Unit2 planning

Planning
Planning involves
Selecting Missions and objectives and
Deciding on the actions to achieve them
Choosing a course of action from among
alternatives thro a decision making process.
Planning thus provide a rational approach to
achieve preselected objectives.
Planning bridges the gap from where we are to
where we want to go.
1
S.Palanivel Associate Prof./Mech. Engg.
Kamaraj College of Engg. & Tech.
Virudhunagar(near)

Planning involves tasks
that must be performed to
attain organizational goals,
outlining how the tasks
must be performed, and
indicating when they
should be performed.
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Virudhunagar(near)

Why Planning ?
 Determining organizational goals and
means to reach them
 Managers plan for three reasons
1. Establish an overall direction for the
organization’s future
2. Identify and commit resources to achieving
goals
3. Decide which tasks must be done to reach
those goals
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Nature of Planning
• In designing an environment for the effective performance of
individuals working together in a group, a Manager’s most
essential task is to see that everyone understands the group’s
mission, objectives and methods for attaining them.
• If group effort is to be effective, people must know what they
are expected to accomplish.
• This is the function of planning and it is the basic of all
managerial functions.
• Planning and controlling are inseparable. Any attempt to control
without plans is meaningless.
• Planning makes everyone to know where they have to go and
Controlling will ensure whether they are going to the place
where they wanted to go, if there is any deviation control will
indicate the same and lead to alter the plans.
• Plans thus provide the standards of control.
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Types of Plans- Planning process
Planning process is consisting of
Mission or purposes
Objectives or goals
Strategies
Policies
Procedures
Rules
Programs
Budgets
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Missions or Purposes
• Mission or purpose : The basic purpose or function or tasks
of an organisation or enterprise or agency or any part of it.
 Purpose of a business is generally production and
distribution of goods and services.
 Purpose of a Highway department is the design, building and
operation of a system of highways.
 Purpose of courts is to interpret laws and their application.
 Purpose of Banks are to maintain accounts of individuals &
firms, receive deposits and lends loans for development of
society and regulate money circulation.
 Purpose of a University is teaching, research and providing
services to community.
 In 1960 mission of NASA was to get a person to the moon
before the Russians.
 Mission of KCET is to achieve 100 % pass and 100%
placement.
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Vision - Mission
• Often the term Vision is mentioned in connection with mission.
• Concepts such as goal setting, team management and
orientation toward future are connected with Vision.
• Seven factors identified in the structure and content of Vision
statements are
 Formulation,
 Implementation,
 Innovative realism
 General
 Degree of detail
 Risk propensity
 Profit orientation
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• Objectives or Goals : Ends towards activity is aimed. They represent not
only the end point of planning but also the end toward which organising,
staffing, leading and controlling are aimed.
• Strategies : The determination of the basic long term objectives of an
enterprise , the adoption of courses of action and allocation of resources
necessary to achieve these goals.
• Policies : General statements or understandings that guide or channel
thinking in decision making. Policies define an area within which a decision
is to be made and ensure that the decision will be consistent with and
contribute to an objective. Examples of polices are ;
 Hiring only trained Engineers
 Promoting from within
 Encouraging employee suggestion to get improved cooperation
 Setting Competitive prices
 Promoting people only on fitness cum seniority
 Promoting people only performance basis
 Sharing a portion of profit among employees
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• Procedures : Plans that establish a required method of handling
future activities
• They are chronological sequences of required actions.
• They are guides to action and they detail the exact manner in
which certain activities must be accomplished.
• In a manufacturing company, procedure for handling orders
involve different departments in sequences
 Sales dept. – for receiving original order
 Finance dept. – for acknowledging receipt of funds and for
customer credit approval
 Accounting dept. – for recording the transaction
 Production dept.- to produce products or to release from stock
 Shipping dept. – to determine the mode and route of shipping
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• Relationship – Policies & Procedures :
• Company policy may grant employees vacation.
• Procedures established to implement this policy by
 Scheduling vacations to avoid disruption of work,
 Setting rates of vacation pay
 Methods of calculating vacation pay
 Maintaining records to ensure each employee vacation
 Spelling out the means of applying leave.
RULES : It spell out specific required actions or non actions allowing no
discretion . They are usually the simplest form of plan. The essence of
a rule is that it reflects a managerial decision that a certain action
must or must not be taken. Rules are different from Policies. Policies
are meant to guide decision making by marking off areas in which
Managers can use their discretion, while rules does not allow any
discretion in their application.
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• Programs : They are a complex of goals, policies,
procedures, rules , task assignments, steps to be
taken , resources to be employed and other
elements necessary to carry out a given course
of action mostly supported by budgets.
• Programs may be a major one – linking rivers,
laying double line railway tracks whole of India.
Or may be minor one as formulated by a single
supervisor to improve the morale of workers in
the manufacturing division by offering anew
incentive scheme.
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Budgets
• Budget is a statement of expected results expressed in numerical
terms. It may be called as a Quantified Plan, financial operating
budget is called as Profit Plan.
• Budget may be expressed in terms of labor hours, units of products,
machine running hours, selling cost expenses, amount realised by
selling products or in any other numerically measurable terms.
• Operational budget deals with the expected no of units produced and
