short term
goals should be in accordance with the long
term goals
 Inflexibility

• Managers need to make changes to their goals

in keeping with the revision in organizational
objectives and policies. But they are generally
reluctant to change them
 Other dangers

• It takes too much time,

• Needs training to managers
 Making MBO Effective

• Top management support: Continuous support from

the top management is essential
• Training for MBO: Employees need to be trained on the
concepts and philosophy underlying MBO
• Clear objective formulated: The success of MBO
program depends on how clearly the objectives are
formulated.
• Effective feedback: Regular performance reviews
should be conducted and feedback provides.
• Encouragement to participate: The commitment and
participation of the employees at all levels of the
organization is essential and has to be encouraged
 Managerial Decision Making
Introduction
Decision making is an integral part of planning. It is the
process of identifying and choosing alternative course
of action in a manner appropriate to the situation.
Decision-making is a purposive activity directed
towards the achievement of goals and objectives.
Managers have to take decisions for solving problems,
resolving crises and conflict and for tackling various
situations. It is important that manager possess good
decision making skills because their evaluation and
reward are depend on the outcome of their decisions
Significance and limitations of Rational
Decision Making
Rational decision making is significant in many ways
• Manager who use rational decision making tend to provide better solutions to problems
• Rational decision makers have a clear understanding of the alternative course of action
through which to accomplish a goal under a given set of conditions and limitations
• Ration decision making helps the managers decide on the best solution by selecting the
alternatives that effectively facilitate goal achievement

However, rational decision-making has some limitations too:

• It is difficult to make completely rational decisions since the decisions are made predicting
the future, which itself uncertain.
• It is some time difficult to determine the alternative course of action to achieve a particular
goal.
• Rational decision making is difficult in those areas which have not been ventured into before.
• It may become difficult to arrive at rational decisions because of limitations of information,
time, and lack of certainty.
• Managers sometimes allow their tendency to avoid risks to disrupts rational decision making
process.
 Decision Making Process

• Identifying the problem

• identifying resources and constraints
• generating alternative solutions
• Evaluating alternatives
• Selecting an Alternative
• Implementing the decision
• Monitoring the decision
 Identifying the problem

This is the first step in the decision making

process and it involves three stages: scanning,
categorization and diagnosis. In the scanning
stage, the work environment is monitored for
changes that may indicate the emergence of a
problem. The categorization stage attempts to
understand the performance gap between the
expected and actual performance levels. In
the diagnosis stage, facts pertaining to the
problem are gathered
identifying resources and constraints
Resources that can be used to solve the
problem like people, money, materials, time,
equipment, expertise and information are
identified in this step. Constraints are the
factors that caused a hindrance to problem
solving. Managers should identify the
resources and constraints relevant to the
problem
 Generating alternative solutions
• The next step in the decision making process
is to generating possible alternative solutions
to the problem. Generating a number of
alternatives increases the chances of making
an effective decision. Managers can use the
brain storming technique to generate such
alternatives
 Evaluating alternatives

At this step, each alternative is evaluated for

its advantage and disadvantages
 Selecting an Alternative

This step involves selecting the best

alternative. To do this, three approaches are
used:
i. past experience
ii. Experimentation
iii. R&D analysis
 Implementing the decision

The selected alternative must be implemented

properly to achive the objective for which it
was selected, and this in turn, depends on
effective planning
 Monitoring the decision
Monitoring the implementation is necessary
to ensure that it is in accordance with the
plan. Feedback is an important component of
the decision making process
 Types of managerial decisions

• Programmed decision
• Non-programmed decision
 Programmed decision

Programmed decisions are those that deal

with simple, common, frequently occurring
problems that have well-structured situations,
using predetermined decision rules that may
be based on habit, established policies and
procedure, or computational techniques
 Non-programmed decision

• Non-programmed decisions are those that deal

with unusual or exceptional problems. Since non-
programmed decisions involve situations that are
novel and/or illstructured, predetermined
decision rules are impractical for such decisions.
Most of the important decisions that managers
make fall into the non-programmed category.
Decisions that involves strategies to deal with
mergers, acquisitions, takeover and organization
design, are non-programed by nature. So also are
decisions pertaining to new facilities, new
products, labor contracts, and legal issues
Decision Making Under Certainty, Risk
and Uncertainty
• Decision taken under certainty
• Decision taken under risk
• Decision making under uncertainty
– Risk analysis
– Decision tree
– Preference analysis/ Utility Theory
 Decision taken under certainty

• A condition of certainty exists when the decision

maker knows with reasonable certainty what the
alternatives are associated with each alternative,
and the outcome of each alternative. Under
condition of certainty, accurate, measurable, and
reliable information on which to base decisions, is
available. The cause and effect relationship are
known and the future is highly predictable under
conditions of certainty. Such conditions exist in
case of routine and repetitive decisions
concerning the day-to-day operations of the
business
 Decision taken under risk

