UNIT –II

Planning

Deciding in advance what to do& how to do it. It is one of the basic managerial functions.

It involves 2 aspects:
Setting of aims and objectives of the organization + Selecting and developing an appropriate
course of action to achieve these objectives.

Koontz and O‘Donnell – ―Planning is deciding in advance what to do, how to do, when to do,
and who to do it. Planning bridges the gap from where we are to where we want to go. It makes
it possible for things to occur which would not otherwise happen.

Importance of Planning
1. Planning provides directions: By stating in advance how the work is to be done planning
provides direction for action. If there was no planning, employees would be working in different
directions and the organization would not be able to achieve its goals efficiently.
2. Planning reduces the risk of uncertainity: Planning is an activity which enables a manager
to look ahead, anticipate change, consider the impact of change and develop appropriate
responses.
Planning reduces wasteful activities: Planning serves as the basis of coordinating the activities
and efforts of different departments and individuals whereby useless and redundant activities are
mentioned.
4. Planning promotes innovative ideas: Planning is the first function of management.
Managers get the opportunity to develop new ideas and new ideas can take the shape of concrete
plans.
5. Planning facilities decision making: Under planning targets are laid down. The manager has
to evaluate each alternative and select the most viable option.
6. Planning establishes standards for controlling: Planning provides the standards against
which the actual performance can be measured and evaluated. Control is blind without planning.
Thus planning provides the basis for control.

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Limitations of Planning

(A) Internal Limitations

1. Planning leads to rigidity: Planning discourages individual’s initiative &creativity. The

managers do not make changes according to changing business environment. They stop taking or
giving suggestions and new ideas. Thus detailed planning may create a rigid framework in the
organization.
2. Planning may not work in dynamic environment: Planning is based on anticipation of
future happenings and since future is uncertain and dynamic therefore, the future anticipations
are not always true.
Planning involves huge costs: When plans are drawn up, huge cost is involved in their
formulation.
4. Planning is time consuming: Sometimes plans to be drawn up take so much of time that there
is not much time left for their implementation.
5. Planning does not guarantee success: The success of an enterprise is possible only when
plans are properly drawn and implement. Sometimes managers depend on previously tried
successful plans, but it is not always true that a plan which has worked before will work
effectively again.
6. Planning reduces creativity: In planning, work is to be done as per pre-determined plans. It
is decided in advance what is to be done, how it is to be done and who is going to do it.
Moreover, planning is done by top management which leads to reduction of creativity of other
levels of management.

(B) External Limitations

They are those limitations of planning which arises due to external factors over which an
organization has no control.

1. Changes in Government policies way leads to failure of planning.Natural calamities such as

flood, earthquake etc. also adversely affect the success of planning.
3. Changes in the strategies of competitors also leads to failure of planning many times.
4. Regular technological changes may affect planning.
5. Changes in the Economic and Social Conditions also reduces the effectiveness of planning.

Planning Process
1. Setting Objectives:
– Objectives specify what the organization wants to achieve.
– Objectives can be set for the entire org. & stated to each dept. within the org. very clearly, to
determine how all depts. would contribute towards overall objectives.

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-Then these have to percolate down to all employees at all levels so that they understand how
their actions contribute to achieving objectives.
– E.g. Objective could be to achieve sales, expansion of business etc.
2. Developing Premises:
– Plans are made on the basis of some assumptions.
– These assumptions, which provide the basis for planning, are called premises.
– All managers involved in planning should be familiar w/ them, cuz plans are expected to
operate & reach their destination subject to these. They can be:
• Internal premises: Cost of products, capital, machinery, profitability etc.
• External premises: Changes in technology, population growth, competition, govt. policies etc
3. Identifying Alternative Courses Of Action:
– After setting the objectives, managers make a list of alternatives through which the org. can
achieve its objectives as there can be many ways to achieve the objectives & managers must
know all of them.
– E.g. Sales could be increased through any of the following ways:
• By enhancing advertising expenditure
• Appointing salesmen for door-to-door sales
• By offering discounts
• By adding more product lines.

4. Evaluating Alternative Courses of Action

– Positive & negative aspects of each &every proposal need to be evaluated to determine their
feasibility and consequences in the light of each objective to be achieved.
– E.g. In financial plans, risk-return trade-off are imp. Riskier the investment, higher the returns
it is likely to give. To evaluate such proposals, detailed calc. of earnings, taxes, earnings per
share etc. should be done.
5. Selecting the Best Alternative
– Real point of decision-making→ Best plan has to be adopted and implemented.
– The ideal plan = most feasible, profitable and with least negative consequences.
– Most plans may not be subjected to mathematical analysis. In such cases, subjectivity &
manager‘s experience, judgment and intuition are important to select the most viable alternative.
– Sometimes a combination of plans may be selected instead of one best course.
6. Implementing The Plan
– Concerned with putting the plan into action.
– For implementing the plans, managers start organizing & assembling resources for it.
– E.g. If there is a plan to ↑ production, then more labour, more machinery will be reqd. This step
would also involve organizing for more labour and purchase of machinery.
7. Follow Up Action
– This involves monitoring the plans and ensuring that activities are performed according to the
schedule.