the cost of inputs such as material, labor and machine running and
consumables.
• Cash flow budget deals with expenditures to be met in a
week/month/ quarter/year.
• Expected profit can be budgeted by forecasting expected
expenditures involved in carrying out operations and the expected
income out of operations.
• Budget is necessary for control , but it can not serve as an effective
tool unless budget reflects plans.
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Steps in Planning
• Steps listed below are of general application. However
feasibility of possible course of actions at each stage is
to be studied.
1. Being aware of Opportunities
2. Establishing Objectives
3. Developing Premises
4. Determining alternate courses
5. Evaluating alternate courses
6. Selecting a course
7. Formulating derivative Plans
8. Quantifying Plans by Budgeting
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Being aware of Opportunities
• An awareness of opportunities in the external
environment as well as within the organization is the real
starting point of planning.
• Managers should aware of the market, competition,
customers demand , company’s strengths & weaknesses.
• They should look at possible future opportunities clearly
& completely, where their company stand on their
strengths and weaknesses, understand what problems it
has to solve and why, know what it can expect to gain.
• Setting realistic objectives depends on awareness.
• Planning requires a realistic diagnosis of the
opportunities available
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Establishing Objectives
• Second step in planning is to establish objectives for the entire
enterprise and then to each sub divisions.
• This is to be done for long term as well as for short term
• Objectives specify the expected results and indicate end points of
what is to be done by network of strategies, policies, procedures,
rules, budgets and programs.
• Enterprise objectives give direction to the major plans and define
objective of every major department.
• Major departmental objectives in turn control the objectives of sub
division and so on down the line, in other words Objectives forms
hierarchy .
• Objectives of departments will be more accurate of sub division
managers understand the overall enterprise objectives and
derivative goals to be achieved by them to accomplish the objectives.
• It deals about Where we want to be and what we want to accomplish
and when.
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Developing Premises
• This is to establish, circulate and obtain agreement to use
critical planning premises such as forecasts, applicable basic
policies and existing company plans.
• Premises are assumptions about the environment (Internal
or external) in which the plan is to be carried out.
• Principle of planning premises- more thoroughly individuals
understand and agree to use consistent planning premises
• Forecasting is important in premising
• What kind of markets will there be ?, what volume of sales?
what prices?, what products?, what technical methods?,
what costs?, what wage rates?, what tax rates?, what new
plans?, what is the policy to dividend?, what political or
social environment?, How finance be met? , what are the
long term trends in this business.
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Determining alternate courses
• Fourth step is to search for and examine alternative
courses of action especially those not immediately
apparent.
• More common problem is not finding alternatives
but reducing the number of alternatives so that the
most promising may be analyzed.
• With mathematical techniques and computer
alternatives can be thoroughly examined.
• Planner must usually make a preliminary
examination to discover the fruitful possibilities.
• What are the most promising alternatives to
accomplishing our objectives
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Evaluating alternate courses
• After seeking out alternative courses and examining
their strong and weak points, the next step is to
evaluate the alternatives by weighing them in light of
premises and goals.
• Course has to be evaluated on all fronts like, cash flow
required, margin of return possible, pay back is slow or
fast. Course whether it is suitable for short range or it
will yield its results in long range.
• As there are so many alternative courses are available
and each is varying with so many variables, evaluating
of alternative courses is difficult. Factual findings on
evaluation of alternative courses will help us to take
effective decision.
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• Selecting a course : After evaluation, electing the
suitable course is to be done. This is the point at
which plan is adopted. Occasionally an evaluation
will give two or more courses will be found
suitable. Managers are advised to follow several
courses rather than one best course.
• Formulating derivative Plans : When a decision is
made, planning is not completed and the seventh
step of formulating derivative plans that are
required to execute the selected decision is to be
done necessarily. Derivative plans are supposed to
support the basic plan.
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Quantifying plans by Budgeting
• After decisions are made and plans are set, the final
step in Planning is to quantify them by converting all
actions into budgets.
• The overall budget of an enterprise represents the
sum total of income and expenditure, indicating profit
or surplus.
• Each department or program of a business can have
their own budgets all indicated in numericals.
Budgets can be made as material , machineries,
labour, spares, consumables, production, sales. When
all these combined it will result in overall Budget of
an enterprise, which can be used as better tool to
control the activities of enterprise.
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Coordination of short and long range plans
• If short range plans are made without reference to long range
plans, it is a serious error in planning.
• No short plans should be made unless it contributes to the
achievement of the relevant long range plan.
• Managers should continually review and revise immediate
decisions to determine whether they contribute to long range
plans and sub ordinate managers regularly briefed on long
range plans so that they will make decisions consistent with
company’s long range goals.
• Doing this is far easier than to correct inconsistencies later
especially since short term commitments tend to lead to
further commitments along the same line.
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Nature of Objectives
• An objective is verifiable when at the end of the
period of the programme, one can determine
whether or not it has been achieved.
• Objective state end results. Over all objectives need
