UNIT 2: PLANNING & DECISION MAKING

Planning
 Concept, Definitions,
 Process,
 Characteristics,
 Types of planning – (Corporate, Functional, Strategic, Tactical, Long Term,
Short Term, Proactive, Reactive, Formal & Informal),
 Premises (Controllable – Uncontrollable, Internal –External, Tangible –
Intangible), Significance, Limitations

Decision Making
 Concept,
 Definitions,
 Process,
 Individual vs. Group Decision Making.

Notes by- Dr.Chandni Desai SASCMA COLLEGE OF BUSINESS ADMINISTRATION

PLANNING

Planning is based on the theory of ―thinking before acting‖. Planning is the most basic and
primary function of management. It is the pre-decided outline of the activities to be conducted in
the organization. Planning is the process of deciding when, what, when where and how to do a
certain activity before starting to work. It is an intellectual process that needs a lot of thinking
before the formation of plans. it is to set goals and to make certain guidelines achieve the goals.
also, planning means to formulate policies, segregation of budget, future programs, etc. These
are all done to make the activity successful. Planning bridges the gap between where we are and
where we want to go. It is like a mental exercise that requires imagination, foresight and sound
judgment.
All other function of management is useless if there is not a proper planning system in an
organization. So, planning is the basis of all other functions. Thus, planning is the map or a
blueprint for the organization.
The planning that is formulated has a given time frame but time is a limited resource. It needs to
be used intelligently. If the timing is not considered, the conditions in the environment may
change and all the business plans may go unproductive. Planning may go in vain if it is not
implemented.

Definitions

Management thinkers have defined the term, basically, in two ways:

1. Based on futurity: “Planning is a trap laid down to capture the future” (Allen).
“Planning is deciding in advance what is to be done in future” (Koontz). “Planning is
informed anticipation of future” (Haimann). “Planning is „anticipatory‟ decision-
making” (R.L. Ackoff).
2. As a thinking function: “Planning is a thinking process, an organised foresight, a
vision based on fact and experience that is required for intelligent action” (Alford and
Beatty)
 Koontz and O‟Donnell: “Planning is deciding in advance what to do, how to do it,
when to do it and who is to do it.”
 According to Urwick, : ― Planning is fundamentally a mental predispoition to do things in an
orderly way to think before acting and in the light of facts rather than of gusses

 According to Henry Fayol,: ― Planning refers to a preview of future activities‖

 According to George R. Terry : ― Planning is the selecting and relating of facts and using of
assumptions regarding the future in the visualization or formulation of proposed activities to
achieve desired results‖.

 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 the future, attempting to achieve a
consistent, coordinated structure of operations aimed at the desired results.”

Notes by- Dr.Chandni Desai SASCMA COLLEGE OF BUSINESS ADMINISTRATION

  According to Alford and Beaty, “Planning is the thinking process, the organized foresight,
the vision based on fact and experience that is required for intelligent action.‖

 According to ME. Hurley, ―Planning is deciding in advance what is to be done. It involves

the selection of objectives, policies, procedures, and programs from among alternatives.‖

Characteristics of Planning
1. Primary managerial function: Planning is a first and foremost managerial function provides the
base for other functions of the management, i.e. organising, staffing, directing and controlling, as
they are performed within the periphery of the plans made.
2. Goal oriented: It focuses on defining the goals of the organisation, identifying alternative
courses of action and deciding the appropriate action plan, which is to be undertaken for reaching
the goals.
3. Pervasive: It is pervasive in the sense that it is present in all the segments and is required at all
the levels of the organisation. Although the scope of planning varies at different levels and
departments.
4. Continuous Process: Plans are made for a specific term, say for a month, quarter, year and so
on. Once that period is over, new plans are drawn, considering the organisation‘s present and
future requirements and conditions. Therefore, it is an ongoing process, as the plans are framed,
executed and followed by another plan.
5. Intellectual Process: It is a mental exercise at it involves the application of mind, to think,
forecast, imagine intelligently and innovate etc.
6. Futuristic: In the process of planning we take a sneak peek of the future. It encompasses looking
into the future, to analyse and predict it so that the organisation can face future challenges
effectively.
7. Decision making: Decisions are made regarding the choice of alternative courses of action that
can be undertaken to reach the goal. The alternative chosen should be best among all, with the
least number of the negative and highest number of positive outcomes.
8. Flexibility: Planning has flexibility as this process works in a dynamic business environment.
The flexibility feature of planning assumes that actual results may not match expected result, if
environmental conditions change during plan execution period.
9. Open system approach: Planning adopts an open system approach. This approach of planning
indicates that the future course of action is influenced by the environment in which an
organization operates. Therefor while adopting open system approach in planning, managers
have to take into account various features of environment.

