Unit 2_Planning.ppt

What is Planning?
• Deciding in advance what to do, how to do it ,
when to do it and who has to do it.
• Planning is the pre-selection of objectives and
outlines the action before starting any
business.
• Planning is decision making in advance.
• Choosing the alternatives and making the
decision is called planning.

Nature of planning
(i)Planning-a primary function
(ii)Planning-a dynamic process
(iii)Planning-based on objectives and policies
(iv) Planning-a selective process
(v)Pervasiveness of Planning
(vi) Planning-an intellectual process
(vii) Planning is directed towards efficiently
(viii) Planning-focus with future activities
(ix)Flexibility of Planning
(x) Planning is based on facts

Purpose/Importance/Objectives of Planning
(i)Primary of planning
(ii)To achieve objectives
(iii)To cope with uncertainty and change
(iv)To facilitate control
(v)To help in coordination
(vi)To increase organizational effectiveness
(vii)To guide decision-making

Planning process
Identification of opportunities
Establishment of objectives
Developing planning premises
Identification of alternatives
Evaluation of alternatives
Selecting an alternative
Formulating derivative plans
Establishing sequence of activities

Identification of opportunities:
*Identify the possible future opportunities and
analyse them clearly and completely
*From that we should know,
Where we stand
What is our strength and weakness
What problem we wish to solve and why
What we expect to gain

Establishment of objectives or goals
*objectives specify & indicate the results expected
*specified in key result areas such as profitability, sales,
research and development, manufacturing.
Developing planning premises:
*provides basic frame work in which plans operate
*Internal premises-organisational policies, resources, sales
forecast etc
*External premises-political, technological, competitors,
plans & actions, government policies

Identification of alternatives:
*Search and design the alternative course of
action
Evaluation of alternatives:
*Each alternative course of action is evaluated
on the basis of profitability, capital investment,
risk involved etc.
Selecting alternatives:
*After evaluation,most appropriate course of
action is selected.

Formulation of derivative plans:
*Derivative plans-several minor plans required to
support & execute the major plan
*various derivative plans are buying equipment,
buying raw materials, recruiting and training
personal, developing new product.
Establishing sequence of activities:
*Sequence of activities is determined so that
plans are put into action

TYPES OF PLANNING
BASED ON THE EXTENT OF USE
STANDING PLANS (over years)
Mission – function or task of organisation to reach
objective
Objectives – goals –aims – targets – basic for creating
policy
Strategies – plan – individual future empowerment
Policies- way to handle routine work but not action
taken
Procedures – step by step directions
Rules – do’s and dont’s

SIGLE USE PLANS
Programs- Program report on task period,
person list
Budgets – numerical value either finance or
in terms of units , labour hours, etc.
Schedules – time limits for a task
Methods - types
Projects- allocation of duties and similar to
that of program

TYPES OF PLANNING
BASED ON SCOPE
1. Operational planning
2. Tactical planning
3. Strategic planning
4. Contingency planning

Operational planning
• To accomplices his (manager) job
responsibilities
• Supervisor, team leader, facilitators develop
operational plans to support tactical planning
• May single use plan or an ongoing plan.
• Standing and ongoing plans are usually made
once and retain their Values over the period of
years with periodic revision and updates

• Tactical planning
Concerned with what the lower level units
within each division must do, how and who is
in charge.
One year or less because they are considered
short term goals.

• Strategic planning
Outline of steps designed with goals of the
entire organization as a whole.
Begins with the mission
Look ahead over the next 2,3,4,5 or even more
years to move the organization

• Contingency planning
Devised for particular situation
Identify alternate course of action
Devised by govt or business who want to be
prepared for any thing that could happen

Advantages
• Helps in achieving objective
• Better utilization of resources
• Reduce risk and uncertainty
• Improve competitive strength
• Coordination
• Effective control
• Encourages motivation
• Guides in decision making

Limitations
• Lack of accurate information
• Time and cost
• Inflexibility
• Delay during emergency period
• False sense of security (unless the plans are
reviewed and revised periodically)