to be supported by sub objectives. Thus objectives
form a hierarchy as well as network.
• Organisations and Managers have multiple goals
that are sometimes incompatible and may lead to
conflicts within organisation, within the group and
even within individuals.
• Manager has to choose between short term and
long term performance and personal interests may
have to be in line with organisational objectives.
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Hierarchy of objectives
1. Socio Economic purpose Board of
Directors
2. Mission Top level
Management3. Overall objective of organisation
(Long range)
4. More specific overall objective (Key
result areas)
Middle level
Management
5. Division Objectives
6. Department and Unit Objectives Lower level
management7. Individual Objectives
1 to 7 : Top down approach : 7 to 1 : Bottom Up Approach
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Non verifiable Objective Verifiable objective
1 To make a reasonable profit 1 To achieve a return on
investment of 12 % at the
end of current fiscal year
2 To improve Communication 2 To issue two page news
letter beginning Jul1,
quarterly not involving
more than 40 working
hours for preparation
3 To improve productivity of
production department
3 To increase production out
put by 5 5 by the end off
year ie. 31.12.17 without
additional costs while
maintaining the current
quality level
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Guidelines to set Objectives
• Objectives should be verifiable one ( Specific, observable,
measurable and time bound) and state what is to be
achieved and when
• Quality desired and cost of achieving are also are to be
indicated.
• Objectives to indicate priorities, promote personal ,
professional and orgainsational growth and development.
• List should be too long and yet it should cover the main
features of job.
• After ensuring the above points, Set objectives are to be
checked with the following check list to set objectives.
• If the set objectives meet the criterion, write (+) in the
box provided in the right hand and if they do not mark (-)
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Check list for setting objectives
No Description + / -
1 Do the objectives cover main features of my job
2 Is the list is too long ? If so can I combine some objectives
3 Are the objectives are verifiable – Can I know at the end of period whether
they have been achieved ?
4 Do the objectives indicate
a) Quantity (how much)
b) Quality ( how well or specific characteristics)
c) Time (when)
d) Cost (at what cost)
5 Are the objectives are challenging and yet reasonable
6 Are priorities assigned to objectives (ranking, order)
7. Does the Objectives also include
a) Improvement of objectives
b) Personal development objectives
8. a)Are the objectives coordinated with other managers and units
b) Are they consistent with objectives of my Superior, department and the
company
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Check list for setting objectives
No Description + / -
9 Have I communicated objectives to all who need to be informed
10 Are the short term objectives consistent with long term
objectives
11 Are the assumptions underlying objectives clearly identified
12 Are objectives expressed clearly and in writing
13 Do the objective provide for timely feedback so that I can take
any necessary corrective steps
14 Are my resources and authority sufficient for achieving the
objectives
15 Have I given the individuals who are expected to accomplish
objectives a chance to suggest their objectives
16 Do my sub ordinates have control over aspects for which they are
assigned responsibility
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Management by Objectives
• Management by Objectives : a comprehensive managerial system that
integrates many key managerial activities in a systematic manner and
consciously directed toward the effective and efficient achievement of
organisational and individual objectives.
• It is a comprehensive goal driven success oriented management system.
Besides being used for performance appraisal, it is an instrument for
motivating individuals and in strategic planning.
• Examples : Power Plant construction involves 1000 of activities, it can be
identified as 20 Mile stones such a way completion of one ensures the
starting of another one like start up of Civil work, foundation, erection
main steel structures, Boiler drum lifting……….. Synchronisation, load
test, provisional take over, PG test and final take over.
• Project runs over years being monitored based on Budget allotted for the
period & up to the period and actual amount spent on project activities
for the period and up to the period.
• This will be an effective tool for the Top level Managers
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Benefits of MBO
• Improvement of managing through results
oriented planning.
• Clarification of organisational roles and
structures as well as delegation of authority
according to the results expected of people
holding the roles.
• Encouragement of commitment to personal and
organisational goals.
• Development of effective controls that measure
results and lead to corrective actions.
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Failures of MBO
• Failure to give guide lines to goal setter is a problem.
Managers must explain to sub ordinates what it is, how it
works, why it is all, how participants can benefit.
• Managers must know their roles and how it fit within
corporate goals.
• Emphasis on short term goals can be done at the expense of
long range healthiness of organisation.
• Danger of inflexibility can make managers hesitate to
change objectives even if a changed environment require
such adjustments.
• Over use of quantitative goals and attempt to use numbers
in areas they are not applicable or they may be difficult to
state in terms of end results.
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Strategic planning
Analyzing the current and expected situation,
determining the direction of firm and develop means for
achieving the mission or purpose.
This is an extremely a complex process that demands a
systematic approach for identifying and analyzing factors
external to the organisation and matching them with the
firm’s capabilities.
Planning is done in an environment of uncertainty. No
one can be sure whether the external as well as internal
environment will be same for next week, periods ahead.
People make assumptions or forecasts about the
anticipated environment
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Nature and purpose of Strategies & Policies
• Both strategies and policies are closely related.
Both give direction, both are frame work for plans,
both are basics of operational plans and both affect
all areas of planning.
• Strategy focus on both end points (mission/