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– Whenever there are deviations from plans, immediate action has to be taken to bring
implementation according to the plan or make changes in the plan.

TYPES OF PLAN

Plan
A Plan is a specific action proposed to help the organization achieve its objectives. It is a
document that outlines how goals are going to be met. The importance of developing plans is
evident from the fact that there may be more than one means of reaching a particular goal. So
with the help of logical plans, objectives of an organization could be achieved easily.

 SINGLE USE PLAN

A Single use plan in a business refers to plan developed for a one-time project or event that has
one specific objective. It applies to activities that do not reoccur or repeat. It is specifically
designed to achieve a particular goal. Such plan is developed to meet the needs of a unique
situation. The length of a single use plan differs greatly depending on the project in question, as a
single event plan may only last one day while a single project may last one week or months. For
example, an outline for an advertising campaign. After the campaign runs its course, the short
term plan will lose its relevance except as a guide for creating future plans.

Types of Single Use Plan

1. Programme: A programme is a single use plan containing detailed statements about project
outlining the objectives, policies, procedures, rules, tasks, physical and human resources required
to implement any course of action.
2. Budget: A budget is a statement of expected result expressed in numerical terms for a definite
period of time in the future.
 STANDING PLANS
Standing plans are used over and over again because they focus on organizational situations that
occur repeatedly. They are usually made once and retain their value over a period of years while
undergoing revisions and updates. That is why they are also called repeated use plans. For
example, Businessman plans to establish a new business Entrepreneur drafts business plan before
opening the doors to their business, and they can use their plan to guide their efforts for years
into the future.

Types of Standing Plans

1. Objectives: Objectives are defined as ends for the achievement of which an organization goes
on working. They may be designed as the desired future position that the management would like
to reach. The first and foremost step of the planning process is setting organizational objectives.

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Examples increasing sales by 10%, Getting 20% return on Investment etc. Objectives should be
clear and achievable.
2. Strategy: Strategies refer to those plans which an organization prepares to face various
situations, threats and opportunities. When the managers of an organization prepare a new
strategy for the business it is called internal strategy and when some strategies are prepared to
respond to the strategies of the competitors, then such strategies are called external strategies.
Examples, selection of the medium of advertisement, selection of the channel of distribution etc.
3. Policy: Policies refers to the general guidelines which brings uniformity in decision-making
for achievement of organizational objectives. They provide directions to the managers of an
organization. They are flexible as they may be changed as per requirement. Example, selling
goods on cash basis only, reserving some post for women in the organization.
4. Procedure: Procedures are those plans which determine the sequential steps to carry out some
work/activity. They indicate which work is to be done in which sequence/way. They help in the
performance of work. Procedures are guides to action. Example: Process adopted in the Selection
of Employees.
5. Rule: Rules are specific statement that tells what is to be done and whatnot to be done in a
specified situation. They help in indicating which points are to be kept in mind while performing
task/work. Rules are rigid which ensure discipline in the organization.
Example : ‘No smoking in the office premises’. Violation of rules may invite penalty.
6. Method: Methods are standardized ways or manners in which a particular task has to be
performed. There may be many ways/method of completing a task but that method/way must be
selected by which work can be done early at the minimum possible cost. Methods are flexible.
Example, various methods of training is adopted by an organization to train its employees like
apprenticeship training, vestibule training etc.

Basis of
Difference Single use plans Standing Plans

A single use plans in

a business refers to
plans developed for
a one time project or A standing plans in a business refers to plans developed for
event that has same using over and over again because they focus on
1. Meaning objective. organizational situations that occur repeatedly.

Single use plans is

developed to carry
out a course of
action that is not Standing plans however is developed for activities that
2.Objective likely to be repeated occur regularly over a period of time.

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 in future time.

Single use plans

generally encompass
a narrow scope
targeting a specific Standing plans generally encompass a wider scope
3. Scope project or event. involving more than one department or business function.

Single use plans are

discarded when the
situation, project or Standing plans are relatively stable and used over and over
4. Stability event is occur. again with necessary modifications or updations.

Budget for Annual

General Meeting of Recruitment and selection procedure for a particular post in
5. Example Shareholders. a company.

Development of Business Strategy

1. Identify Mission & Vision and set Objectives and Goals

The mission statement describes the company’s business vision. Including the
unchanging values and purpose of the firm and forward looking visionary goals that
guide the pursuit of future opportunities.

