Unit-2

Planning and Decision Making

Concepts to be covered in Unit-2:
2.1 Meaning & Nature of planning
2.2 Importance of Planning
2.3 Types of Plans
2.4 Planning process
2.5 Management by Objective (MBO)
2.6 Management by Exception (MBE)
2.7 Meaning of Decision Making
2.8 Definition and Nature of Decision Making
2.9 Types of decisions
2.10 Decision Making Process
2.11 Rational Perspectives and Behavioral Aspects of decision making.

2.1 Meaning & Nature of planning

Meaning of Planning:

Planning is thus taken as the foundation for future activities. Newman has thus defined it
as, “Planning is deciding in advance what is to be done; that is a plan is a projected course of
action.”

Planning is defined as setting an objective for a given time period, developing various
strategies or methods to attain them, and then selecting the best possible alternatives from the
various methods available.

Nature of Planning:
 1. Planning Contributes to the Objective

2. Pervasive

3. Planning is Futuristic
Nature of Planning
4. Planning is Continuous

5. Planning Involves Decision Making

6. Planning is a Mental Exercise

1. Planning Contributes to the Objective:

Planning helps in achieving the objective. We cannot think of achieving any objective
without any kind of planning. Planning is one of the primary functions of management that
contributes immensely to the achievement of predetermined objectives. Planning is The
Primary Function of Management- Planning is the first step that any manager or anyone
adapts to use to move towards any goal.

2. Pervasive:

Planning is universal. Planning is there in every organization, whether it is a small size, mid-
size or large size or at whatever level it is, every manager, every individual employee plans
on at his/her level.

3. Planning is Futuristic:

We do plan for the future. Hence it is called a futuristic process. We always stay in the
present and plan for the future. Planning is never done in the past.

4. Planning is Continuous:

We plan to achieve any goal. Planning is done for a specific period of time. It may be for a
month, a quarter, or a year. There is always a need for a new plan after the expiry of that
period. Hence it is called a continuous process. The continuation of planning is related to the
business cycle. It implies that once the plan is framed and implemented, it is followed by
another plan and so on.

5. Planning Involves Decision Making:

In planning, function managers evaluate various alternatives and select the most appropriate
way to manage things.

6. Planning is a Mental Exercise:

In planning, assumptions and predictions regarding the future are made by scanning the
environment properly. This activity requires a higher level of intelligence.

2.2 Importance of Planning

1. Planning Provides Direction

2. Planning Reduces the Risk of

Uncertainties

3. Planning Reduces Overlapping and Wasteful

Activity
Importance of Planning
4. Planning Promotes Innovative Ideas

5. Planning Facilitates Decision

6. Planning Establishes a Standard for

Controlling

7. Focuses Attention on Objectives of that

Company

1. Planning Provides Direction:

Planning provides us with direction. How to work in the future includes planning. By stating
in advance, how work has to be done, planning provides direction for action.

2. Planning Reduces the Risk of Uncertainties:

Uncertainty means any events in the future that change our course of action. Planning helps
the manager to face uncertainty. We cannot remove such uncertainty from our life. However,
due to planning, we can work on such uncertainty. Just like an unforeseen event is going to
come in which we are going in loss. So, if we are already ready, we have made funds for it,
then we will be able to use it to fight that unforeseen situation.

3. Planning Reduces Overlapping and Wasteful Activity:

Overlapping means the working relationship has not been allocated specifically. If we plan,
our time will not be wasted.

4. Planning Promotes Innovative Ideas:

If you are planning, then you get feedback from your senior managers or juniors, from there
you can get innovative ideas. Besides, if you make your employees part of the decision-
making, then you can get new creative ideas from there too.

5. Planning Facilitates Decision

Planning helps in decision-making. The more efficient you plan, the more right you will be in
the decision. With good planning, our decision-making gets accurate, it becomes feasible and
it also gets improved.