objectives /goals) and means of achieving them
(policies and plans.
• Strategy refers to the determination of the mission
and the basic long term objective of an enterprise
followed by the adoption of courses of action and
allocation of resources necessary to achieve these
aims.
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Policies
• Policies are general statements or understandings that
guide managers thinking in decision making. They
ensure that decisions fall within certain boundaries.
• Essence of policy is discretion. Strategy concerns the
direction in which human and material resources will
be applied in order to increase the chance of achieving
selected objectives.
• To be effective, strategies and policies must be put
into practice by means of plans with increasing details
until they get down to the nuts and bolts of operation.
The action plans through which strategies are
executed are known as tactics. Strategies must be
supported by effective tactics.
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Strategic Planning process
Although specific steps in the formulation of a
strategy may vary, the process can be built at least
conceptually around the key elements
• Inputs to organisation
• Industry analysis
• Enterprise profile
• Development of alternative strategies
• Evaluation and strategic choice
• Implementation
• Leadership
• Control
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• Inputs to organisation : People, Capital, Management
skills, Technical skills, others are inputs. Goals of
stakeholders ; Employees, Consumers, suppliers,
stakeholders, Governments, community & others.
• Industry Analysis : Formulation of a strategy requires
the evaluation of the attractiveness of an industry by
analysing the external environment. The focus should
be on the kind of competition within an industry, the
possibility of new firms entering the market the
availability of substitute products or services and the
bargaining positions of the suppliers as well as the
buyers or customers
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• Enterprise Profile : Starting point for determining where
the company is and where it should go. Top managers
determine the enterprise’s mission and clarify its geographic
orientation, such as whether it should operate in selected
regions, throughout the home country or even in different
countries.
• Strategic Intent : It is the commitment to win in the
competitive environment. Companies achieved global
leadership had an obsession (mania/passion) with winning
not only at the top level but throught out the organisation.
This obsession is called strategic intent and are illustrated by
Komatsu’s intent to “encircle Caterpillar”, Canon’s idea to
“beat Xerox”, Honda’s intent to become an automobile
pioneer “a second Ford”. Strategic intent requires personal
effort and commitment. The intent statement is stable over
time and focuses on the essence of winning.
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• Present and future external environment: It must
be assessed in terms of threats and opportunities.
• The evaluation focuses on the competitive situation
as well as on economic, social, political, legal ,
demographic and geographic factors.
• In addition the environment is scanned for
technological developments for products and
services on the market and for other perintent in
determining the competitive situation of the
enterprise.
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• Internal environment : Firm’s internal environment
should be audited and evaluated with respect to its
resources and its weaknesses and strengths in
research development, production, operation,
procurement, marketing, products and services.
• Other internal factors that are important for
formulating a strategy should be assessed including
human, financial resources, company image,
organisation structure, climate, planning , control
system and relation with customers.
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• Development of alternate strategies : Strategic alternatives are
developed on the basis of an analysis of external and internal
environments.
• It may specialize or concentrate as Hyundai did by producing
lower priced cars.
• Alternatively a firm may diversify, extending the operation into
new and profitable markets.
• Possible strategies are joint ventures and strategic alliances
• Company may have to adopt a liquidation strategy by
terminating an unprofitable product line or even dissolving the
firm.
• Retrenchment strategy may be sufficient in some cases, by
closing the non feasible units and retrenching the employees.
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TOWS matrix
INTERNAL FACTORS Internal strengths (S)
Strengths in management,
operations, finance,
marketing, research and
development engineering
Internal weakness (W)
Weaknesses in areas
shown in the strengths box
EXTERNAL FACTORS
External opportunities (O)
Current and future
economic conditions,
political and social
changes, new products,
services and technology
SO strategy – Maxi- Maxi
Potentially the most
successful strategy, utilizing
the organisations strengths
to take advantage of
opportunities
WO Strategy Mini- Maxi
Development strategy to
overcome weaknesses in
order to take advantage of
opportunities
External threats (T)
Energy shortage,
competition and areas
similar to those shown in
the opportunities box
above
ST strategy : Maxi- Mini
Use of strengths to cope
with threats or to avoid
threats
WT strategy : Mini- Mini
Retrenchment, liquidation
or joint venture to
minimize both weaknesses
and threats
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Four Alternative Strategies
• Four alternative strategies based on TOWS matrix are based
on External environment (threats & opportunities) and
Internal environment (Weaknesses and Strengths)
• WT strategy : Aims to minimize both weaknesses and threats
and known as Mini- Mini strategy. Examples are Joint
venture, retrenchment or even liquidation
• WO strategy : Attempts to minimize weaknesses and
maximize opportunities. A firm with weakness in certain
areas may either develop these areas within the enterprise
or acquire the needed competencies (such as technology,
know –how , persons , skills) from outside to enable it to
take advantage of the opportunities in the external
environment
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Four Alternative Strategies
• ST strategy : Based on using organisation’s strengths to deal
with threats in the environment. Aim is to maximize
strengths and minimizing threats. Thus a company may use
its technological, financial, managerial to cope with the
threats of a new product introduced by its competitor.
• SO strategy : It is the most desirable one since it capitalizes
on a company’s strengths to take advantage of
opportunities.