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 2. Environmental Scanning The environmental scan includes the following components:
• Analysis of the firm (Internal environment)
• Analysis of the firm's industry (micro or task environment)
• Analysis of the External macro environment (PEST analysis)
The internal analysis can identify the firm's strengths and weaknesses and the external analysis
reveals opportunities and threats. A profile of the strengths, weaknesses, opportunities, and
threats is generated by means of a SWOT analysis An industry analysis can be performed using a
framework developed by Michael Porter known as Porter's five forces. This framework evaluates
entry barriers, suppliers, customers, substitute products, and industry rivalry
3. Generic strategic alternatives
Michael Porter laid out his generic marketing strategies in his 1985 book "Competitive
Advantage: Creating and Sustaining Superior Performance." Porter identified three broad
strategies: Cost leadership, differentiation and focus
i. Cost Leadership
The cost-leadership strategy is a good option for companies that are able to consistently reduce
the costs of doing business. Maintaining low overhead costs and negotiating favorable
acquisitions costs with suppliers are key to making this strategy work. You can apply cost
leadership in one of two ways. You either generate higher profit margins by charging industry-
average prices despite your low cost basis, or you pass the savings onto customers and build
market share through high sales volume.
ii. Differentiation
A differentiation strategy is a better alternative for a company that doesn't have strong cost
advantages or prefers to emphasize strengths in production or resale. The key to this approach is
to research customer needs, design and develop quality products or service proceeds to match
and effectively market and sell solutions by stressing the differences from competing brands.
Product quality, elite service, unique features and environmental responsibility are common
ways to separate yourself with a differentiated approach.
iii. Cost Focus
In general, the focus strategy is distinct because it is used when you serve a niche target market.
The cost-focus approach means you use the principles of a low-cost operation to market
affordability to a niche market. In the supermarket category, for instance, German chain Aldi's
drives business from lower- to middle-income buyers by maintaining a very low-cost operation.
This enables them to offer low prices to the most budget-conscious grocery shoppers.

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 iv. Differentiation Focus
A differentiated-focus approach means you market a bigger or better solution to a smaller market
segment. Local businesses commonly rely on this strategy when competing against larger box
retailers. A small electronics retailer, for instance, could promote the best selection of high-tech
products or the most knowledgeable service staff as a way to attract business from general-
merchandise retailers and discount stores. This strategy offers a way to build strong loyalty since
you focus specifically on the needs of a select group of customers.
4. Strategy Variation
The generic strategy alternatives can have a numerous variations. Every strategy can have
variations as
i. Internal or External
ii. Related or unrelated
iii. Horizontal or vertical
iv. Active or Passive
5. Strategic Choice

On the basis of the analysis of internal and external critical factors - so, on basis of the
estimated chances of seizing opportunities and meeting threats - the positioning will be
determined. It would be quite nice to make a very specific positioning choice: we aim at
becoming an organization.

Once such a choice has been made, it should be studied what strategy is appropriate to
realize that choice of position. In literature rough strategies are indicated, such as
stabilization, growth, shrinking and turnaround. The organization can probably indicate
much more specifically and accurately what strategy must be opted for. Growth in a
certain direction, orientation towards a certain market, etc.

6. Strategy implementation It is the process by which strategy & policies are put into actions
through the development of programs, budgets & procedures. This process might involve
changes within the overall culture, structure and/or management system of the entire
organization.
i) Programs: It is a statement of the activities or steps needed to accomplish a single-use plan. It
makes the strategy action oriented. It may involve restructuring the corporation, changing the
company’s internal culture or beginning a new research effort.
ii) Budgets: A budget is a statement of a corporations program in terms of dollars. Used in
planning & control, a budget lists the detailed cost of each program. The budget thus not only

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serves as a detailed plan of the new strategy in action, but also specifies through proforma
financial statements the expected impact on the firm’s financial future
iii) Procedures: Procedures, sometimes termed Standard Operating Procedures (SOP) are a
system of sequential steps or techniques that describe in detail how a particular task or job is to
be done. They typically detail the various activities that must be carried out in order to complete
7. Evaluation & control After the strategy is implemented it is vital to continually measure and
evaluate progress so that changes can be made if needed to keep the overall plan on track. This is
known as the control phase of the strategic planning process. While it may be necessary to
develop systems to allow for monitoring progress, it is well worth the effort. This is also where
performance standards should be set so that performance may be measured and leadership can
make adjustments as needed to ensure success. Evaluation and control consists of the following
steps:
i) Define parameters to be measured
ii) Define target values for those parameters
iii) Perform measurements
iv) Compare measured results to the pre-defined standard
v) Make necessary changes

 MBO (Management by Objectives)

In the present changing, old techniques of management don’t give better results. The expansions
of business and changes in technologies have necessitated a new thinking in managerial
approach.

The term MBO developed by Peter Ducker who emphasizes that performance of each job
should be directed towards the achievement of whole business objectives. MBO is known by
the names management by motivated, management by the results etc.

Definition of MBO
According to George S.Odinome “The system of management by objectives can be described
as a process whereby the superior and subordinate managers of an organization jointly identify
its common goal defines each individuals majors area of responsibility in the terms of results
expected of him and use these measures as guide for operating the unit and assessing the
contribution of each its member”.

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 According to Koontz and O’Donnell “MBO is comprehensive managerial system that integrates
many key managerial activities in a systematic manner, consciously directed towards the
effective and efficient achievement of organizational goals”.

Features of MBO
 MBO focuses on goals and their achievement. They are not merely the organizational goals
but also the personal goals of the managers and the employees.
 MBO recognized the fact that the goal setting and achievement process is cooperative and
participation of endeavor.
 MBO tries to relate the long terms goals of the organization with the short terms goals,
overall system goals and goals of various sub-systems and with the organizational goals of
the society.
 MBO aims at a radical realignment of relations between superior and subordinate managers.
Superior managers are required to adopt a supportive simulative role in relation to their
subordinate.
 MBO places emphasis is not merely on goals, but on effective performance and tangible
result also.
 The technique of MBO establishes a company of interest and a shared sense of vision among
all the managers.
 Effective management of organization is possible when managers at all level have required
authority, responsibility and accountability for getting done and for producing result.