6. Planning Establishes a Standard for Controlling

Controlling is incomplete without planning and planning is incomplete without controlling. If

you have done the planning but you do not know if the thing is happening or not, then the
planning is useless. In case, there is no planned output then the controlling manager will have
no base to compare whether the actual output is adequate or not.

7. Focuses Attention on Objectives of that Company

Through planning, efforts of all the employees are directed towards the achievement of
organizational goals and objectives.

2.3 Types of Plans

Plans commit the various resources in an organization to specific outcomes for the fulfilment
of future goals. Many different types of plans are adopted by management to monitor and
control organizational activities. Three such most commonly used plans are hierarchical,
frequency-of-use (repetitiveness) and contingency plans.

1. Strategic Plans

A strategic plan is the company’s big picture. It defines the company’s goals for a set period
of time, whether that’s one year or ten, and ensures that those goals align with the company’s
mission, vision, and values. Strategic planning usually involves top managers, although some
smaller companies choose to bring all of their employees along when defining their mission,
vision, and values. Strategic plans define the framework of the organization’s vision and how
the organization intends to make its vision a reality.
 1. It is the determination of the long-term objectives of an enterprise, the action plan to
be adopted and the resources to be mobilized to achieve these goals.
2. Since it is planning the direction of the company’s progress, it is done by the top
management of an organization.
3. It essentially focuses on planning for the coming years to take the organization from
where it stands today to where it intends to be.
4. The strategic plan must be forward looking, effective and flexible, with a focus on
accommodating future growth.
5. These plans provide the framework and direction for lower-level planning.

2. Tactical Plans

The tactical strategy describes how a company will implement its strategic plan. A tactical
plan is composed of several short-term goals, typically carried out within one year, that
support the strategic plan. Generally, it’s the responsibility of middle managers to set and
oversee tactical strategies, like planning and executing a marketing campaign. Tactical plans
describe the tactics that the managers plan to adopt to achieve the objectives set in the
strategic plan.
1. Tactical plans span a short time frame (usually less than 3 years) and are usually
developed by middle level managers.
2. It details specific means or action plans to implement the strategic plan by units
within each division.
3. Tactical plans entail detailing resource and work allocation among the subunits within
each division.

3. Operational Plans

Operational plans encompass what needs to happen continually, on a day-to-day basis, in

order to execute tactical plans. Operational plans could include work schedules, policies,
rules, or regulations that set standards for employees, as well as specific task assignments that
relate to goals within the tactical strategy, such as a protocol for documenting and addressing
work absences. Operational plans are short-term (less than a year) plans developed to create
specific action steps that support the strategic and tactical plans.
1. They are usually developed by the manager to fulfill his or her job responsibilities.
2. They are developed by supervisors, team leaders, and facilitators to support tactical
plans.
3. They govern the day-to-day operations of an organization.
Operational plans can be −
 Standing plans − Drawn to cover issues that managers face
repeatedly, e.g., policies, procedures, rules.
 Ongoing plans − Prepared for single or exceptional situations or
problems and are normally discarded or replaced after one use, e.g.
programs, projects, and budgets.

2.4 Process of Planning

 Setting up the Objective

Developing Premises

Listing the Various Alternatives for Achieving the Objectives

Evaluation of Different Alternatives

Selecting an Alternative

Implement the Plan

Follow Up

1. Setting up the Objective:

Till the manager does not have an objective, he cannot do the planning, so the goal should
always be clear.

2. Developing Premises:

As we know the future is certain, therefore planning is always made keeping the future in
mind. Hence in the function of management, certain assumptions are required to be made.
These assumptions are known as premises. Premises means making assumptions for the
future. The manager can make the assumption by studying the past decisions, policies,
studying the facts, and existing plans.

3. Listing the Various Alternatives for Achieving the Objectives:

After setting up objectives, the managers make a list of alternatives through which the
organization can achieve its objectives.

4. Evaluation of Different Alternatives:

In this step of the planning process, managers evaluate and closely examine each of the
alternative plans. Every alternative will go through an examination where all its pros and
cons will be weighed. The alternative plans need to be examined taking into account the
organizational objectives.