• It is the aim of enterprises move from other positions in the
matrix to this “SO” matrix
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Time Dimensions and TOWS matrix
• External and Internal environments are
dynamic, some factors change over time,
while other factors change very little.
• Hence strategy designers prepare several
matrices at different points of time, like
TOWS past, TOWS present, TOWS present+
T1, TOWS present + T2
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Portfolio Matrix
Business
Growth rate
High Stars Question marks
Low Cash cows Dogs
Strong Weak
Relative competitive position
(market share)
This matrix shows the linkage between the growth rate of
business and relative competitive position of the firm
identified by market share.
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Portfolio Matrix
• Businesses in the “question marks” indicates a weak market
share and a high growth rate, usually require a cash
investments so that they can become “stars” the business in
the high growth rate , strongly competitive position. These
businesses have opportunity for growth and profit.
• The “Cash Cows” with a strong competitive position and a
low growth rate are usually well established in the market
and such companies can make their products at low costs.
Hence their products provide cash for operation.
• “Dogs” are businesses with a low growth rate and a weak
market share. These businesses are usually not profitable
and generally should be disposed of.
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Major kinds of Strategies and policies
For a business enterprise, the major strategies and policies that given an overall
direction to operation are likely to be in the areas of growth, finance,
organisation, personnel, public relations, products or services and marketing.
Key questions can be summarised on two factors as follows :
Products or Services
• What is our business?
• Who are our customers?
• What do our customers want?
• How much will our customers buy and at what price?
• Do we wish to be a product leader?
• What is our competitive advantage?
• Do we wish to develop our own new products?
• What advantages do we have in serving customer needs?
• How should we respond to existing and potential competition?
• How far can we go in serving customer needs?
• What profits can we expect?
• What basic form should our strategy take?
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Major kinds of Strategies and policies
• Marketing: Marketing strategies are designed to guide managers in
getting products or services to customers to buy. Marketing
strategies are closely related to product strategies they must be
interrelated and mutually supportive.
Key questions that serve as guides for establishing a marketing
strategy are listed below :
• Where are our customers and why do they buy?
• How do our customers buy?
• How is it best for us to tell?
• Do we have something to offer that competitors do not?
• Do we wish to take legal steps to discourage competition?
• Do we need and can we supply supporting services?
• What are the best pricing strategy and policy for our operation?
• How can we best serve our customers?
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Hierarchy of Company Strategies
• Corporate level strategy : Executives craft the overall
strategy for a diversified company. Decisions are made as to
the industries in which company wants to compete. A
portfolio of business is often selected to achieve synergies
among the business units.
• Second level in the hierarchy is business strategies: Which
are developed by the general managers of business unit.
These strategies are reviewed and approved or rejected by
Chief executive. Aim of the business strategy is to gain a
competitive advantage in a particular area of product line.
• Third hierarchical level Functional strategies: These
strategies are devised for departments or other
orgnaisational units such as finance, production, marketing,
service and personnel. Aim is to support the business and
corporate strategies.
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Industry Analysis
• Strategy formulation requires an analysis of the
attractiveness of an industry and the company’s
position within that industry.
• Porter identified five forces as Generic Strategies
1. Competition among companies
2. Threat of new companies entering market
3. Possibility of using substitute products or services
4.Bargaining power of suppliers
5.Bargaining power of buyers or customers
These strategies are generic because they may be
suitable on a broad level for different kinds of
organisations.
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Overall Cost leadership strategy
• This strategic approach aims at reduction in costs
based to a great extent on experience.
• Emphsis may be on keeping a close watch on costs
in areas such as research& development, operation,
sales and service.
• Objective is for a company to have allow cost
structure compared with its competitors.
• This strategy often requires a large relative market
share and cost efficient operation.
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Differentiation Strategy
• This strategy attempts to offer something unique in the
industry in terms of products or services
• Caterpillar company which is known for its prompt service and
availability of spare parts.
• Ford started advertising that the maintenance cost after five
years is Rs.3256/- implying that Ford cars require less
maintenance.
• Big Bazar announces special discount during sale period like –
offering 50 5 discount, offering one more product for purchase
of specified items, offering special rate for specific period. All
aims to attract people to purchase items and to increase
turnover .
• Places like Ooty and Kodaikanal – Rates will be follwed based
on seasons. Such places two types of rates are being follwed as
season and offseason rates just to attract people and run and
maintain business
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Focused strategy
• Focused strategy concentrates on special group of
customers a particular product line, specific geographic
regions or other aspects that become focal point of firms’
efforts.
• A low- cost strategy, differentiation or both may accomplish
this. Examples : Saravana Stores, Chennai – low cost
strategy. Lalitha Jewelry offering lowest wastage. Both firms
focusses on more turnover and low margin.
• Indian Railways offering special coaches - Train on Wheels –
Luxurious coaches with all amenities – Taking tourists to
important places of Historic, pilgrimage .
• Vythri Resorts- Located in Vynad, Kerala attracting packages
for Couples and families. Rates are normally high and on
special periods very high rates are being charged.
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Virudhunagar(near)