Advantages of MBO

MBO is a technique for improving managerial as well as organizational performance. When an

organization is managed by objectives it becomes performance oriented. MBO has following:

a. Self Control

By setting clear cut and verified goals, the individual is given the chance of controlling his own
performance. He has the freedom to notice his own activities.

b. Clearer Objectives

Participation increases commitment. Additionally, it also results in setting objectives. MBO

produce clear performance goals. When the individual who must accomplish certain goals
participates in their developments, he often brings to those goals a measure of realism the others
fails to provide.

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 c. Better Morale

MBO has morale building capabilities, because participative goal setting enlist the cooperation
of subordinates. Having voice in the setting of their own goals enhances their eagerness to meet
goals. The subordinates are also allowed to act upon their own initiative in deciding upon the
way of achieving their goals.

d. Improve Performance Appraisal

Performance appraisals are based on an objective, impartial evaluation of employee performance

against preset verified objective. The element of subjectively, bias and partiality is totally
eliminated.

Limitations of MBO

A number of problems are confirmed while implementing this technique. Some of the limitations
of MBO are discussed as under:

 The main emphasis of MBO techniques is on setting objectives. The setting of objectives is
not a simple thing. It requires a lot of information arriving at a conclusion.
 MBO focuses on the short term goals. The long and quantitative objectives are not given
proper attention. A business should gives adequate attention towards long term planning as
well as short term planning.
 The success of MBO will depend upon the effectiveness of feedback system. If information
is not properly conveyed to various levels then effectiveness of MBO will be less. The
communication system should be essential both the ways, only them it can guarantee the
success of MBO.
 There is a danger of rigidity in MBO technique. The managers will not take to make change
in their objectives once they start working them. The change in circumstances will
necessitate a change in objectives too. The system should be rigidity followed.

Stages of MBO (Management by Objectives) Process

MBO or management by objectives is defined as a comprehensive managerial system that
integrates many key managerial activities in a systematic process and that is consciously directed
toward the effective and efficient achievement of organizational and individual objectives.

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The practical importance of objectives in management can best be seen by summarizing how
successful managing by objectives works in practice.

The 6 steps of the MBO process are;

1. Define organizational goals

2. Define employees objectives
3. Continuous monitoring performance and progress
4. Performance evaluation
5. Providing feedback
6. Performance appraisal

Let’s briefly look at each of these;

1. Define Organizational Goals
Goals are critical issues to organizational effectiveness, and they serve a number of purposes.
Organizations can also have several different kinds of goals, all of which must be
appropriately managed.
And a number of different kinds of managers must be involved in setting goals. The goals set
by the superiors are preliminary, based on an analysis and judgment as to what can and what
should be accomplished by the organization within a certain period.
2. Define Employees Objectives
After making sure that employees’ managers have informed of pertinent general objectives,
strategies and planning premises, the manager can then proceed to work with employees in
setting their objectives. The manager asks what goals the employees believe they can
accomplish in what time period, and with what resources. They will then discuss some
preliminary thoughts
3. Continuous Monitoring Performance and Progress
MBO process is not only essential for making line managers in business organizations more
effective but also equally important for monitoring the performance and progress of
employees.
For monitoring performance and progress the followings are required;

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  Identifying ineffective programs by comparing performance with pre-established
objectives,
 Using zero-based budgeting,
 Applying MBO concepts for measuring individual and plans,
 Preparing long and short-range objectives and plans,
 Installing effective controls, and
 Designing a sound organizational structure with clear, responsibilities and decision-
making authority at the appropriate level.

4. Performance Evaluation
Under this MBO process performance review are made by the participation of the concerned
managers.
5. Providing Feedback
The filial ingredients in an MBO program are continuous feedback on performance and goals
that allow individuals to monitor and correct their own actions.
This continuous feedback is supplemented by periodic formal appraisal meetings which
superiors and subordinates can review progress toward goals, which lead to further feedback.
6. Performance Appraisal
Performance appraisals are a regular review of employee performance within organizations. It
is done at the last stage of the MBO process.

 Decision Making

A decision is a choice from two or more alternatives. Making good decisions is something that
every manager should have. Decisions have a major influence in organizational success or
failure. Top-level managers make decisions about their organization's goals, middle and lower-
level managers make decisions about setting production schedules, handling problems and
employee hiring and firing.

DECISION-MAKINGPROCESS

Decision making process is a set of eight steps that are following:

Step 1: Identifying a problem

The decision-making process begins with the existence of a problem. A problem is a

discrepancy between an existing and a desired state of affairs.

Step 2: Identifying Decision criteria

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 Once a manager has identified a problem that needs attention, the decision criteria
important to resolving the problem must be identified. That is, managers must determine
what's relevant in making a decision.

Step 3: Allocating weights to the criteria

The decision maker must weight the items in order to give them the correct priority in the
decision. A simple approach of allocating weights is to give the most important criterion
a weight of 10 and then assign weights to the rest against that standard.