10 Rational approach: Planning is a rational approach for defining where one stands at present,
where one wants to go in future and how to reach there. The concept of rationality in planning
involvesthe choice of appropriate means to fill the gap between present status and future status.

Notes by- Dr.Chandni Desai SASCMA COLLEGE OF BUSINESS ADMINISTRATION

IMPORTANCE OF PLANNING

1) Makes the objectives clear and specific: planning clearly specifies the objectives and the
policies or activities to be performed to achieve these objective in other words what is to be done
and how it is to be done are clarified in planning.

2) Plans facilitate decision-making: to achieve the objective predetermined under planning,

business has to take various decisions by considering the available resources. If job may be
completed by using various alternatives (e.g. manually or by machines) and the best alternative is
decided by the management, which is more helpful in achieving the objective.

3) Provides Direction: Under the process of planning the objectives of the organisation are defined
in simple and clear words. The obvious outcome of this is that all the employees get a direction
and all their efforts are focused towards a particular end. In this way, planning has an important
role in the attainment of the objectives of the organisation.

4) Reduces Risks of Uncertainty: Planning is always done for future and future is uncertain. With
the help of planning possible changes in future are anticipated and various activities are planned
in the best possible way. In this way, the risk of future uncertainties can be minimised.

5) Reduces Overlapping and Wasteful Activities: Under planning, future activities are planned in
order to achieve objectives. Consequently, the problems of when, where, what and why are
almost decided. This puts an end to disorder and suspicion. In such a situation coordination is
established among different activities and departments. It puts an end to overlapping and
wasteful activities. Consequently, wastages moves towards nil, efficiency increases and costs get
to the lowest level.

6) Promotes Innovative Ideas: It is clear that planning selects the best alternative out of the many
available. All these alternatives do not come to the manager on their own, but they have to be
discovered. While making such an effort of discovery, many new ideas emerge and they are
studied intensively in order to determine the best out of them.

7) Establishes Standards for Controlling: By determining the objectives of the organisation

through planning all the people working in the organisation and all the departments are informed
about ‗when‘, ‗what‘ and ‗how‘ to do things. Standards are laid down about their work, time and
cost, etc. Under controlling, at the time of completing the work, the actual work done is
compared with the standard work and deviations are found out and if the work has not been done
as desired the person concerned are held responsible.

8) Better coordination: planning secures unity of direction towards the organisational objectives.
All the activities are directed towards the common goals. There is an integrated effort throughout
the enterprise. It will also help in avoiding duplication of efforts. Thus, there will be better
coordination in the organisation.

9) Improves 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

Notes by- Dr.Chandni Desai SASCMA COLLEGE OF BUSINESS ADMINISTRATION

 because planning may involve expansion of capacity, changes in work methods, changes in
quality, anticipation of tastes and fashion of people and technological changes, etc.

Limitations of Planning
1.Planning Leads to Rigidity- Once the planning is made, then it gets very difficult to change
something in it.
2.Planning May Not Work in a Dynamic Environment- If continual changes are happening in
the environment, then planning will not be effective as things will not run according to the plan
we have prepared. We have made a plan according to the situation. But If there are continual
changes occurring in the environment, then the right prediction, right planning becomes almost
impossible.
3.It Reduces Creativity- Planning reduces the creativity of employees of any organization
because employees just have to implement the plan which is already decided by the top
management. Hence, they do not get the opportunity to show their creativity or their
innovativeness. Therefore, much of the initiative or creativity inherent in employees get lost or
reduced, and also innovative ideas stop coming.
4.Planning Involves Huge Costs- When plans are formulated, huge costs are involved in their
formulation. These may be in terms of time and money. For example, lots of time is spent
checking the accuracy of facts. Detailed plans demand scientific calculations to verify facts and
figures. The costs incurred sometimes may not justify the benefits derived from the plans.
Several incidental costs are also involved, like expenses on boardroom meetings, discussions
with professional experts, and preliminary investigations to find out the feasibility of the plan.
Sometimes the plans that are formulated take so much time that there is no time left for their
implementation.
5.Planning Does Not Guarantee Success- Planning only provides a base for analyzing for the
future. It is not a solution for the future course of action.
6.Lack of Accuracy- In planning, many assumptions are made to decide about the future course of
action. Sometimes planning is not accurate. Assuming for the future cannot be 100% accurate.