The steps involved in the strategic planning process are:
Step 1 – Being Aware of Opportunity
Step 2 – Establishing Objectives or Goals
Step 3 – Developing Planning Premises
Step 4 – Determining Alternatives
Step 5 – Evaluating Alternatives
Step 6 – Selecting the Best Alternative
Step 7 – Formulation of Supporting Plan
Step 8 – Establishing Sequence of Activities

Step 1: Being Aware of Opportunity
• It leads to the formulation of plans by
providing clues whether opportunities exist for
taking up a particular plan.
• Perception of opportunities includes a
preliminary look at possible opportunities and
the ability to see them clearly and completely.
• Analysis gives them a preliminary look at
possible future opportunities.

Step 2: Establishing Objectives
• To establish objectives for the entire organization
and then for each subordinate work unit.
• Organizational goals provide direction to and
control the objectives of subordinate departments.
• The organizational goals and objectives should be
specified in all key result areas.
• For example, for an organization KRA’s (key result
areas) may be profitability, sales, research and
development, manufacturing, and so on.

Step 3: Developing Premises
• Planning premises are assumptions about the
environment in which the plan is to be carried out.
• Planners need to do realistic forecasting to develop
planning premises.
• The forecasting process involves;
(i) calculation of probable future events.
(ii) analyzing changes in consumer attitude,
technology, competitive forces, government
policies, etc.
(iii) developing the basis for decision making and
planning by systematic investigations.

Step 4: Determining Alternative Courses
• Alternatives can be identified based on the
planning premises and objectives of the firm.
• It is important to note that the number of
alternatives should be reduced to the most
promising and fruitful ones by preliminary
analysis.
• Alternatives can be discovered through research,
experimentation, and experience.

Step 5: Evaluating Alternative Courses
• Evaluation can be done by finding out the
available alternatives and having made an
analysis of their strong and weak points.
• The statistical methods and software have
greatly helped the evaluation process.

Step 6: Selecting the Best Alternative
• This is the point at which the plan is adopted –
the point of decision-making.
• Selecting the most appropriate alternative
involves choosing the plan.

Step 7: Formulation of Supporting Plan
• After formulating the main plan/basic plan,
various sub-plans (derivative plans) are derived.
• In an organization, there can be various
derivative plans like planning for buying
equipment, collecting raw materials, recruiting
and training personnel, developing a new
project, etc.
• These derivative plans are formulated out of the
main plan. Therefore, they are meant to support
the main plan.

Step 8: Establishing Sequence of Activities
• The sequence of activities is determined so that
plans are put into action efficiently and
effectively.
• The finance and account department prepare
budgets for the various period so plans get more
concrete meaning for implementation.

Planning Tools and Techniques:
• Forecasting
• Contingency Planning
• Scenario Planning
• Benchmarking
• Participatory Planning
• Goal Setting

Forecasting
• Using statistical tools and intuition based on
experience to predict a future state.
• Predict the future events effectively.
• Quantitative forecasting
Qualitative forecasting

Forecasting
• Quantitative Forecasting
Set of mathematical rules to series of past data to
predict outcomes.
Qualitative Forecasting
Uses judgment and opinions of knowledgeable
individuals to predict outcomes.

Contingency Planning
• Identifying actions to take when a strategic or
tactical plan must change based on circumstances
(good or bad)/(day to day problems)

Scenario Planning
• Considering future scenarios and developing
plans to address those issues (long term I.E.
economic collapse)

Benchmarking
• Comparing your company to outside
organizations both in your industry and in other
businesses.
• The search for the best practices among
competitors and non-competitors.

Benchmarking Steps
• Form a benchmarking planning team
• Identify
• Gather internal and external data
• Analyze data to identify performance gaps
• Prepare and implement action plan

Participatory Planning
• Including those impacted and/or who will
implement your plan in the process

Developing clear quantified measures that
guides the orgs. and the individuals work
Goal Setting

Strategic Management
Strategic management is the process of setting
goals, procedures, and objectives in order to
make a company or organization more
competitive.