Step 4: Developing alternatives

Then the decision maker should list the variable alternatives that could resolve the
problem. In this step the manager doesn't has to evaluate the alternatives. He only has to
list out them.

Step 5: Analyzing alternatives

Once the alternatives have been identified, the decision maker must critically analyze
each one. Each alternative is evaluated by appraising it against the criteria established.
From his comparison, the strengths and weaknesses of each alternative become evident.

Step 6: Selecting an alternative

The sixth step is the important act of choosing the best alternative from among those
considered. We have determined all the pertinent criteria in the decision, weighted them,
and identified and analyzed viable alternatives. Now we merely have to choose the
alternatives that generated the highest score in previous step.

Step 7: Implementing the alternative

Although the choice process is completed in the previous step, the decision may still fall
if it isn't implemented properly.

Implementation involves conveying the decision to those affected by it and getting

their commitment to it.

Step 8: Evaluating decision effectiveness

The last step in decision-making process involves appraising the outcome of the decision
see if the problem has been resolved. Did the alternative chosen and implemented
accomplish the desired results?

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 If the problem still exists then the manager would need to carefully assess what went
wrong. Was the problem incorrectly defined? Were errors made in the evaluation of the
various alternatives? Was the right alternative selected but poorly implemented. It might
even require starting the whole decision process over.

DECISION-MAKINGSTYLES

Four decision making styles are evident: directive, analytical, conceptual and behavioral.

 Directive style. People using the directive style have tolerance for ambiguity and are
rational in their way of thinking. They're efficient and logical. Directive types make fast
decision and focus on the short run. Their efficiency and speed in making decisions often
results in their making decisions with minimal information and assessing few
alternatives.

 Analytical style. Decision makers with an analytical stylehave much greater tolerance for
ambiguity than do directive types. They want more information before making a decision
and consider more alternatives than a directive-style decision maker does. Analytical
decision makers are best characterized careful decision makers with the ability to adopt
or cope with unique situations.

 Conceptual style. Individuals with conceptual style tend to be very broad in their outlook
and will look at many alternatives. They focus on the long run and are very good at
finding creative solutions to problems.

 Behavioral style. Decision makers with behavioral style work well with others. They're
concerned about the achievements of subordinates and are receptive to suggestions from
others. They often use meetings to communicate, although they try to avoid conflicts.

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 Programmed Decision and Non-Programmed Decision Explained

Programmed decision and Non-Programmed decision are the two basic types of decisions that
managers make. This depends on their authority, responsibility and position in organizational
decision making structure.
Definition, similarities and differences of Programmed Decision and Non-Programmed Decision
are explained below;
Programmed Decision

Programmed decisions are those that are traditionally made using standard operating procedures
or other well-defined methods. These are routines that deal with frequently occurring situations,
such as requests for leaves of absence by employees.
In routine situations, it is usually much more desirable for managers to use programmed decision
than to make a new decision for each similar situation.
In programmed decisions managers make a real decision only once, when the program is created.
Subsequently, the program itself specifies procedures to follow when similar circumstances
arise.
The creation of these routines results in the formulation of rules, procedures, and policies.
Programmed decisions do not necessarily remain confined to simple issues, such as vacation
policies or similar such things; they are also used to deal with very complex issues, such as the
types of tests that a doctor needs to conduct before performing a major surgery on a patient with
diabetes.

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To summarize; programmed decisions features are;

 Programmed decisions made using standard operating procedures.

 Deals with frequently occurring situations. (Such as requests for leaves of absence by
employees)
 Much more appropriate for managers to use programmed decision for similar and frequent
situations.
 In programmed decisions managers make a real decision only once and program itself
specifies procedures to follow when similar circumstances arise.
 Leads to the formulation of rules, procedures, and policies.

Non-Programmed Decision
 Non-programmed decisions are unique. They are often ill-structured, one-shot decisions.
Traditionally they have been handled by techniques such as judgment, intuition, and
creativity.
 More recently decision makers have turned to heuristic problem-solving approaches in
which logic; common sense and trial and error are used to deal with problems that are too
large or too complex to be solved through quantitative or computerized approaches.
 In fact, many management training programs on decision-making are designed to help
managers think through problems using a logical, non-programmed approach. In this way
they learn how to deal with extraordinary, unexpected, and unique problems.
Non-programmed decision features are;

 Situations for Non-programmed decisions are unique, ill-structured.

 Non-programmed decisions are one-shot decisions.
 Handled by techniques such as judgment, intuition, and creativity.
 A logical approach to deal with extraordinary, unexpected, and unique problems.
 Managers take heuristic problem-solving approaches in which logic; common sense and trial
and error are used.

Similarities of Programmed Decision & Non-Programmed Decision

 Both are Required to run operations of Business efficiently.

 Complements each other in setting goals and managing resources of the organization.

Differences of Programmed Decision & Non-Programmed Decision

Programmed Decision Non-Programmed Decision
Used for frequent situations of organization; both Used for unique and ill-structured situations of

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internal and external. organization; both internal and external.
Mostly Lower level managers are making these Mostly Upper-level managers are making these
decisions. decisions.
Follows structured and non-creative patterns. Takes an out side of the box unstructured, logical
and creative approach.
Programmed decisions usually relate to structured problems while non-programmed decisions
are taken to solve unstructured problems.
It is also to be noted that the programmed decisions are taken at the lowest level whereas the
non-programmed decisions are taken at the highest level of organization hierarchy.

