Fundamentals of Management

Unit-2 Planning

“The act or process of making a plan to achieve or do something.”

Written account of intended future course of action (scheme) aimed at achieving specific goal(s) or
objective(s) within a specific timeframe. It explains in detail what needs to be done, when, how, and
by whom, and often includes best case, expected case, and worst case scenarios. See also planning.

A basic management function involving formulation of one or more detailed plans to achieve
optimum balance of needs or demands with the available resources. The planning process (1)
identifies the goals or objectives to be achieved, (2) formulates strategies to achieve them, (3)
arranges or creates the means required, and (4) implements, directs, and monitors all steps in their
proper sequence.

Planning Process: Management planning is the process of assessing an organization's goals and
creating a realistic, detailed plan of action for meeting those goals. Much like writing a business plan,
a management plan takes into consideration short- and long-term corporate strategies. The basic
steps in the management planning process involve creating a road map that outlines each task the
company must accomplish to meet its overall objectives.

Recognizing Need for Action: The first step in planning process is the awareness of business
opportunity and the need for taking action. Present and future opportunities must be found so that
planning may be undertaken for them. The trend of economic situation should also be visualized. For
example, if thinking of the government is to develop rural areas as industrial centres, a farsighted
businessman will think of setting up units suitable to that environment and will avail the facilities
offered for this purpose. Before venturing into new areas the pros and cons of such projects should
be evaluated. A beginning should be made only after going through a detailed analysis of the new
opportunity.

2. Gathering Necessary Information: Before actual planning is initiated relevant facts and figures are
collected. All information relating to operations of the business should be collected in detail. The
type of customers to be dealt with, the circumstances under which goods are to be provided, value
of products to the customers, etc. should be studied in detail. The facts and figures collected will
help in framing realistic plans.

3. Laying Down Objectives: Objectives are the goals which the management tries to achieve. The
objectives are the end products and all energies are diverted to achieve these goals. Goals are a
thread which bind the whole company. Planning starts with the determination of objectives. The tie
between planning and objectives helps employees to understand their duties. Objectives are the
guides of employees. It is essential that objectives should be properly formulated and
communicated to all members of the organization.
4. Determining Planning Premises: Planning is always for uncertain future. Though nothing may be
certain in the coming period but still certain assumptions will have to be made for formulating plans.
Forecasts are essential for planning even if all may not prove correct. A forecast means the
assumption of future events. The behaviour of certain variables is forecasted for constituting
planning premises.

Forecasts will generally be made for the following:

(a) The expectation of demand for the products.

(b) The likely volume of production.

(c) The anticipation of costs and the likely prices at which products will be marketed.

(d) The supply of labour raw materials etc.

(e) The economic policies of the government.

(f) The changing pattern of consumer preferences.

(g) The impact of technological changes on production processes.

(h) The sources for supply of funds.

It is on the basis of these forecasts that planning is undertaken. The success or failure of planning
will depend upon the forecasts for various factors mentioned above. If the forecasts are accurate
then planning will also be reliable. The effect of various factors should be carefully weighed.

5. Examining Alternative Course of Action: The next step in planning will be choosing the best course
of action. There are a number of ways of doing a thing. The planner should study all the alternatives
and then a final selection should be made. Best results will be achieved only when best way of doing
a work is selected. According to Koontz and O’Donnell, “There is seldom a plan made for which
reasonable alternatives do not exist.” All the pros and cons of methods should be weighed before a
final selection.

6. Evaluation of Action Patterns: After choosing a course of action, the next step will be to make an
evaluation of those courses of actions. Evaluation will involve the study of performance of various
actions. Various factors will be weighed against each other. A course of action may be suitable but it
may involve huge investments and the other may involve less amount but it may not be very
profitable. The evaluation of various action patterns is essential for proper planning.

7. Determining Secondary Plans: Once a main plan is formulated then a number of supportive plans
are required. In fact secondary plans are meant for the implementation of principal plan. For
example, once production plan is decided then a number of plans for procurement of raw materials,
purchase of plant and equipment, recruitment of personnel will be required. All secondary plans will
be a part of the main plan.
8. Implementation of Plans: The last step in planning process is the implementation part. The
planning should be put into action so that business objectives may be achieved. The implementation
will require establishment of policies, procedures, standards and budgets. These tools will enable a
better implementation of plans.

Planning Premises-Planning premises means systemic and logical estimate for the future factors
affecting planning. According to Dr.G.R.Terry ,”planning premise are the assumptions providing a
background against which the estimated events affecting the planning will take place”

Managerial Planning: 4 Classification of Planning Premises!