Planning Process
(1) Setting Objectives

 This is the primary step in the process of planning which specifies the objective of an
organisation, i.e. what an organisation wants to achieve.
 The planning process begins with the setting of objectives.
 Objectives are end results which the management wants to achieve by its operations.
 Objectives are specific and are measurable in terms of units.

Notes by- Dr.Chandni Desai SASCMA COLLEGE OF BUSINESS ADMINISTRATION

  Objectives are set for the organisation as a whole for all departments, and then
departments set their own objectives within the framework of organisational objectives.

(2) Developing Planning Premises

 Planning is essentially focused on the future, and there are certain events which are
expected to affect the policy formation.
 Such events are external in nature and affect the planning adversely if ignored.
 Their understanding and fair assessment are necessary for effective planning.
 Such events are the assumptions on the basis of which plans are drawn and are known as
planning premises.
(3) Identifying Alternative Courses of Action

 Once objectives are set, assumptions are made.

 Then the next step is to act upon them.
 There may be many ways to act and achieve objectives.
 All the alternative courses of action should be identified.
(4) Evaluating Alternative Course of Action

 In this step, the positive and negative aspects of each alternative need to be evaluated in
the light of objectives to be achieved.
 Every alternative is evaluated in terms of lower cost, lower risks, and higher returns,
within the planning premises and within the availability of capital.
(5) Selecting One Best Alternative

 The best plan, which is the most profitable plan and with minimum negative effects, is
adopted and implemented.
 In such cases, the manager‘s experience and judgement play an important role in
selecting the best alternative.
(6) Implementing the Plan

 This is the step where other managerial functions come into the picture.
 This step is concerned with ―DOING WHAT IS REQUIRED‖.
 In this step, managers communicate the plan to the employees clearly to help convert the
plans into action.
 This step involves allocating the resources, organising for labour and purchase of
machinery
(7) Follow up Action

 Monitoring the plan constantly and taking feedback at regular intervals is called follow-
up.

Notes by- Dr.Chandni Desai SASCMA COLLEGE OF BUSINESS ADMINISTRATION

  Monitoring of plans is very important to ensure that the plans are being implemented
according to the schedule.
 Regular checks and comparisons of the results with set standards are done to ensure that
objectives are achieved.

TYPES OF PLANNING

1.Corporate planning
Corporate planning is undertaken at the top level. It covers the entire organizational activiyies. It
integrates entire planning process of the organization.corporate planning is defined as a
systematic and comprehensive process of planning taking into account of resources and
capabilities of the organisation and the environment within which it has to be operate it will it
usually covers a long period of 5 years or even more than this.

2.Functional planning
Functional planning is of segmental nature. It is undertaken for each major function of the
organization like production, opeartyion, marketing. A basic feature is that it derived out of
corporate planning.

3.Strategic planning
strategic planning is the process of deciding the objectives of the organisation and decide the
manner in which the resources of the enterprises are to be deployed to realize the objective in the
uncertain environment. It covers a long period depending on the nature of Business, top-level
management does Environment .It, and it is based on organisation objectives. It deals with
strategic issues like type of business to be undertaken, diversification of business, type of
products to be offered.

4.Operational planning
While strategic planning looks at the organization‘s growth in the long run, operational planning
is more about tactical and short-term planning. This planning is essential to ensure that the
organization is consistent in terms of its production and distribution of goods and services to the
market. As operational planning is for short-term periods, it further helps in devising budgets for
the organization. It provides a plan for the allocation of resources; and at the same time, it sheds
light on the policy decisions of the organization.

5.Long term planning

The long-term plan is the long-term process that business owners use to reach their business
mission and vision. It determines the path for business owners to reach their goals. It also
reinforces and makes corrections to the goals as the plan progresses. Long-term planning
involves goals that take a longer time to reach and require more steps; they usually take a
minimum of a year or two to complete. They aim to permanently resolve issues and reach and
maintain success over a continued period.

Notes by- Dr.Chandni Desai SASCMA COLLEGE OF BUSINESS ADMINISTRATION

6.Short term planning
The short-term plan involves pans for a few weeks or at most a year. It allocates resources for
day-to-day business development and management within the strategic plan. Short-term plans
outline objectives necessary to meet intermediate plans and the strategic planning process. They
are stepping stones that will help you to reach your big goal(s).This type of planning requires
you to look at the current situation and fix potential issues as soon as possible. Sometimes ―as
soon as possible‖ takes a day, sometimes 6 months, depending on the complexity of the issue.