Types of Organizational Strategies:
• Stability strategy- satisfied with the present level of
activities and profits
• Product Development- development of new products
for new markets
• Product Development- selling new products in new
markets
• Vertical Integration- process of consolidation

SIGLE USE PLANS
 Programs- Program report on task period,
person list
 Budgets – numerical value either finance or in
terms of units, labour hours, etc.
 Schedules – time limits for a task
 Projects- allocation of duties and similar to
that of program

Importance of Strategic Management
1. Allows Firms to Anticipate Changing Conditions.
2. Provides Clear Objectives and Direction for Employers.
3. Research in Advancing so that the Process can Help
Managers.
4. Business which Perform Strategic Management are More
Effective.
5. Strategic management provides financial benefits.
6. Improves quality of strategic decisions through group
interaction

Strategic Management Process
1. Environmental Scanning/ Situation Analysis
2. Strategy Formulation
3. Strategy Implementation
4. Strategy Evaluation

1. Environmental Scanning/ Situation Analysis
 Analysis involves gathering the data and information
that is relevant to accomplishing the set goals.
 It also covers understanding the needs of the
business in the market.

2. Strategy Formulation
 Process of deciding best course of action for
accomplishing organizational objectives.
 After environment scanning managers formulate
corporate, business and functional strategies.

3. Strategy Implementation
 Putting the organization’s chosen strategy into
action.

4. Strategy Evaluation
 Appraising internal and external factors,
measuring performance and taking corrective
actions.

Management by Objectives(MBO)
• MBO is a management system in which each member
of the organisation effectively participates and
involves himself
• According to george odiorne,MBO is a process
whereby the superior & the subordinate managers of
an enterprise jointly identify its common goals,define
each individual’s major areas of responsibility
interms of results expected of him & use these
measures as guides for operating the unit & assessing
the contribution of each of its members.
• It creates self-control & motivates the manager into
action before somebody tells him to do something

Features of MBO:
*Goal oriented not work oriented
*To integrate the goals of an organisation and individuals
*Combines long term goals with short term goals
*Participation of subordinate managers in goal setting
process
*High degree of motivation & satisfaction is available to
employees
*Periodic review of performance is available
*Increases the organizational capability of achieving goals
*Provides better guidelines
*Evaluation mechanism

Process of MBO:
(i)Setting preliminary objectives
(ii)Fixing key result areas
(iii)Setting subordinate’s objectives
(iv)Recycling objectives
(v)Matching resources with objectives
(vi)Periodic performance reviews
(vii)Appraisal

(i)Setting preliminary objectives
*Setting of objective starts from the top-level
management & it moves downwards.
(ii)Fixing key result areas
*Profitability, market standing, Innovation,
Productivity, market performance, public responsibility
*Areas vary for different organisations
(iii)Setting subordinate’s objectives
*Before setting, consider the organizational
goals,subordinates ability & resources available to him

(iv)Recycling objectives
*Goal setting is not the direction from top level management
only
*It is a two way process
*if superior suggests a goal that is acceptable to the
subordinates
(v)Matching resources with objectives
*Objectives should be carefully matched with the available
resources
(vi)Periodic performance reviews
*Reviews made to identify shortcomings and to take timely
steps to improve results
(vii)Appraisal
*It ensures that everything is going on according to the plan

Benefits of MBO:
(i)Improvement of managing-forces managers to think
about planning for end results
(ii)Clarification of organization-forces managers to
clarify org roles, authorities & responsibilities
(iii)Personnel satisfaction
(iv)Team work
(v)Development of effective control
(vi)Fast decision making

Weakness of MBO:
(i)Failure to teach the philosophy of MBO
(ii)Failure to give guidelines to goals setters
(iii)Difficulty of setting goals
(iv)Emphasis on short-term goals
(v)Danger of inflexibility
(vi)Time consuming
(vii)Increased paper work

Policies
• To provide guidance in decision making
• According to L.M.prasad, a policy is the statement
which provides the guidance in decision making to
members of an organization in respect to any course
of action

Nature of policy:
(i)Relationship to organisational objectives
(ii)Clarity of policy
(iii)A policy is a guide to thinking in decision making
(iv)Policies should be written
(v)Communication of policies
(vi)Consistency of policies
(vii)Balance of policy(stability and flexibility)
(viii)Planned formulation