5. Selecting an Alternative:
This is the stage of planning in which the manager has to adopt a decision. Here, the manager
will choose the best and most feasible plan to implement. The ideal alternative that is selected
by the manager should be the most profitable one with the least amount of negative
consequences and is also adaptable to dynamic situations.

6. Implement the Plan:

This is the step where other managerial functions are also considered. The step is concerned
with putting the plan into action, i.e., doing what is required. For example, if a manager
makes a plan to increase production, then more labor, and more machinery will be required.
Hence, this step would also involve arranging for labor and the purchase of machinery.

7. Follow Up:

To find out whether plans that are formulated are being implemented and activities are
performed according to schedule is also part of the planning process. To stick with the plan
and follow it in a given time frame is equally important to ensure that organization objectives
are attained.

2.5 Management by Objective (MBO)

The process of setting objectives in the organization to give a sense of direction to the
employees is called as Management by Objectives. It refers to the process of setting goals for
the employees so that they know what they are supposed to do at the workplace. Management
by Objectives defines roles and responsibilities for the employees and help them chalk out
their future course of action in the organization. Management by objectives guides the
employees to deliver their level best and achieve the targets within the stipulated time frame.

The term 'Management By Objectives' was first termed by management guru Peter Drucker
in his 1954 book, The Practice of Management.

MBO follows the mnemonic S.M.A.R.T while setting objectives. ‘SMART’ objectives are-

Specific - Target a specific area for improvement.

Measurable- Quantify or suggest an indicator of progress.

Assignable - Specify who will do it.

Realistic - State what results can realistically be achieved, given available resources.

Time-bound - Specify when the result(s) can be achieved.

Nature of MBO

It is a functional approach, giving importance to the goal-setting process. It is a systematic

approach to set goals and helps every individual department to develop its purposes.
But MBO doesn't interfere in the process of implementation of those goals. It gives every
member the freedom to complete their tasks on their own. This promotes creativity and
innovation in the organization and helps them generate ideas, solve problems and contribute
to organizational goals with diversified inputs. This allows employees to keep themselves
motivated and committed to the process.

MBO is a result-oriented strategy. Therefore, the outcomes are easily monitored and help the
organization to understand if their goals are achieved.

Steps in MBO (Also called MBO Process Cycle)

1. In the first step, MBO emphasizes measurable, tangible, and achievable goals,
keeping the organizational mission in mind.

2. The second step is to set and align these objectives with the employees.

3. In the third step, the employees are allowed to plan their objectives.

4. In the fourth step, the progress of the employees is monitored.

 5. The fifth step is to evaluate and reward employees. Honest feedback is given, and also
new strategies for goals not achieved are established.

2.6 Management by exception (MBE)

Management by exception is a business management strategy that states that managers and
supervisors should examine, investigate and develop solutions for only those issues where
there is a deviation from set standards, norms, business practices, or any other financial goals
like profits deviation, quality issues, infrastructure issues, etc. instead of examining and
dealing with each routine business activities.

Components of Management by Exception

Management by exception works in the following phases-

1 – Measurement Phase

Under this first step of management by exception, data regarding business operations are
accumulated and evaluated, which includes measuring the performance of all the available
inputs ranging from efforts used to achieve goals for the business, its optimization,, cash
flow, how financial resources are being used to provide services or manufacturing goods for
profit, use and wastage of raw materials and its economy through buying, processing and
storing till the delivery of finished goods.

This information involves almost all factors used for quantifiable measurements, such as
applying time standards, stock data, balance sheet data, finished goods inspection results,
stock available for sales, machinery utilization data, current assets, etc.

2 – Projection Phase

This phase examines the measurements used that are useful for achieving business objectives.
Based on historical data, projections are prepared by applying statistical knowledge such as
significance, probability, confidence, standard deviation, sample size, and correlation. After
this, plans are developed according to the forecast. In the current scenario, a complete
forecast strategy is extensively checked from all possible outcomes like procedures and
existing policies, capability and adequacy of equipment and staff, organization structure, etc.
If required, plans may be amended.
3 – Selection Phase

Under this phase, after thoroughly screening all the plans, the best one is selected and
implemented. Accordingly, the system is adopted, which the management thinks is best for
achieving business objectives.