 Different Techniques in Group Decision-Making

1. Decision Tree:
This is an interesting technique used for analysis of a decision. A decision tree is a sophisticated
mathematical tool that enables a decision-maker to consider various alternative courses of action
and select the best alternative. A decision tree is a graphical representation of alternative courses
of action and the possible outcomes and risks associated with each action.

In this technique, the decision-maker traces the optimum path through the tree diagram. In the
tree diagram the base, known as the ‘decision point,’ is represented by a square. Two or more
chance events follow from the decision point. A chance event is represented by a circle and
constitutes a branch of the decision tree. Every chance event produces two or more possible
outcomes leading to subsequent decision points.

The decision tree can be illustrated with an example. If a firm expects an increase in the demand
for its products, it can consider two alternative courses of action to meet the increased demand:
(a) Installing new machines,

(b) Introducing a double shift.

There are two possibilities for each alternative, i.e. output may increase (positive state) or fall
(negative state). The probabilities associated with each state are taken as 0.6 and 0.4 respectively.
This information can be presented in a tabular form, known as a pay-off matrix (see Table 13.2).

Additional machines
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= (Rs. 3,00,000 × 0.6) + (Rs. 2,00,000 × 0.4)

= Rs. 2,60,000

Double shift

= (Rs. 2,80,000 × 0.6) + (Rs. 2,40,000 × 0.4)

= Rs. 2,64,000

Since the pay-off from introducing a double shift is higher, it may be selected. Though, the
decision tree does not provide a solution to the decision-maker, it helps in decision-making by
showing the alternatives available and their probabilities.

The decision tree allows the decision-maker to see the application of most of the steps in the
decision-making process in one single diagram. The effectiveness of this decision-making
technique depends on the assumptions and the probability estimates made by the decision-maker.

2. Brainstorming
Brainstorming is a popular group decision-making technique that is used for generating ideas. In
brainstorming, the leader of the session presents a problem or question, clarifies the rules of the
session and then the group offers ideas in a round-robin format. Ideas are written down so that
every member can see them. Brainstorming does not solve the problem but helps generate
creative ideas. As a result, quantity of ideas counts and members do not criticize ideas. To be
successful, the leader of a brainstorming session must understand the problem and be able to
create a relaxed and creative air.
3. Nominal Group Technique
This group decision-making technique is used to identify problems or to evaluate alternatives. In
this technique, members of the group spend five to 10 minutes writing their ideas without
discussion. Then, they report their ideas individually. Ideas are written on a flip chart, and

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individuals try to add to the ideas. In the next phase, group members vote or rank the ideas
privately. With private voting, strong members of the group can not affect the results. After
voting, the group discusses results and generates more ideas. The idea generation, voting and
discussion cycle can continue until a satisfactory decision is reached.
4. Delphi Method
The Delphi method helps the group reach consensus without the influence of strong members of
the group and the tendency to rush for a decision at the end of a meeting. It is a structured variant
of the traditional expert polls and is usually used in forecasting. In this method, a questionnaire is
mailed to a group of experts; administrators aggregate the results and send a second
questionnaire with the results of the first round. Several rounds of questionnaires and feedbacks
help respondents reach consensus on the debated issue. The administrators of the Delphi method
make a decision based on the results of the rounds.
5. Dialectical Inquiry
The dialectical inquiry ensures that decision-makers consider all alternatives and opposing views
in decision-making. Groups of people debate their opposing views in the presence of the
decision-maker. The devil’s advocate method is a related approach in which a member of the
group deliberately criticizes the favored decision. This helps managers make an informed
decision.
6. Consensus Mapping
A consensus map reflects the policy agreed on by a professional staff and targets those specific
areas in each discipline and across disciplines that are to be addressed with consistency and
flexibility in a school or a district. The result of this professional decision is a consensus map.
7. Synectics
Synectics is a way to approach creativity and problem-solving in a rational way. ... The creative
process can be described and taught; Invention processes in arts and sciences are analogous and
are driven by the same "psychic" processes; Individual and group creativity are analogous.

Approaches managers can use to make decisions

1. Rational Decisions
- We assume that the manager’s decision making will be rational…
- It means that manager will make logical and consistent choices to maximize
value. After all managers have all sorts of tools and techniques to help them be
rational decision makers.
- The rational assumptions are as follows :
- A rational decision maker would be fully objective and logical.
- Problem faced would be clear, unambiguous ( clear )
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 - Decision maker would have a clear and specific goal to be achieved
- Know all possible alternatives and consequences
- Final choice are made in the best interests of the organization.
2. Bounded rationality
- Managers make rational decisions but are bounded ( limitated ) by their ability
to process information.
- Managers satisfice in which decision makers accept solutions that are good enough.