Importance of policy:
(i)To operationalise objectives
(ii)To save time and effort
(iii)To facilitate delegation of authority
(iv)To speedup decision making
(v)To control administration

Policy formulation process:
(i)Definition of policy area
(ii)Creation of policy alternatives
(iii)Evaluation of policy alternatives
(iv)Choice of policy
(v)Communication of policy
(vi)Implementation of policy
(vii)Review of policy

Types of Policies:
*on the basis of source of formulation,
(i)Formulated policies-Originated by top level managers
(ii)Appealed policy-Request of lower level managers
(iii)Imposed policy-compiling the force which cannot
be avoided
*On the basis of being written or not,
(iv)Written policies-formal & explicit declarations in
writing
(v)Implied policies-not clearly stated, Oral
understanding & change
with the change of person

Planning Premises
• Planning Premises-assumptions about future derived
from forecasting and used in planning
• According to Koontz and weihrich,planning premises
are the anticipated environment in which plans are
expected to operate
Classification:
1.Internal and external
2.Tangible and intangible
3.Controllable and uncontrollable

1.Internal and external Premises:
Internal Premises:
*Exist within a business enterprise
*Includes purpose,mission,experience of
management and management values
*Also includes resources and abilities of
enterprise(men,material,machine,money & methods)
External Premises:
*Outside the firm
(i)General business environment
(economic,technological,political & social conditions)
(ii)Product market-demand & supply forces
(iii)Force market-production resources

2.Tangible and intangible Premises:
Tangible Premises:
*Expressed in quantitative terms(monetary unit,unit
of product,labour hour,machine hour)
Intangible Premises:
*Cannot be measured quantitatively
*Eg:Reputation of concern,public relations,employee
morale,motivation

3.Controllable and uncontrollable Premises:
Controllable Premises:
*Entirely within the control
*Includes organizational policies, structure,
systems, procedures
*Mostly internal
Uncontrollable Premises:
*Cannot be controlled by organization’s action
*Includes the rate of economic growth,population
growth,taxation policy of government,natural
climate,war.

Making premises effective:
(i)Selection of premises
(ii)Collection of information
(iii)Development of alternative premises for
contingency planning
(iv)Verification of the consistency of premises
(v)Communication of planning premises

Decision making
*Defined as the process of choosing a course of action
from among alternatives to achieve a desired goal.
* Human process-manager of an orgn decides
* According to koontz and weihrich, decision making is
defined as the selection of a course of action from among
alternatives

Features of decision-making:
*It is a selection process
*It is goal oriented process
*It is the end process
*It is a human and rational process
*It is a dynamic process
*It is situational
*It is a continuous or ongoing process
*It may be positive or negative

Decision making process:
(i)Identification of problem
(ii)Diagnosis and analysis of the problem
(iii)Search for alternatives
(iv)Evaluation of alternatives
(v)Selecting an alternative
(vi)Implementation and follow-up

Rationality in decision-making:
*It is defined in terms of objective and intelligent
action
*2 models are used
(i)Economic rationality
(ii)Bounded rationality
(i)Economic rationality
*Maximize the values by choosing the most
suitable course of action

(ii)Bounded rationality(normative approach):
Assumptions are,
*Decision maker has clear and well defined goal
*He is fully objective
*Identify the problem clearly and precisely
*Clear understanding of alternative course of action
*ability to analyse and evaluate alternatives
*desire to come to the best solution by selecting the
alternative
“to explain the decision making behaviour in real life”

• A decision may be of following type depending on
rationality
(i)Objectively rational decision-maximizing given values
in a given situation.
(ii)Subjectively rational decision- maximizes attainment
relative to the actual knowledge
(iii)Consciously (awareness) rational decision
(iv)Organizationally rational
(v)Personally rational – oriented to individual goals

Evaluation of Alternatives:
(i)Quantitative and qualitative analysis
*Quantitative factors-measured in numerical units such
as fixed & operating costs,number of units of
production,number of labours available
*Qualitative factors-difficult to measure numerically
such as quality of labour relations,reputation of the
company,public relations,employee morale,motivation