• Under a state of risk, the decision maker has

incomplete information about available
alternative but has a good idea of the
probability of outcomes for each alternatives.
While making decisions under a state of risk,
managers must determine the probability
associated with each alternative on the basis
of the available information and his
experience
 Decision making under uncertainty

• Condition of uncertainty exist when the future environment is

unpredictable and everything is in a state of flux.
Risk analysis: Risk analysis involves quantitative and qualitative risk
assessment, risk management and risk communication. The decision
represents a trade-off between the risks and the benefits associated
with a particular course of action under condition of uncertainty.
Decision tree: A decision tree is a graphic representation of the
alternative courses of action and the outcomes and risks associated
with each action.
Preference analysis/ Utility Theory: Preference theory is another
approach to decision-making under conditions of uncertainty. This
approach is based on the notion that individual attitude towards
risk vary. For instance, if there were a 60 percent chance of a
decision being right, some individual would prefer to take only a
little risk (risk averter) while other may like to take only a grater risk
(gamblers).
 Management Information System Vs
Decision Support system
• MIS is a system that gathers comprehensive data, organizes
and summarizes it in a manner that is useful to functional
managers and provides them with information that they
need for operational efficiency. MIS has four component-
data gathering, data entry, data information and
information utilization. It is based on the centralized data
based of raw data which provide a wide variety of services
to different levels of managers. The top management
receives information on the external environment. The
middle management, MIS provides information useful for
operation control. To the first level managers, it provide
internal informational plan for operations control
 Management Information System Vs
Decision Support system
• The decision support system (DSS) is an
interactive computer system that provide
information to managers based on which they
can plan and make decisions. DSS is used in
situations that are not well structured. DSS
does not aim at providing a solution a
problem, rather, it attempt to improve the
decision making process by providing tools
that help managers analyze the situation
better. DSS consist of the following elements:
Management Information System Vs
Decision Support system
– An MIS that support several methodologies for
accessing and summarizing data
– A database that allows for easy access of
information
– A user friendly interface
– An extensive database of external and internal
sources which allows managers to relate internal
events to external forces
– Quick response time which makes it easy to use
 The difference between MIS and DSS
are:
• DSS provides more advance analysis and
greater access to various models to analyze a
situations
• DSS is more interactive then MIS
• DSS helps a manager to interact directly with
the computer programs and also to retrieve
analyzed information quickly
 Decision Making Technique

• Marginal Analysis
• Financial Analysis
• Break-even Analysis
• Ratio Analysis
• Operation Research Technique
 Marginal Analysis

• Marginal analysis is defined as the extra

output that results from adding one extra unit
of any input variable (e.g. raw material worker,
machine etc.) other factors remaining
constant. This is a very useful tool for
evaluating the alternative in the decision
making process.
 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 investment), and to analyze cash inflows
and cash outflows.
 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 measure by which the level of sales
necessary to cover all fixed costs can be
determined. Using this technique can be
determine the break-even point for the
company as a whole, or for any of its
products. At break even point, total revenue
equals total cost and the profit is nil.
 Ratio Analysis
• It is an accounting tool for interpreting
accounting information. Ratio define the
relationship between two variable.
 Operation Research Technique

Operation research (OR) involves the practical

application of quantative method in the
process of decision making.
- Linear Programming
- Queuing or waiting line method
- Game theory
- Simulation
- Decision Tree
 Linear Programming
It is a quantative technique used in decision making. It involves
making an optimum allocation of scarce resources of an
organization to achieve a particular objective. The word ‘Linear’
implies that relationship among different variables is proportionate.
The term ‘programming’ implies developing specific mathematical
model to optimize outputs when the resources are scarce. It s
applications are:
• Product mix decisions
• Determining the optimal scale of operations
• Inventory management problem
• Allocation of scarce resources under conditions of uncertain
demand
• Schedule production facilities and maintenance
Queuing or waiting line method
Waiting line occurs whenever the demand for
the service exceeds the service facilities.
 Game theory
Game theory provide many useful insights
into situations involving competition. This
decision making technique involves selecting
best strategy, taking into consideration one’s
own actions and those of one’s competitors.
Minimizing the maximum loss and maximizing
the minimum gain are two concepts used in
game theory.
 Simulation
This technique involves building a model that
represents a real or an existing system.
Simulation is useful for solving complex
problems that cannot be readily solved by
other technique.
 Decision Tree
A decision tree is a mathematical tool that
enables a decision maker to consider various
alternative courses of action and select the
best alternative. In the tree diagram the base,
known as the decision point, is represented by
a square.
Thank You