Managerial planning involves making certain vital decisions based on some assumptions pertaining
to the future course of events which are, of course, uncertain. Such assumptions and predictions
about the future course of events upon which the entire planning activity rests are called planning
premises.

The planning premises do, in fact, provide a framework for planning and a basis for action in the
midst of uncertainties in the business environment. Effective planning depends much upon the
knowledge and accurate choice of planning premises.

The Managers should be shrewd and clever enough to identify the various factors which react upon
the business economy, although it is impracticable on their part to search for and analyse all these
forces and factors with accuracy.

The managers are compelled by circumstances to concentrate on several strategic factors and forces
which have important bearing on the future operations of a business. While doing so, they may have
to ignore many subtle forces and minor factors affecting the business enterprise to a lesser degree.

It is this ability of the manager to recognise/identify the strategic, crucial or limiting factors that can
guide him to efficiently select the proper and adequate premises upon which he can raise the super-
structure of planning. If for any reason, he fails to do so he will be misdirecting his skill and energy,
over-looking certain vital factors and may even cause the enterprise to suffer heavy loss.

In other words, the suitability of the plans will depend upon the extent to which the efficacy with
which the management is able to formulate the premises correctly and realistically. If the premises
of plans were to change, the managers will have to take the necessary steps very promptly to modify
the plans.

Although all planning premises are based on the predictions made before arriving at such premises,
one can also just go on making so many predictions without any desire to plan. In this sense,
predicting and planning differ. Planning is in fact a broader concept.

Classification of Planning Premises:

Planning premises, in the context of business management may be classified in several ways.
1. From the standpoint of the existence of assumptions and predictions, both inside and outside the
business enterprise, the planning premises may be classified as:

(i) Internal and External Premises:

The important internal premises which are internal to the enterprise are the resources and abilities
of the enterprise in the form of men, machines, money and methods, competence of the
management personnel and skills of the labour force; commitment to certain plans, wage incentive
schemes; the sales forecasts of the enterprise and so on.

(ii) External premises are based on factors that prevail outside the enterprise:

In other words, external premises are those assumptions that centre round the various types of
marketing, viz. the product market, materials market, the capital market, the labour market and so
on.

The important external factors which act as important determinants of all such markets are—(i) the
political stability ; (ii) sociological factors; (iii) business and economic environment ; (iv) cultural
factors ; (v) population growth ; (vi) government policies and regulations ; (vii) trade cycles ; and (viii)
technological changes and the like.

2. From the standpoint of the possibility of measuring such premises quantitatively, we can classify
planning premises into:(i) Tangible; and (ii) Intangible planning premises:Tangible planning premises
are those which can be measured quantitatively in one way or the other, whereas Intangible
planning premises defy quantitative measurements because of their qualitative character.

3. From the Standpoint of the Various Forces and Factors: We can classify the premises as (i)
constant factors and (ii) variable factors.

Constant factors are ignored in planning because they behave in the similar way/fashion,
irrespective of the course of action adopted. Variable factors on the other hand, have a significant
bearing on the sources of planning. Accordingly planning premises is expected to have a wide
coverage so as to encompass all the variable factors.

Generally internal premises are associated with constant factors which are definite, known and well
understood. For instance, the capacity of men and machines and the amount of capital investment
are completely controllable factors and they fall within the powers of management.

Their variations are dependent upon the decisions of the management. As such, no prediction or
forecast is necessary to ascertain their position, in the years to come. Sales volume of the business
unit can be partly controlled by the activities of the management.

We also come across many other factors which lie beyond the controlling powers of management.
The managerial personnel can only look into the future to assess their variations in the years to
come.

In other words forecasting gives the managers an idea or knowledge of their variations. But no
forecasting is required in the case of constant factors, even though they are included on the list of
planning premises. That is why it is claimed that the scope of premising is larger than the scope of
forecasting.

4. From the Standpoint of the Possibility of Exercising Control over the Planning Premises, they may
be classified into three types, viz:

(i) Fully controllable premises

(ii) Partly controllable premises

(iii) Absolutely non-controllable premises

(i) Fully controllable premises: refer to the assumptions about those factors pertaining to the
enterprise like the products; rules etc. which the company management is expected to follow over
the future period and the ways in which these are likely to affect the plans of the enterprise. These
factors are known as controllable premises, because these are subject to the decision of the
management.