7.Proactive planning
Some organizations plan proactively. Proactive planning means to plan, in advance, for
something that has not happened yet. By planning ahead of any event, the organization has more
leverage and is armed better to deal with the situation whenever, and if, it arises. The event can
be anything, from floods and earthquakes, to riots or strike by employees. Proactive planning
follows the motto of, ―It‘s better to be safe than sorry.‖ Proactive planning involves designing a
desired future and then inventing ways to create that future state. Not only is the future a
preferred state, but the organization can actively control the outcome. Planners actively shape the
future, rather than just trying to get ahead of events outside of their control.

8. Reactive planning
In reactive planning organization responses after the environmental changes occur. After changes
take place organisations start their planning.

9.Formal planning

This kind of planning is in the form of well-structured. Usually large organisations undertake
planning in formal way. They make separate planning cell at higher level in the organization.
The cell monitors external environment continuously and if they observe any environmental
changes they start detailed study of that and start planning about how they will deal with the
changes.

10.Informal Planning

As against formal planning, informal planning is undertaken by small organisations. The

planning is based on manager‘s memory, gut feeling & intuition rather than systematic
evaluation of the environment. Small organisations usually do not have complex environment so
they can easily manage with informal planning.

Notes by- Dr.Chandni Desai SASCMA COLLEGE OF BUSINESS ADMINISTRATION

MANAGEMENT BY OBJECTIVES (MBO)

Management by objectives (MBO) is a strategic management model that aims to improve the
performance of an organization by clearly defining objectives that are agreed to by both
management and employees. According to the theory, having a say in goal setting and action
plans encourages participation and commitment among employees, as well as aligning
objectives across the organization.

MBO uses objective standards to measure team member and company performance. Objective
standards outline what is fair, reasonable, or acceptable in an agreement. You can use these
standards to assess team member productivity and identify opportunity areas within the team.
MBO works because part of the MBO process involves management and team members aligning
and agreeing on these objective standards.

Process of MBO

STEP-1 Setting organizational objectives

This initial step of the MBO process cycle is critical because it helps determine desired outcomes
and guides managers on creating new reasonable goals. To set up relevant goals, managers need
to review the company‘s overall objectives, mission and vision statement, and core values. These
concepts are rich sources of guidance on goal setting and are necessary for the MBO process in
any company.

The goals are set in the following sequence

i) Defining long term strategic objectives
ii) Short term organizational objectives
iii) Divisional / departmental objectives
iv)Individual manager‘s objectives

Step -2- Identification of Key result areas

Organisational objectives and planning premises together provide the basis for identification of
key result areas (KRAs). These areas usually involves major organizational activities that occur
throughout the organization or unit.

STEP-3 – Setting subordinates’ objectives

Subordinates play a vital role in this step. To define employees‘ objectives, each staff gets the
chance to set personal goals in relation to the firm‘s overall goals. An employee‘s objectives can
target career accomplishments that also match the firm‘s goals.

STEP -4- Matching resources with objectives

When objectives of a subordinate are set, requirement of resources for achieving these objectives
is worked out carefully through mutual consultation between superior and subordinate. In some
cases subordinate‘s objectives are set after assessing availability of resources. This happens
when the organization faces crunch of resources.

Notes by- Dr.Chandni Desai SASCMA COLLEGE OF BUSINESS ADMINISTRATION

 STEP 5- Appraisal
Appraisal aspect of MBO tries to measure whether the subordinate is achieving his objectives or
not, if not the problems are identified and measures are taken in consultation between superior
and subordinate to overcome the problems.

STEP 6- Process continuity

Though appraisal is the last aspect of MBO process, It is used as an input for process continuity.
Objectives are neither set at the top and communicated to the bottom, nor are they set at the
bottom and go up. Objective setting is a joint process of superior and subordinate, in this process
what happens at one level affects another level. The process of setting objectives is in
continuation.

PLANNING PREMISES

The Planning process is based on projections about the future. Though the past influences
present plans, plans are designed to attain future objectives. As a result, forecasting future events
leads to effective Planning. Because future occurrences cannot be predicted with certainty,
assumptions are made about them. These occurrences could be known facts or expected events
that may or may not occur.
According to Koontz O‘Donnell: The assumptions derived from forecasting and used in planning
are called as planning premises.

