PLANNING AND DECISION MAKING

PLANNING:

Dfn: - It is a conscious, systematic process during which decisions are made about the goals and actions which individuals, work groups or organization will pursue in future. According to Robert Kreitner, it is a process for preparing for change and copying with uncertainty by formulating future courses of action.

KEY ELEMENTS OF PLANNING

i. ii.

It is a primary management function. All other functions hinge on planning. Planning is a goal oriented. It is purposeful management and so is planning. It involves the definition of organizational objects. It involves ends and means.

iii.

Planning is a conscious effort. It is a deliberate effort. It is a rational activity. It is an intellectual process. It involves imagination, ingenuity, judgment and utilization of facts.

iv.

Planning involves making a choice.

IMPORTANCE OF PLANNING

1. It acts as a significant integrating force planning interrelates and integrates all the available resources and activities of an organization to accomplish the common objectives. It provides a co-ordinates effort by reducing risks and uncertainties. 2. It helps in the process to decision making. Managers can take quick decision with proper planning. 3. Helps the organization to implement future programs. Once the program is fully planned. It becomes easy for managers to implement such plans/future programs so that all activities of the organization can be conducted in a systematic manner to achieve the common goals of the concern.

4. It keeps the organization up-to-date and competitive. W ith the development of modern technology and changes in the customers needs the manager of today are expected to develop the competitive strength of the organization. Planning can suggest the new methodology, techniques, etc. to keep the company competitive. 5. Helps in providing the economies of large-scale operation by avoiding wastage of important resources. 6. Leads to budgeting, which may lead to budgetary control. 7. Provides for a sense of involvement and team spirit. 8. Helps in the smooth performance of all other functions like organizing, controlling, etc. 9. Helps in achieving the objectives through proper control. 10. Makes the management most efficient and develops individual managers.

PROBLEM/CHALLENGES IN PLANNING

1. Planning is very expensive and time consuming. 2. Planning makes the organizational structure rigid. 3. Planning delays the process of decision-making. 4. Planning cannot ascertain or ensure the certainty of future performance. 5. Planning and its precision are determined only on the basis of assumptions. If the assumptions are not accurate, planning may not be a success. 6. Planning may give only approximate results, not definite assured results. In spite of these limitations, it is always desirable to have planning for desired results.

PRINCIPLES OF PLANNING

The concept of principle; It is a fundamental statement of truth that provides a guide to thought and action, law or conduct, or convention. It establishes a cause-effect relationship between two or more variables. Here below are some of the principles that guide planning as stated by Kountze Harold and ODonnell:-

1. Principle of contribution to objectives: Every plan should positively contribute to the accomplishment of the organizational objectives. 2. Principle of efficiency of plans: Every plan should have a minimal cost. In the planning process, there should be an economical use of individual effort to the achievement of the organizational goals. 3. The primacy of planning: Planning is a primary management function. This principle states that a manager can do nothing without a plan. A plan is a requisite function of management. 4. Planning premises (Assumptions) : In the planning process, a manager should make proper assumptions about the environment. They must be well stated. 5. Principle of policy framework: In the plan, you should generate guidelines or mission statements. A mission statement is a commitment to a certain ethical behavior. 6. Principle of timing: There should be proper timing between the intended and the actual. The planner should develop a strategic perspective with specified time limits e.g. Long term planning, medium-term planning and short-term planning. The time variance should be integrated and interrelated in such a way as to achieve the organizational objectives efficiently and economically. 7. Principle of alternative: The best alternative is one, which contributes most efficiently and effectively to the accomplishment of the desired goals. The planner should therefore consider only the best alternatives.

8. The principle of limiting factors: Those factors that may inhibit the accomplishment of goals and objectives should be well identified. This will enable management to adjust and revise those plans where necessary.

9. Principle of commitment: Managers must be dedicated in fulfillment the plan. They must put in every effort in the realization of the plan. 10. Principle of flexibility: Every plan should be made in such a way that it adjusts and adopts itself to changed circumstances. There must be a high degree of flexibility in every good plan. 11. Principles of Navigational change: The plan should be periodically evaluated so as to access progress. While the plan is being executed, managers should check periodically the events and decisions and if there is any necessity, they should redraw and readjust their plan to achieve the organizational objectives. They should make provision for such change. 12. Principle of competitiveness: In the planning process, the manager has to take in account the strategies of the rival firms. The main aim is to develop a competitive age in the planning process.

THE STAGES OF PLANNING PROCESS

These are various steps in planning. There are as follows: 1. Defining the problem: - The manager has to identify and define the problems/goals, which requires a settlement, or may appear in a future date and which may require proper planning. 2. Establishing objectives: - Every manager should clearly establish the objectives to be achieved by the enterprise. Every person belong to the organization should be familiar with these major objectives, must be clearly stated in realistic or specific terms. They will serve as a guide to action. Objectives must be specific, informative and functional. 3. Establishing the planning premises: - Every plan has to be based on certain carefully considered assumptions and predictions, which are known as planning premises. A business organization has to provide for various environmental factors. Planning premises supply import facts and information

relating to the future, and become of that, they are very significant to the success of planning. 4. Determining alternative course of action: - The next step is to search for and examine alternative courses of action. 5. Evaluating of alternative causes of action: - Every alternative course of action has to be evaluated, and the relative importance of each one of them should be ascertained. Every alternative will have some strong and weak points, which are to be understood in the right perspective. 6. Selecting the course of action: - After analyzing and evaluating the available alternatives, the manager has to select the best course of action. In fact, it is the real point of decision-making. 7. Formulating derivative plans: - Every major plan has to be supported and developed by the preparation of other derivative plans. Within the framework of the basic plan, derivative plans are developed in each area of the business. The breakdown of the primary plan into departmental and section plans will strengthen the plan base of the organization. 8. Participation and follow-up: - Each and every plan has to be communicated and explained in great detailed to subordinates so that they are kept fully informed. It also helps in securing the co-operation and complete participation of the workers in executing the plans. Every plan and program requires good follow-up. It helps in making some adjustments and modifications in the plan if necessary. Continuous follow-up can result in the prospect course of action.