(ii) Partly controllable premises: include assumptions about those factors which are only partially
controllable through suitable management policies and decisions, but cannot be fully controlled by
the management.

For instance, industry demands the share of the firm in the market, union-management relations or
factors which must be considered partially as being given and partially as being subjected to
decision-making on the part of the management. The plans for any business enterprise will naturally
have to be based on proper assumptions with regard to these factors.

(iii) Absolutely non-controllable premises: refer to the assumptions about the economy, the political
situations, strikes, wars, natural calamities, new discoveries and inventions, emergency, legislation
and other similar events during the coming years, which cannot be predicted and controlled at all by
the management, although they can upset all well-thought out calculations on many occasions.

These cannot be influenced and controlled through management policy and decisions. Although a
management cannot do anything about these factors, it must take them into account while planning
for expansion of the existing capacity. It should not forget the fact that the efficacy of the present
command policy is becoming increasingly restricted and should think of appropriate alternative
changes promptly. If such factors are not considered, the plans will remain as mere wishes.

How Do Managers Plan?

 Elements of Planning

– Goals (also Objectives)

 Provide direction and evaluation performance criteria

– Plans

 Documents that outline how goals are to be accomplished

 Describe how resources are to be allocated and establish activity schedules

 Types of Goals

 Financial Goals

-Are related to the expected internal financial performance of the organization.

 Strategic Goals

-Are related to the performance of the firm relative to factors in its external environment (e.g.,
competitors).

 Stated Goals versus Real Goals

– Broadly-worded official statements of the organization (intended for public consumption)

 Strategic Plans

– Apply to the entire organization.

– Establish the organization’s overall goals.

– Seek to position the organization in terms of its environment.

– Cover extended periods of time.

 Operational Plans

– Specify the details of how the overall goals are to be achieved.

– Cover short time period.

Classification of Plans

 Long-Term Plans

– Plans with time frames extending beyond three years

 Short-Term Plans

– Plans with time frames on one year or less

 Specific Plans

– Plans that are clearly defined and leave no room for interpretation

 Directional Plans
Flexible plans that set out general guidelines, provide focus, yet allow discretion in implementation

KINDS OF PLANNING

ORGANIZATIONAL PLANNING

 Corporate planning or top level planning: It lays down the objectives, policies and strategies
of an organization. Usually made for a longer time period.

 Divisional planning or middle level planning: It is related to a particular department or

 Sectional planning or lower level planning: focused on laying down detail plans for the day
to day guidance.

FOCUSED PLANNING

1. Strategic planning: deciding the objectives and to decide the resource marshalling in order
to realize the objectives. Done by the top management.

2. Operational planning: ensuring efficient use of resources and to develop a control

3. Tactical planning: made for short term moves. Required to meet the sudden changes in the
environment forces.

TIME PERIOD PLANNING

1. Long range planning: for a period of five years at least. Involves capital budgeting, product
planning, project planning etc. deals with a great uncertainty.

2. Medium range: for one to five years. Relate to development of new products and markets,
product publicity etc. supportive to long range plans.

3. Short range: upto one year. Made to achieve short term goals. Focused on the internal
environment of the business.

Basic terms

1. Objectives: these are the end towards which the activities of an organization are directed.
Objectives can be set both by traditional (authoritarian) approach or MBO approach.

2. Policies: Policies provide the framework within which the decision makers are expected to operate
while making decisions related to an organization.

Procedures: These are the administrative specifications prescribing the time sequence for work to be
done. They tell us how a particular activity is to be done.

4. Methods: It is a means by which each operation is performed. It also specifies how a particular
step in the procedure is to be performed.

5. Rules: it specifies what is to be done and what is not be done. More rigid than a policy.

6. Strategy: It refers to the firm’s overall plan for dealing with and existing in the environment
Meaning and Process of Forecasting-Forecasting is the process of making predictions of the future
based on past and present data and analysis of trends. A commonplace example might be estimation
of some variable of interest at some specified future date. Prediction is a similar, but more general
term.

The basic steps in a forecasting task

A forecasting task usually involves five basic steps.

Step 1: Problem definition :Often this is the most difficult part of forecasting. Defining the problem
carefully requires an understanding of the way the forecasts will be used, who requires the
forecasts, and how the forecasting function fits within the organization requiring the forecasts. A
forecaster needs to spend time talking to everyone who will be involved in collecting data,
maintaining databases, and using the forecasts for future planning.