Premising and Forecasting
• One of the essential and often overlooked steps in effective and coordinated
planning is premising.
• Planning premising are defined as 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 operation plans.
• A distinction between the forecasts that are planning premises and forecasts
that are translated into future expectations. Example : Forecast to determine
future business conditions, sales volumes or political environment furnishes
premises on which to develop plans. However a forecast of the costs or
revenues from a new capital investment translates a planning program into
future expectations. In the first case, the forecast is a prerequisite of
planning , in the second case the forecast is a result of planning.
• At the same time, plans themselves and forecasts of their future effects often
become premises for other plans. The decision to construct a power Plant by
a firm creates facilities to get linkage of fuel, ensuring facilities to make ready
transmission lines to transfer power, finalising suppliers of power generating
equipments are plans or planning premises.
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Virudhunagar(near)

Environmental forecasting
• If the future could be forecast with accuracy, planning would be
relatively simple, Managers need only to take into account their
human, material resources, opportunities and threats, compute
using optimum method of reaching their objective and proceed
with a relatively high degree of certainty toward it.
• Forecasting has values . First – the making of forecasts and their
review by Managers compel thinking ahead, looking for the future
and providing for it.
• Second- preparation of the forecast may disclose areas where
necessary control is lacking.
• Third- forecasting, especially when there is participation
throughout organisation , helps unify and coordinate plans.
• By focusing attention on the future, it assists in bringing a
singleness of purpose to planning.
• Economic, social, political, legal and technological
environments are considered for forecasting environment.
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Virudhunagar(near)