(ii)Marginal analysis
*Involves the comparison of additional revenues
arising from additional costs
(iii)Cost effectiveness analysis
*Improvement of marginal analysis
*Alternatives are evaluated in terms of costs and
benefits
*Alternative with higher net benefit is selected
*Also called cost benefit analysis
Alternatives Additional Cost Additional revenue
Alternative A 5 4
Alternative B 5 5
Alternative C 3 5

Selecting an Alternative:
(i)Experience
(ii)Experimentation
(iii)Research and analysis

Types of Decisions:
1.Programmed and non-programmed decision
2.Organizational and personal decision
3. Major and minor
4.Tactical and operational

1.Programmed and non-programmed decision:
*Programmed decisions- also called routine decisions or
structured decisions
*decisions taken frequently and repetitive in nature
*Decisions taken by middle or lower level managers
*Eg: making a purchase order,increments in salary etc
*Non-programmed decisions-also called strategic decisions
or basic decisions or policy decisions or unstructured decisions
*Decision taken by top management people
*Decision deal with unusual or non-routine problems
*Eg:Industrial relation problem,declining market
share,increasing competition

2.Organizational and personal decision
*Decisions taken by an individual in his official
capacity for the interest of the orgn
*Decisions based on rationality,judgement and
experience
*Eg:Introducing a new incentive system,transferring
an employee,reallocation of employees

Decision-making under different conditions:
*Includes the selection of right alternative from various
available alternatives
1.Decision making under certainty
2.Decision making under risk
3.Decision making under Uncertainty

1.Decision making under certainty
*Payoff-table method is followed
*Decisions under various conditions based on
demand of the product in the form of low,moderate
and high
*First highest demand of the product is considered
*Next highest is considered and so on
*This method leads to get more profit

2.Decision making under risk
*mostly decisions based on the conditions of risk
*Probability of risk is calculated
*3 estimates are
(i)A priori probability(assumed condition)
(ii)Empirical probability(collecting and recording actual
experience for a period of time)
(iii)Subjective probability(own judgement)

3.Decision making under Uncertainty
(a)Maximizing the maximum possible payoff(maximum
decision criterion or optimistic decision criterion)
(b)Maximizing the minimum possible payoff(Maximin
decision criterion or pessimistic decision criterion)
(c)Minimizing the maximum possible regret to the
decision maker(Minimax regret decision criterion)
(d)Equally likely decision criterion or laplace
criterion(Insufficient reasoning criterion)
(e)Expected monetary value

(a)Maximizing the maximum possible payoff
*Determine the best oucome for each alternative
*Select the alternative associated with the best of
these
(b)Maximizing the minimum possible payoff
*Determine the lowest outcome for each alternative
*Choose the alternative associated with the best of
these
(c)Expected monetary value
*sum of possible pay-off of the alternatives

Decision tree analysis:
*Decision tree-graph uses a branching method to
illustrate every possible outcome of a decision
*Decision diagram looks like tree,so called decision tree
*Decision tree consists of nodes,branches,probability
estimates and pay-offs.
*Nodes 2 types,
(i)Decision node(designated as a square)
(ii)Chance node(Designated as a circle)

(i)Decision node:
*Called main branches
*Alternative course of action starts from decision
node
*At the terminal point of decision node,chance node
exists
(ii)Chance node:
*Called sub branches
*At the terminal point of chance node,expected pay-
off values are shown

*2 types of decision trees,
(i)Deterministic
(ii)Probabilistic
*Further divided into ,
(i)Single stage deterministic decision tree(Only one
decision under conditions of certainty)
(ii)Multistage deterministic decision trees(sequence or
chain of decisions are to be made)

Basic rules and conventions followed for drawing
decision tree:
(i)Identify all decisions to be made
(ii)Identify the chance events
(iii)Develop a tree diagram
(iv)Estimate probabilities
(v)obtain outcomes
(vi)Calculate the expected value
(vii)Select the decision alternative

Unit 2_Planning.ppt

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