Step 2: Gathering information: There are always at least two kinds of information required: (a)
statistical data, and (b) the accumulated expertise of the people who collect the data and use the
forecasts. Often, it will be difficult to obtain enough historical data to be able to fit a good statistical
model. However, occasionally, very old data will be less useful due to changes in the system being
forecast.

Step 3: Preliminary (exploratory) analysis: Always start by graphing the data. Are there consistent
patterns? Is there a significant trend? Is seasonality important? Is there evidence of the presence of
business cycles? Are there any outliers in the data that need to be explained by those with expert
knowledge? How strong are the relationships among the variables available for analysis? Various
tools have been developed to help with this analysis. These are discussed in Chapters 2 and 6.

Step 4: Choosing and fitting models : The best model to use depends on the availability of historical
data, the strength of relationships between the forecast variable and any explanatory variables, and
the way the forecasts are to be used.

Step 5: Using and evaluating a forecasting model.: Once a model has been selected and its
parameters estimated, the model is used to make forecasts. The performance of the model can only
be properly evaluated after the data for the forecast period have become available. A number of
methods have been developed to help in assessing the accuracy of forecasts. There are also
organizational issues in using and acting on the forecasts.

Meaning of Decision Making :Decision-making is regarded as the cognitive process resulting in the
selection of a belief or a course of action among several alternative possibilities. Every decision-
making process produces a final choice that may or may not prompt action.

Process of decision making-

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.

What exactly is the problem?

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

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-and-Effect
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.

Conclusion

When it comes to making decisions, one should always weigh the positive and negative business
consequences and should favour the positive outcomes.
This avoids the possible losses to the organization and keeps the company running with a sustained
growth. Sometimes, avoiding decision making seems easier; especially, when you get into a lot of
confrontation after making the tough decision.

But, making the decisions and accepting its consequences is the only way to stay in control of your
corporate life and time.

Types of Decisions :

The following are the main types of decisions every organization need to take:

1. Programmed and non-programmed decisions: Programmed decisions are concerned with the
problems of repetitive nature or routine type matters.

A standard procedure is followed for tackling such problems. These decisions are taken generally by
lower level managers. Decisions of this type may pertain to e.g. purchase of raw material, granting
leave to an employee and supply of goods and implements to the employees, etc. Non-programmed
decisions relate to difficult situations for which there is no easy solution.

These matters are very important for the organisation. For example, opening of a new branch of the
organisation or a large number of employees absenting from the organisation or introducing new
product in the market, etc., are the decisions which are normally taken at the higher level.

2. Routine and strategic decisions: Routine decisions are related to the general functioning of the
organisation. They do not require much evaluation and analysis and can be taken quickly. Ample
powers are delegated to lower ranks to take these decisions within the broad policy structure of the
organisation.

Strategic decisions are important which affect objectives, organisational goals and other important
policy matters. These decisions usually involve huge investments or funds. These are non-repetitive
in nature and are taken after careful analysis and evaluation of many alternatives. These decisions
are taken at the higher level of management.

3. Tactical (Policy) and operational decisions: Decisions pertaining to various policy matters of the
organisation are policy decisions. These are taken by the top management and have long term
impact on the functioning of the concern. For example, decisions regarding location of plant, volume
of production and channels of distribution (Tactical) policies, etc. are policy decisions. Operating
decisions relate to day-to-day functioning or operations of business. Middle and lower level
managers take these decisions.

An example may be taken to distinguish these decisions. Decisions concerning payment of bonus to
employees are a policy decision. On the other hand if bonus is to be given to the employees,
calculation of bonus in respect of each employee is an operating decision.

4. Organisational and personal decisions: When an individual takes decision as an executive in the
official capacity, it is known as organisational decision. If decision is taken by the executive in the
personal capacity (thereby affecting his personal life), it is known as personal decision.

Sometimes these decisions may affect functioning of the organisation also. For example, if an
executive leaves the organisation, it may affect the organisation. The authority of taking
organizational decisions may be delegated, whereas personal decisions cannot be delegated.

5. Major and minor decisions: Another classification of decisions is major and minor. Decision
pertaining to purchase of new factory premises is a major decision. Major decisions are taken by top
management. Purchase of office stationery is a minor decision which can be taken by office
superintendent.

6. Individual and group decisions: When the decision is taken by a single individual, it is known as
individual decision. Usually routine type decisions are taken by individuals within the broad policy
framework of the organisation.

Group decisions are taken by group of individuals constituted in the form of a standing committee.
Generally very important and pertinent matters for the organisation are referred to this committee.
The main aim in taking group decisions is the involvement of maximum number of individuals in the
process of decision¬- making.