Planning premises are the anticipated environment in which plans are expected to operate. They
include assumptions or forecasts of the future and known conditions that will affect the course of
plans such as prevailing policies and existing company plans that controls the basic nature of
supporting plans.‖

TYPES OF PLANNING PREMISES

Since there are many factors which are Considered In plan formulation, these may be identified
in different ways. For example, one way of classifying these premises is to group these into
external and internal premises which Is more relevant. Other ways of classification are based on
decree of tangibility and degree of controllability of these premises. However, these
classifications are not mutually exclusive but overlap. For example, many external premises like
rate of economic growth in a country is tangible while the attitudes of Its people are Intangible.
Similarly, many of the external premises may not be controllable but Internal premises may be
controllable. Therefore, the classification of various planning premises should be seen in this
perspective. Let us discuss the various premises.

Notes by- Dr.Chandni Desai SASCMA COLLEGE OF BUSINESS ADMINISTRATION

External Premises
External planning premises are the most Important elements In plan formulation. These exist
in an organization‘s environment. We have seen how environmental factors affect the operation
of a business organization. Various environmental factors are grouped into two broad categories:
general and specific. General environment consists of economic, social, technological, political,
and legal factors. Specific environment consists of Investors, customers, suppliers, and
competitors. These factors either present opportunities or threats to an organization. An
opportunity is a favourable condition In the organization‘s environment which enables it to
strengthen its position. A threat is an unfavourable condition of the organization‘s environment
which can hamper Its position. For understanding external factors and premising these,
environmental analysis is undertaken which Is the process through which an organization
monitors and comprehends various environmental factors to identify opportunities and threats,
that are provided by these factors.

Internal Premises
internal premises are those premises which are related to organizational factors that are relevant
for plan formulation, for example, organization structure, management systems, etc. Such factors
may lie in various functions of the organization such as production/operations, marketing
finance, and human resource and overall management. These factors may be either strengths or
weaknesses of the organization. Strength is an inherent capability of the organization which can
be used to gain competitive advantage over its competitors. Weakness Is an Inherent limitation
or constraint of the organization which creates competitive disadvantage to it. Strengths and
Weaknesses of an organization can be identified by corporate or organizational analysis which
is a process through which managers analyze various factors of the organization to evaluate their
relative strengths and weaknesses so as to meet the opportunities and threats of the environment.
Usually, environmental and organizational analyses are combined together to have SWOT
analysis (acronym for strength, weakness, opportunity, and threat).

Tangible and Intangible Premises

Various planning premises may be classified as tangible and intangible. Tangible premises are
those which can be expressed in quantitative terms like monetary unit, unit of product, labour
hour, machine hour, and so on. For example, sales forecast which provides premise for operative
plans can be expressed in terms of rupees or units of product/s. Intangible premises are of
qualitative nature and cannot be translated into quantity For example, Image of the organization
In its environment can he expressed in qualitative terms and interpretation has to be drawn
from these. In fact, many external and internal factors cannot be meaningfully quantified. And
managers have to make decisions on the basis of such intangible premises. This is the real art
of managing as managers are confronted with a variety of qualitative Information.

Controllable and Uncontrollable Premises

Planning premises can be classified on the basis of their controllability. Thus, premises may be
either controllable or uncontrollable. However, in between these two, there may be semi-
controllable premises. Controllable premises are those premises that can be controlled by an
organization‘s actions. Such premises are mostly internal, for example, organizational policies,
structure, systems, procedures, etc. Uncontrollable premises are mostly external and cannot be

Notes by- Dr.Chandni Desai SASCMA COLLEGE OF BUSINESS ADMINISTRATION

 controlled by an organization‘s actions, for example, rate of economic growth. population
growth, taxation policy of government. etc. Semi-controllable premises are those which can not
be controlled to some extent but not wholly, for example, market share of an organization‘s
products, labour efficiency, employee turnover, product price, etc. These are semi-controllable
because an organization has some kind of control over these factors within the overall constraints
of external and internal factors. For example, an organization can initiate a change in price of its
product but this change has to be within a given range. If upward change is too high, it will not
be accepted in the market. Similarly if downward change Is too high, It will result In losses.
Classification of planning premises on the basis of their controllability enables the managers to
Identify those factors which can be controlled and make efforts for their control in favour of the
organization while avoiding actions related to those factors which are uncontrollable.

DECISION MAKING
Decision making is an indispensible Component of management process and a manager‘s life is
full of making decisions after decisions. Managers see decision making as their central job
because they constantly choose what Is to be done, Who Is to do, when to do, where to do,
how to do. Collectively, the decisions of managers give form and direction to organisational
Functions. The word decision has been derived from the Latin word ‗decidere‘ which means a
cutting away or a cutting off, or In a practical sense‘. It Implies that a decision involves a cut of
alternatives between those that are desirable and those that are not desirable Thus, is choice of a
desirable alternative out of the more than one alternative Decision making is a process to arrive
at a decision; the process by which an individual or organizaon selects one position or action
from several alternatives.