3. Intuitive Decision making

- Making decisions based on experience, feelings and accumulated judgement

1. Experienced based decisions – managers make decisions based on their
experience Affect initiated decisions – managers make decisions based on
feelings or emotions
2. Cognitive based decisions – managers make decisions based on skills, knowledge
3. Subconscious mental processing- use data from subconscious mind
4. Values or Ethics based decision – make decisions based on ethical values or cultures.

 GROUP DECISION MAKING

The Group Decision Making is the collective activity wherein several persons interact
simultaneously to find out the solution to a given statement of a problem. In other words, group
decision making is a participatory process wherein multiple individuals work together to
analyze the problem and find out the optimum solution out of the available set of alternatives.

There are several advantages to group decision making:

- Group decisions provide more complete information than do individual ones.

- A group will bring a diversity of experience and perspectives to the decision

process that an individual, acting alone, cannot.

- Groups also generate more alternatives, because of a greater quantity and

diversity of information.

- Group decision making increases acceptance of a solution. If those who will be

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 affected by a solution and who must implement it can participate in making it, they
will be more likely to accept the solution.

- Since group decision-making is consistent with democratic ideals, decisions made by

groups are perceived as being more legitimate than decisions made by a single person.

There are several disadvantages to group decision making :

- Group decisions are time consuming, and groups almost always take more time
to make a decision than an individual would take.

- There may also be minority group domination, because group members will differ in
many ways: for example, status in the organization, experience, verbal skills, or
assertiveness.

- A minority group that dominates the group decision-making process will have an
undue influence on the final decision. Another problem focuses on the pressures to
conform in groups.

- This pressure can result in groupthink—group members withhold deviant, minority,

or unpopular views in order to give the appearance of agreement.
- Finally, there is ambiguous responsibility. Since group members share
responsibility, who is actually responsible for the final outcome?

 Creativity and Innovation

Definition of Creativity

Creativity is the characteristic of a person to generate new ideas, alternatives, solutions, and
possibilities in a unique and different way.

Creativity is the ability to conceive something unpredictable, original and unique. It must be
expressive, exciting and imaginative. It is the mirror of how beautifully a person can think in any
given circumstance.

Definition of Innovation

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Innovation is an act of application of new ideas to which creates some value for the business
organization, government, and society as well. Better and smarter way of doing anything is
innovation. It could be the introduction of:

 New technology.
 New product line or segment.
 A new method of production.
 An improvement in the existing product

 Steps in the Creative Process Model

Creativity does not just happen. It is a cognitive process that produces new ideas or transforms
old ideas into updated concepts, according to Brussels Free University psychology professor
Liane Gabora. Scientists such as Jacques Hadamard and Henri Poincaré studied the creative
process and contributed to the Creative Process Model, which explains how an individual can
form seemingly random thoughts into an ideal combination or solution, according to the website
The Information Philosopher.
Preparation
During the preparation step of the creative process model, an individual becomes curious after
encountering a problem. Examples of problems can include an artistic challenge or an
assignment to write a paper. During this stage, she may perform research, creates goals, organize
thoughts and brainstorm as different ideas formulate. For example, a marketing professional may
prepare for a marketing campaign by conducting market research and formulating different
advertisement ideas.
Incubation
While the individual begins to process her ideas, she begins to synthesize them using her
imagination and begins to construct a creation. Gabora states that during this step, the individual
does not actively try a find a solution, but continues to mull over the idea in the back of her head.
Illumination
As ideas begin to mature, the individual has an epiphany regarding how to piece her thoughts
together in a manner that makes sense. The moment of illumination can happen unexpectedly.
For example, an individual with the task of putting together an office party may have an idea for
a theme while driving home from work.
Evaluation
After a solution reveals itself in an epiphany, the individual then evaluates whether the insight is
worth the pursuit. He may make changes to his solution so it is clearer. He may consult with

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peers or supervisors regarding his insights during this step before pursuing it further. If he works
with clients, he may seek a client’s input and approval before moving on to the next step.
Implementation
The implementation of an idea or solution in the creative process model is when an individual
begins the process of transforming her thoughts into a final product. For example, during this
step, a painter may begin outlining shapes on a canvas with charcoal before applying oil paints to
the medium. According to Gabora, an individual may begin this step more than once in order to
reach the desired outcome. For example, a graphic designer may open a new digital canvas if he
did not have the scale calculated correctly on a previous work, and he will continue to implement
his ideas and make adjustments until he reaches a pleasing final product

 Methods to evaluate Alternatives

a) Cost Analysis (Break-Even Analysis):
Managers want to make money. The objective of the break-even analysis is to decide the
optimum break-even point, that is, where profits will be highest. In making decisions, managers
must pay a great deal of attention to the profit opportunities of alternative courses of action. This
obviously requires that the cost implications of those alternatives are assessed. An important
aspect of such cost analysis is that made between fixed and variable costs

b) Linear Programming:
Linear programming is a quantitative technique used to determine the optimal mix of limited
resources for maximizing profits or minimizing costs. Linear programming is an extension of
break-even analysis that is very useful in analyzing complex problems. Linear programming
involves the solution of linear equations and is appropriate when the manager must allocate
scarce resources to competing projects.

c) Capital Budgeting:
A manager relies heavily on linear programming when he allocates resources to competing
projects. Similarly Capital budgeting provides a set of techniques a manager can use to evaluate
the relative attractiveness of various projects in which a lump payment is made to generate a
stream of earnings over a future period.