Delphi technique
Typical process of Delphi technique is as follows :
 A panel of Experts on a particular problem area is selected, usually from
both inside and outside of the organisation.
 The Experts are asked to make (anonymously, so that they will not be
influenced by others) a forecast as what they think will happen and when, in
various areas of new discoveries or developments.
 The answers are compiled and the composite results are fed back to the
panel members.
 With this information at hand (but still with individual anonymity) further
estimates of the future are made.
 This process may be repeated several times.
 When a convergence of opinion begins to evolve, the results are then used
as an acceptable forecast.
Purpose of the successive opinions and feedback is not to force Experts to
compromise but rather, by bringing additional inputs to bear/consider to
make opinions more informed. It is thus hoped that an informed consensus
among Experts will be arrived at.
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Virudhunagar(near)

Decision Making
• Decision making is defined as the selection of a course
of action from among alternatives: it is a core activity
of planning.
• A plan can not be said to exist unless a decision has
been made. Managers sometimes see decision
making as their central job since they have to
continuously choose what is to be done, who is to do
it, when , where and occasionally even how it will be
done.
• Decision making is a step in planning and it is apart of
planning. Alos it is a part of everybody’s life. Virtually
every decision must be geared to other plans
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Virudhunagar(near)

Rationality in Decision making
• Effective decision making must be rational.
• Mangers must have a clear understanding of alternative courses by
which a gal can be reached under existing circumstances and limitations.
They also must have the information and the ability to analyze and
evaluate alternatives in the light of goal sought. Finally they must have a
desire to select the best solution by choosing the alternative that most
effectively satisfies goal achievement.
• In the first place, no one make decisions affecting the past, decisions
must operate for the future, future almost filled with uncertainties.
• In the second place, it is difficult to recognize all the alternatives that
may be followed to reach a goal, this si particularly true when decision
making involves doing something that has not been done before.
• Moreover not all alternatives can be analyzed even with newest
analytical techniques and computers available.
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Virudhunagar(near)

Rationality in decision making
• Manager must settle for limited or bounded rationality.
Limitations of information, time and certainty limit rationality
even if a manager tries earnestly to be completely rational.
• Managers can not be completely rational in practice, they
sometimes allow their dislike of risk to interfere with the
desire to reach the best solution under circumstances due to
their desire to “play it safe”. Herbert Simon called this
Satisficing, that is picking a course of action that is satisfactory
or good enough under the circumstances.
• Although many managerial decisions are made with a desire to
“get by” as safely as possible, most managers do attempt to
make the best decisions they can within the limits of rationality
and in the light of the degree and nature of the risks involved
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Virudhunagar(near)