Definitions

 George R.Terry : Decision-making is the selection based on some criteria from two or more
possible alternatives.

 D.E. Mc. Farland: A decision is an act of choice, wherein an executive forms a conclusion
about what must be done in a given situation. A decision represents a course of behaviour
chosen from a number of possible alternatives

 Peter F. Ducker: ―Whatever a manager does he does through making decisions.‖

 Philip Kotler: A decision may be defined as a conscious choice among alternative courses of
action

Features of decision making are as follows:

1. DecIsion making Implies that there are various alternatives and the most desirable alternative
is chosen to solve a problem or achieve expected results.

2. Existence of alternatives suggests that the decision maker has freedom to choose an

Notes by- Dr.Chandni Desai SASCMA COLLEGE OF BUSINESS ADMINISTRATION

 alternative of his liking through which his purpose Is served.

3. Decision making may not he completely rational but may be judgmental and emotional in

which personal preferences and values of the decision maker play significant role.

4. Decision making, like any other management process is goal-directed. It Implies that the

decision maker attempts to achieve some results through decision making.

5. It is the process followed by deliberations and reasoning.

6. Every decision is based on the concept of commitment. In other words, the Management is
committed to every decision it takes for two reasons- viz., (/) it promotes the stability of the
concern and (ii) every decision taken becomes a part of the expectations of the people
involved in the organisation.

7. Decision-making involves evaluation in two ways, viz., (i) the executive must evaluate the
alternatives, and (ii) he should evaluate the results of the decisions taken by him.

TYPES OF DECISIONS
There are various types of decisions the managers have to take in the day to day functioning of the
firm. Let us take a look at some of the types of decisions. In an organization decisions may vary
from the major ones (like determination of organizational objectives or deciding about major
programmes) to specific decisions about day-to-day operations. Therefore, there are different
types of decisions which are made by managers In organizations and for each type of decision,
decision-making variables and conditions differ. There are different bases on which
organizational decisions may be classified. Thus, decisions are classified on the basis of
frequency of decisions — routine and non-routine decisions. Routine decisions are related to
day-to-day affairs of the organiation, are of repetitive type, and are made frequently non-routine
decisions are related to important matters and are made occasionally.

Decisions are also classified on the basis of level of structuring of factors relevant for making
decisions programmed and non-programmed the, decisions are classified on the basis of their
importance - strategic and tactical decisions. Decisions are classified on the basis of the person/s
involved in decision making— individual and group decisions. Individual decisions are made
by a single decision maker while group decisions are made by a group of decision makers, often
in a committee. However, various bases of classifying decisions are not mutually exclusive but
Reiterative. For example, strategic decision is a and non-programmed decision; tactical
decision is of routine type and programmed. Similarly, individual and group decisions may fall
in any of these categories. (individual and group decision making has been discussed later).
From this point of view, understanding of programmed and non-programmed decisions and
strategic and tactical decisions is necessary for managers to enhance the quality of their
decision- making process.

Notes by- Dr.Chandni Desai SASCMA COLLEGE OF BUSINESS ADMINISTRATION

Programmed Decisions and Non-Programmed Decisions
Programmed decisions relate to those functions that are repetitive in nature. These decisions are
dealt with by following a specific standard procedure. These decisions are usually taken by lower
management. For example, granting leave to employees, purchasing spare parts etc are
programmed decisions where a specific procedure is followed.

Non-programmed decisions arise out of unstructured problems, i.e. these are not routine or daily
occurrences. So there is no standard procedure or process to deal with such issues. Usually, these
decisions are important to the organization. Such decisions are left to upper management. For
example, opening a new branch office will be a non-programmed decision.

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.

Strategic decisions:
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.

Tactical decisions:
Tactical or operational decision is of the nature of programmed decision and is derived from
strategic decision. It is related to day to day working of the organisation and is made in the
contex of well-set policies, procedures, and rules. They determine the
objectives to satisfy the goals set by strategic decision makers, usually made by designees of the
strategic decision makers, including command or general staff within the incident command
system. These decisions relate to the implementation of strategic decisions. They are directed
towards developing divisional plans, structuring workflows, establishing distribution channels,
acquisition of resources such as men, materials and money. These decisions are taken at the
middle level of management.