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Examples of capita! budgeting projects include an investment in a new machine that will
increase future profits by reducing costs, an investment of a sum of money into an advertising
campaign to increase future sales (and profits) etc.

d) Inventory Management:
In quest to make money, a manager should employ his resources as efficiently as possible.
Inventory management involves determining and controlling the amount of raw material an
organization should keep in stock to operate effectively and efficiently.

Efficient management of inventory requires balancing several conflicting goals. The first goal is
10 Keep inventories as small as possible to minimize the amount of warehouse space and the
amount of money tied up in inventories.

e) Expected Value:
To understand expected value model, it is important to comprehend the concept of probability
which refers to the likelihood that an event will happen. Mathematically, probability is expressed
as a fraction or percentage.

For example, there is a 30% (or 0.3) probability that it will rain tomorrow. Probabilities may be
established empirically, by observing some phenomenon over time. When several courses of
action are available and the outcome of each is uncertain, the decision maker can use
probabilities to select his final choice.

f) Queuing or Waiting Line Theory:

Queuing theory is an O.R. technique which aids the manager in making decisions involving the
establishment of service facilities to meet irregular demands. Cost problems arise when there are
more service facilities available than are needed, or when too few facilities are available and
consequently, long waiting lines form.

For example, in a battery of machines, breakdowns will occur randomly, and whenever the
maintenance service falls below that demanded by the breakdowns, a waiting line of unrepaired
machines forms. This idle capacity is a cost that has to be balanced against the costs of keeping
maintenance services available.

B. Kepner – Tregoe Matrix Method

It is a special and well orchestrated, and synchronized and documented root cause analysis and
decision making method.

It is a conscious, step by step approach for systematic solving problems, making good decisions,
and analyzing potential risk and opportunities. It helps maximize critical thinking skills,
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systematically organize and prioritize information, set objectives, evaluate alternatives, and
analyze impact.

The method has following steps to approach decision analysis

8. Prepare a decision statement having both an action and a result component.

9. Establish strategic requirements (Musts), Operational Objectives (Wants) and

restraints(Limits)

10. Rank Objectives and assign relative weights.

11. Generate alternatives.

12. Assign a relative score for each alternative on an objective- by – objective basis.

13. Calculate weighted score for each alternative on each criterion.

14. Select the alternative with the highest total weighted score

C. Cost-Benefit Analysis:

Cost-benefit analysis is a mathematical technique for decision-making. It is a quantitative

technique used to evaluate the economic costs and the social benefits associated with a particular
course of action. In this technique, an effort is made to identify all costs and benefits, not only
those that may be expressed in rupees, but also the less easily calculated effects of a given
decision.

In general, this technique (which is fairly complicated) is advocated for use in decisions on
public projects, in which social costs and social benefits as well as actual out-of-pocket costs
should be taken into account. What counts as a benefit or loss to one part of the economy—to
one or more persons or groups- does not necessarily count as a benefit or loss to the economy as
a whole.

 Vrooms’s Decision Making Model

The Vroom-Jago decision model is a rational model used by leaders to determine whether
they should make a decision alone or involve a group, and to what extent the group
should be involved.

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This method was first proposed by Vroom and Yetton in 1973 and was later modified by
Vroom and Jago in 1988. Subsequent studies have shown that the greater precision in
situational assessment of the Vroom-Jago decision model allows for better discrimination
in choosing a process.

In some business situations it's better for a leader to be the decision maker for the group.
In others, it's best for the group to have some input or even make the decision. This
model distinguishes five different situations and outlines an algorithm for determining
which one to use.

Participative decision styles

1. Decide
You, the decision maker, use the information available to make the decision
yourself.

2. Consult Individuals
You request information from members of your team. They may or may not
know why you want such information. They neither define the situation,
alternatives or final choice.
3. Consult Group
You explain the situation to the individual members of the group but they
do not get together as a group. You make the final decision.
4. Facilitator
There is group discussion where you explain the situation and gather ideas
and suggestions. Again, you're responsible for the final decision making
5. Delegate
The group as a whole make the decision. You as the leader present the
situation and the group defines alternatives and reaches a consensus
decision. The leader acts more as a facilitator in this process and allows the
group to agree on the final choice.

The Vroom-Jago decision model uses a series of seven questions, asked in order, to
determine which of these five processes to use. This is a somewhat prescriptive process
and allows you to move through the diagram below. On reaching the right -hand side, the
indicated process is the most appropriate for your situation.

7 QUESTIONS THAT DETERMINE THE APPROPRIATE PARTICIPATIVE DECISION

STYLES
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1. Is high quality important here or is a good solution absolutely critical? (is this a case
where it would not be acceptable having lots of equal alternatives?)
2. As the leader, do you have enough information of your own to make a good decision?
3. Is the problem structured in that it is clearly defined, organized and has recognized
solutions?
4. Do the members of the group have to accept this decision for it to work?
5. If you make this decision yourself, are you sure the group will accept it?
6. Are the group members aligned with the same goals that you are trying to achieve?
7. Is disagreement likely among group members in reaching a decision?

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