4 – Observation Phase

Under this phase, the selected process, strategy progress, and performance are monitored
periodically. The system must possess qualities like it must be automatic, reliability, and
adequate. Adequacy here means data must be precise, neither too big nor too small; it must be
up to the mark carrying all relevant information required.

5 – Comparison Phase

Under this phase, work progress is evaluated and compared with a predesigned roadmap to
identify deviations, if any. Depending on the nature of deviation, it is categorized as major,
minor, or any other class of deviation.

6 – Action Phase

Further action points are developed based on the deviation identified under the comparison
phase. Strategies are implemented to bring the capacity and performance to the desired level
or to make any forecast change to ensure optimal performance.

2.7 Meaning of Decision Making

According to the Oxford Advanced Learner’s Dictionary the term decision making means -
the process of deciding about something important, especially in a group of people or in an
organization.

Trewatha & Newport defines decision making process as follows: “Decision-making involves
the selection of a course of action from among two or more possible alternatives in order to
arrive at a solution for a given problem”.

George Terry defines decision-making “as the selection of one behaviour alternative from
two or more possible alternatives.”
2.8 Definition and Nature of Decision Making

Decision making is globally thought to be selection from alternatives. It is deeply related with
all the traditional functions of a manager, such as planning, organizing, staffing, directing and
controlling. When he performs these functions, he makes decisions. However, the traditional
management threorists did not pay much attention to decision making. Infact, the meaningful
analysis of decisionmaking process was initiated by Chester Bernard (1938) who commented,
the process of decision are largely techniques for narrowing choice.

The nature of decisionmaking may be clearly understood by its following characteristics featu
res:

1. Decision making is an intellectual process, which involves imagination, reasoning, evaluati

on and judgement.

2. It is a selection process in which best or most suitable course of action is finalized from am
ong several available alternatives. Such selected alternative provides utmost help in the achie
vement of organizational goals. The problems for which there is only one selection are most d
ecision problems.

3. Decision making is a goal oriented process. Decisions are made to attain certain goals. A
decision is rated good to be extent it helps in the accomplishment of objectives.

4. It is a focal point at which plans, policies, objectives, procedures, etc., are translated into c
oncrete actions.

5. Decision making is a continuous process persuading all organizational activity, at all levels
and in the whole universe. It is a systematic process and an interactive activity.

6. Decision making involves commitment of resources, direction or reputation of the enterpris

e.

7. Decision making is always related to place, situation and time. It may be decision not act i
n the given circumstances.

8. After decision making it is necessary and significant to communicate its results (decisions)
for their successful execution.

9. The effectiveness of decision‐making process is enhanced by participation.

2.9 Types of decisions

Decision making and problem solving is a continuous process of analyzing and considering
various alternatives in various situations, choosing the most appropriate course of action and
following them up with the necessary actions.
1. Programmed and Non-Programmed Decisions:

Programmed decisions are routine and repetitive in nature. These decisions deal with
common and frequently occurring problems in an organization such as buying behaviour of
consumers, sanctioning of different types of leave to employees, purchasing decisions, salary
increment, etc.

Non-programmed decisions are not routine or common in nature. These are related to
exceptional situations in which guidelines or routine management is not set. For example,
problems arising from a decline in market share, increasing competition in the business
environment. The majority of the decisions taken by managers do fall in this non
programmed category.

2. Operational and Strategic Decisions:

Operational decisions are just the normal functioning of the organization. These decisions do
not require much time and take a shorter time as compared to other decisions taken. Ample of
responsibilities are delegated to subordinates. The main decision is to create harmony in an
organization and to see whether the management is proper or not.

Strategic decisions include all present issues and problems. The main idea is to achieve better
working conditions, better equipment, and efficient use of existing equipment, etc. These all
fall under this category. Usually, strategic decisions are taken by top-level management.