DECISION MAKING PROCESS

1. Specific Objective.
The need for decision making arises In order to achieve certain specific objective. Every action
of human beings is goal directed. This Is true for decision making which is also a human action.

Notes by- Dr.Chandni Desai SASCMA COLLEGE OF BUSINESS ADMINISTRATION

Therefore, the starting point In any analysis of decision making involves the determination of
whether a decision needs to be made. In fact, setting of specific objective itself is an outcome of
an earlier decision. However, since the objective setting Is an outcome of an earlier decision, this
may not be considered truly as the first step of decision-making process but it provides
framework for further actions.

2. Problem Identification.
Since a particular decision Is made in the context of a certain given objective, identification of
problem is the real beginning of decision-making process. A problem Is the gap between actual
state of affairs and desired state of affairs on the subject-matter of decision. Problem should be
identified clearly and specifically so that it may be solved by taking appropriate action. Any
problem which does not have any
alternative for its solution is not treated as a problem from decision making point of view
though it may have serious adverse consequence. A problem can be identified by analyzing
the situation which is causing gap between actual state of affairs and desired state of
affairs at a particular point of tune. I‘or example, an organization wants to grow. This is
a problem from the point of view of decision making because of gap between actual state of
affairs (organization without growth) and desired state of affairs (organiztion with growth). In
order to overcome this gap (solving the problem), decision Is required.

3. Search for Alternatives.

Based on identification of the problem, the decision maker seeks suitable alternative/s to solve
the problem. A problem can be solved in several ways though all the ways may not be equally
suitable. Further, if there is only one way of solving a problem, no question of decision making
arises. Therefore, the decision maker must try to find out the various alternatives in order to get
the most suitable alternative. Degree of search for alternatives may vary according to the degree
of importance of decision under consideration. Information about alternatives may be collected
from various sources. In case of a complex problem, brainstorming can be used. Brainstorming is
a technique in which a group of 10-15 members give their ideas without considering their quality
In this process, though many ideas may be worthless, some ideas may emerge which may be
relevant for decision making.

4. Evaluation of Alternatives.
After the various alternatives are Identified, the next step is to evaluate these alternatives so that
the most desirable alternative is selected. all alternatives available for decision making will not
be taken for detailed because of time and cost Constraint. Therefore, only those alternatives
should for detailed analysis that meet Initial Criteria set for choosing an alternative the
alternatives which require serious consideration the decision evaluating how each alternative
may contribute towards achieve the
objectives by using relevant techniques of decision making.

5. Choice of Alternative.
The evaluation of various alternatives presents a clear Picture of how each alternative contributes
to achievement of the specified objectives. Based on the most acceptable alternative is chosen.

Notes by- Dr.Chandni Desai SASCMA COLLEGE OF BUSINESS ADMINISTRATION

Though the attempt should be made to choose the most desirable alternative, there are many
subjective factors which affect what alternative will be chosen. Thus, rational process of decision
making is Considerably
affected by these factors ,and it is not necessary that the chosen alternative is the best one; It is
just the most acceptable one. Choice of the most acceptable alternative is based on the satisficing
approach rather than the maximizing approach of decision making proposed by Simon.

6. Action.
After the alternative is selected, it is put into action. Truly speaking, the actual process of
decision making ends with the choice of an alternative through which the specified objective can
be achieved. However, decision making, being a continuous and ongoing process, must ensure
that the objective has been achieved by the chosen alternative. Unless this Is done, managers will
never know what way their choice has contribute Therefore, the implementation Of may be seen
as an integral aspect of decision
making.

7. Result.
When the decision is put Into action, it brings certain result. The result must correspond with the
objective, the starting point of decision-making process to check whether effective decision has
been made and implemented properly. If there is any deviation between objective and result, this
Should be analyzed and factors responsible for this deviation should he located arid Suitable
actions should be taken.

INDIVIDUAL VERSUS GROUP DECISION MAKING

Every manager makes decisions in the organIzation either in his individual capacity or as a
member Of a group. In fact organizational decisions are combination of both individual and
group decisions.
Both types of decisions have their positive and negative aspects. Therefore, the question arises
what are the situations in which individual decisions should be preferred and what are Situations
in which group decisions should be preferred? Analysis of situations for Individual and group
decisions is as follows:

1. Nature of Problem.
If the policy guidelines regarding the decision for the concerned problem are provided,
individual decision making will result in greater creativity as well as efficiency Where the
problem requires a variety of expertise, group decision making is suitable.