Steps in decision making
• First step in decision making is develop alternatives. There are
almost many alternatives to any course of action are available. If
we can think of only one course of action, clearly we have not
thought hard enough.
• The ability to develop alternatives is often as important as being
able to select correctly from among them. Concept of the limiting
or strategic factor will help Managers to choose beat alternative.
• A limiting factor is something that stands in the way of
accomplishing a desired objective. Recognizing the limiting factors
in a given situation makes it possible to narrow the search for
alternatives to those that will overcome the limiting factors.
• Principle of the limiting factor states that by recognizing and
overcoming those factors that stand critically in the way of goal,
the best alternative course of action can be selected.
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Virudhunagar(near)

• Evaluation of Alternatives : Once appropriate alternatives have been found,
the next step in planning is to evaluate them and select the one that will best
contribute to the goal.
• In comparing alternative plans for achieving the objective, people are likely
to think exclusively of Quantitative factors. These can be measured in
numerical terms, such as time or various fixed and operating costs. Success
of the venture would be endangered if intangible or qualitative factors are
ignored.
• Qualitative or intangible factors are factors that are difficult to measure
numerically such as the quality labor relations, risk of technological change
or the international political climate.
• Illustrations pointing out the importance of giving attention to both
quantitative and qualitative factors
 Instances in which an excellent quantitative plan was destroyed by an
unforeseen war
 Fine marketing plan made inoperable by a long transportation strike
 Rational borrowing plan hampered by an economic recession.
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Virudhunagar(near)

• Marginal Analysis : It is to compare the additional revenue and
additional cost arising from increasing output.
• Where the objective is to maximize profit, this goal will be reached as
elementary economic teaches when additional revenue and additional
cost are equal.
• If the additional revenue of a larger quantity is greater than the
additional cost, more profit can be made by producing more. If the
additional revenue of the larger quantity is less than its additional cost,
a larger profit can be made by producing less.
• Marginal analysis can be used in comparing factors other than cost and
revenue.
• For example, to find the best output of a machine, input can be varied
against output until the additional input equals the additional output.
This would be the max. efficiency of machine.
• No. of sub ordinates reporting to Manager might be increased by which
additional cost savings, better communication & morale equal
additional losses in the effectiveness of control, leadership and similar
factors.
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Three Approaches – selecting alternatives
• Managers can use three basic approaches
1.Experience
2. Experimentation
3. Research and analysis
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Virudhunagar(near)

Selecting alternatives
Experience : Reliance on past experience plays a larger part in
decision making. Experience is the best teacher. The process of
thinking problems through, making decisions and seeing programs
succeed or fail does make for a degree of good judgment. Many
people do not learn from their errors.
Relying on past experiences as a guide for future action can be
dangerous. Since most people do not recognize the reasons for
failures or mistakes and lessons of experience may be entirely
inapplicable to new problems. Good decisions must be evaluated
against future events while experience belong to the past.
If a person carefully analyzes experience rather than blindly
following it and if anyone filters the fundamental reasons for their
failures from the experiences then experiences can be used as a
basis for decision analysis.
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Virudhunagar(near)

Selecting alternatives
• Experimentation : It is often used in scientific inquiry. This technique is
likely to be the most expensive of all the techniques since it requires
heavy expenditures of capital and personnel. Besides after the
experiment has been tried , there may be still be doubt about what is
proved since future may not be duplicate the present. Therefore this
technique can be used only after considering other alternatives.
• Airplane manufacturer may make extensive studies on stress, vibration,
fuel consumption, speed, space allocation etc. But all these studies do
not answer every question about flight characteristics and economical
success of plane. Therefore experimentation is involved in the process of
selecting right course of action.
• A firm may test a new product in a certain market before expanding its
sale nation wide. Orgnaisational techniques are often tried in a branch
office or a plant before being applied over an entire company. A
Candidate for a management job may be tested in the job during the
training period or during vacation.
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Virudhunagar(near)

• Programmed decisions
• It is applied to structured or routine problems.
• Service manual indicates under trouble shooting, the
symptoms of failures, possible causes and remedial actions to
be taken. These are indicated primarily on previously
established procedures.
• This kind of decision is used for routine and repetitive work.
• Non Programmed decisions : These are used for unstructured ,
novel and ill defined situations of a non recurring nature.
• Examples are introduction of macintosh Computer by apple
• Development of four wheel drive passenger car by AUDI.
• Most non programmed decisions are made by upper level
managers since they have to deal with unstructured issues.
• Problems at lower levels are often routine and well structured
requiring less discretion by Low level Maangers
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Virudhunagar(near)

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