3. Organizational and Personal Decisions:

If the decision is taken collectively keeping in mind the organizational goal, it is known as
the organization goal, and if the manager takes any decision in the personal capacity
(affecting his/her life). It is known as personal decisions. These decisions may sometimes
affect the functioning of the organization as well. For example, if the employee has decided
to leave the organization, it may affect the organization. The authority of taking personal
decisions cannot be delegated and is dependent on the individual itself.

4. Major and Minor Decisions:

These are classified as the type of decision-making in management where decision-related to

purchase of new premises is a major decision. These are taken by top management whereas
the purchase of stationery is a minor decision. Minor decisions can be taken by the
superintendent.

5. Individual and Group Decisions:

When the decision is taken by an individual, it is categorized as an individual decision.

Usually, routine decisions are taken by individuals within the policy framework of the
organization.

Group decisions are taken by a group of individuals in the form of a standing committee.
Generally, important types of decisions in management are shifted to this committee. The
main aim of a group decision is to involve the maximum number of individuals in the process
of decision making.

6. Tactical(Policy) and Operational Decisions:

Decisions that are pertaining to various policy matters in the organization are known as
policy decisions. These are taken by top management and do have a long-term impact on the
organization. For example, decisions regarding the location of the plant or volume of
production. These are tactical decisions

Operational decisions are all day-to-day decisions that need to be taken for the proper
functioning and operation of the organization. These can be taken by middle or lower-level
managers. For example, the Calculation of bonuses given to each individual is an operational
decision and is performed by middle or lower-level managers.

2.10 Process of Decision Making

Steps of Decision-Making Process

Following are the important steps of the decision-making process. Each step may be
supported by different tools and techniques.

Decision Making Process:

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?

Why the problem should be solved?

Who are the affected parties of the problem?

Does the problem have a deadline or a specific time-line?

Step 2: Information gathering

A problem of an organization will have many stakeholders. In addition, there can be dozens
of factors involved and affected by the problem.

In the process of solving the problem, you will have to gather as much as information related
to the factors and stakeholders involved in the problem. For the process of information
gathering, tools such as 'Check Sheets' can be effectively used.

Step 3: Principles for judging the alternatives

In this step, the baseline criteria for judging the alternatives should be set up. When it comes
to defining the criteria, organizational goals as well as the corporate culture should be taken
into consideration.

As an example, profit is one of the main concerns in every decision making process.
Companies usually do not make decisions that reduce profits, unless it is an exceptional case.
Likewise, baseline principles should be identified related to the problem in hand.

Step 4: Brainstorm and analyse the different choices

For this step, brainstorming to list down all the ideas is the best option. Before the idea
generation step, it is vital to understand the causes of the problem and prioritization of causes.

For this, you can make use of Cause-and-Effect diagrams and Pareto Chart tool. Cause-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.

2.11 Rational Perspectives and Behavioural Aspects of decision

making.

Decision Making Models: Rational and Behaviour Model

A manager has to make decisions under different conditions and situations. While taking a
decision how does a manager perceive the things, how does he react and how does he try to
resolve, all this is human behaviour. Two models or approaches explain the behaviour of the
decision maker.

1. Rational Model

Decision Making Models

2.Behaviour Model

1. Rational or ‘Economic Man Model’:

The classical approach to decision making in economics has used the ‘economic man’ model
under conditions of certainty. The economic man is completely rational. It states how a
manager should behave in the process of decision making. This approach, besides rational, is
also idealistic because it cannot be fully applied to a practical situation. This approach is
supported by scientific and logical methods.

2. Behaviour Model:

Bounded Rationality, ‘Administrative Man’. Rationality approach may not always be

applicable in practical situations. Management experts have developed ‘behavioural
approach’ which is realistic as per the demand of the situation. This approach is pragmatic
and holds the view that a manager is a human being and cannot be fully rational because he is
confronted with many constraints, problems, limitations and inadequacies.

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