2. Time Availability.
Group decision making is a time-consuming process and therefore, when time at the disposal of
decision makers is sufficient, group decision making can be preferred.

3. Quality of Decision.
Group decision making generally leads to higher quality solution unless an individual has
expertise in the decision area and this has been identified in advance.

Notes by- Dr.Chandni Desai SASCMA COLLEGE OF BUSINESS ADMINISTRATION

4. Climate of Decision Making. Supportive climate encourages group decision making whereas
competitive climate stimulates individual decision making.

5. Legal Requirement.
Legal requirement also determines whether Individual or group decisions have to be made. Such
requirement may be prescribed by government‘s legal framework or by the Organizational
policies, rules, etc. For example, many decisions have to be compulsorily made by board of
directors (a group) or committee in companies.

Positive aspects of group decision making

Group decision making has some positive aspects which are as follows:

1. Pooling of Knowledge and Information.

Since many individuals Involved in group decision making, more knowledge and information
can be brought to bear on the decision. The group provides specialized inputs in defining
variables and suggests alternatives that the individual alone is unlikely to come up with. Pooling
of such knowledge and information is likely to improve the quality of decisions provided group
interaction is positive.

2. Satisfaction and Commitment

Satisfaction and commitment of group members in group decision making are often enhanced.
This is due to (i) change in attitudes of group members regarding the alternatives as a result of
discussion, (ii) development of group spirit as People discover similarities among themselves,
(iii) feeling of enhanced status due to Participation in group decision making, and (Iv) feeling of
ownership of the decision leading to better discharge of responsibility. Satisfaction and
commitment of personnel are Important in effective implementation of the decision.

3. Personnel Development.
Group decision making is a source of development of Individuals in the organization. Learning is
enhanced when (i) one observes working of others, (ii) practises what has been observed, and
(iii) experiences the positive rewards received for successful behaviour. These three learning
factors are present in group decision making. Individuals can learn to know about gathering data,
evaluating it, generating alternatives, calculating risks, and choosing the best solution by
practising with others in group decisions.

4. More Risk Taking.

Every decision involves some kind of risk because a decision is put into action in future situation
which may be different from the situation anticipated at the time of making the decision.
Individuals vary in terms of risk-taking aptitudes and capabilities. Risk-taking capabilities
increase when risk-taking capabilities of these individuals are pooled together. Thus, the risk
taking tends to be higher in group decision making. This is so because (1) group is able to share
information and members become quite familiar with the degree of risk Involved in the decision
and (ii) if the outcome of the decision Is negative, it is easy to pass the buck by individuals.
Therefore, when amount of risk involved in a decision is significant, group decision making Is
more appropriate.

Notes by- Dr.Chandni Desai SASCMA COLLEGE OF BUSINESS ADMINISTRATION

Negative Aspects of Group Decision Making
Group decision making has the following negative aspects which may either affect the quality of
decision or cost of decision:

1. Time-consuming and Costly.

Inevitably, groups take more time to reach decisions than individuals. There are several reasons
for this. (i) More ideas and opinions are discussed in decision making. (ii) Arrangements for the
group meeting are made which are time consuming and involve cost. (ii) Cost is involved In
terms of time of the members of the group. Therefore, group decision making should be resorted
to only when the matter cannot be decided by individuals separately.

2. Individual Domination. Some Individuals dominate the group processes and have
Considerable bearing on decision outcomes because of the group dynamics prevailing in group
interaction. This may be because such individuals may enjoy higher Status due to their age.
experience, expertise, or other influencing characteristics. Thus, what appears to be a group
decision may actually be the individual decision ratified by the group. Domination of such
persons may not necessarily improve the quality

3. Problem of Responsibility.
No doubt, group decision brings more commitment from members and its implementation is
easier but this is true when the decision implementation outcome is positive. When this outcome
is negative, no one can beheld responsible. A group decision is no one‘s decision and no one is
held individually responsible for that. In such a situation, groups may come out with ill-
conceived or irresponsible decision.

4. Groupthink
Groupthink is a type of thinking that occurs when reaching agreement becomes more important
to group members than arriving at a sound decision. Groupthink is more likely to happen in
cohesive groups because there is pressure for conformity group norms and members avoid being
too harsh in their judgements of fellow members. Groupthink not necessarily results In poor
decisions but it simply increases the likelihood of such a decision by limiting discussion on
various alternatives, evaluation of facts having impact on decisions, and adhering to similar
decisions made In the past though faulty.

Notes by- Dr.Chandni Desai SASCMA COLLEGE OF BUSINESS ADMINISTRATION