TYPES OF PLANS They are classified into three categories: a. Basis of time; i. Long-term plans for over 10yrs ii. Medium term plans relatively short, 3-6yrs. iii. Short-term plans maximum of 1 year. b. Based on purpose/level of management: i. Strategic planning: - If in the master plan containing policies, mission, vision and setting the general direction of the organization. Usually designed by the top-level management.

ii. Operational/Tactical plans: - It interprets the long-term plans/strategic plans for implementation. It breaks down the long-term objectives into medium term. Its developed by the middle level managers. iii. Functional plans: - They are developed by heads of department for accomplishment of various objectives e.g. production plans, marketing plans and financial plans. It guides individuals in various departments. It is developed to assist the lower level managers. c. Frequency of use: i. Standing plans/multiple plans: - These are plans that are used repeatedly in simultaneous of a similar nature. Objectives, policies, procedures, dont really change. ii. Single use plans (Adhoc Plans): - These are plans that are used once, and then they are discarded once the project has been completed e.g. financial plans/budgets.

PLANNING AND FORECASTING: Planning involves looking into the future, which is also known as forecasting. This is basically a systematic attempt to analyze the future on the basis of certain known facts so as to help the management in its planning decision. In fact, it is the calculation of probable or possible events in future. A person who starts a business should make an assessment of future demand for its products. The person who determines a production program for the next six or 12 months usually base it on some calculation of future demand. To conclude; forecasting means estimation of future events based on the past and present enabling a premise to be made on which plans can be developed, and enabling the right objectives to be chosen.

STEPS IN FORECASTING: The process of forecasting involves the following steps; 1. The manager has to identify the actual problem about which the forecast is to be made. It may be regarding the technological conditions, environmental

factors, selection of persons, locations of site, or mobilizing finance. By doing this, the manager can concentrate and fix the scope of forecasting only on relevant and specific information. 2. Preparation and development of a foundation: - In the light of experience and information, the present set-up and rate of development, the management can prepare and develop a good foundation for the future. 3. Selection and analysis of data: - The manager has to select suitable data to analyze them in the light of past fluctuations. These are various statistical tools, which can be used to analyze data. 4. Estimation of future events: - There are trend studies, which indicate the possible future events. Keeping some provision for margin of error, this trend analysis can be relied upon. Experience, discretion and judgment also help in estimating future events. 5. Comparison of actual results with estimated results: - It is always better and safer to compare the actual results with the estimated results. If there is any major difference between the actual and the estimates, the reason should be investigated. 6. To further, develop the process of forecasting: - With the knowledge gained from experience, the forecasting process has to be constantly improved and refined.

FORECASTING TECHNIQUES These are various techniques of forecasting. Every technique has certain special advantages and contents. Factors to be considered for using the right technique includes; Time, data and records; the degree of accuracy required and cost benefit of the forecasting. These techniques may be either quantitative or qualitative. Time series. Trend analysis. Regression analysis. Economic models; and Extrapolation.

Qualitative techniques include: Delphi method.

Market research method. Panel consensus method. Morphological research method. Visionary forecasts. Historical analogy method, and Relevance tree method.

If the data is not readily available, these qualitative techniques can be used.

Quantitative Techniques 1. Time series analysis: - Time series analysis helps in identifying and explaining any regular or systematic variation in the series of some seasonal data or cyclical trends, which appear every two or three years. Such patterns or pattern changes can be determined by analyzing the past trends over a period of time. The rate of change may be either an increasing or decreasing one. However, this method is useful and possible only when the data for several years are available. At the same time, if there are drastic changes like abnormal increase in sales or a sudden market collapse, such changes cannot be predicted by this technique. In such circumstances, statistical methods like the moving average method, trend projections, or exponential smoothing can be used. 2. Moving average technique: - This is a technique where each point of moving average time series, is the arithmetic or weighted average if a number of consecutive points in the series. Trend projections refer to fitting a trend line to a mathematical equation and projecting it for the future through an equation. Exponential smoothing refers to a type of moving average wherein more weight. All these methods are helpful in production control inventory control etc. 3. Regression analysis: - If two variables are functionally related an understanding of one such variable will help in estimating the other. Such relationships between two variables are analyzed through regression analysis, e.g. sales for the last year the amount spent on advertisement are two such variables. 4. Econometric model: - This refers to a mathematical model for observing the relationship of a number of variables to the companys sales. They are almost

like a set of simultaneous equations. Electronic data processing may be used if there is a large number of an equation to construct economic models. This model helps in understanding various aspects of interrelated problems in quantitative terms.

Qualitative Techniques

5. Delphi method: - This is a simple method of selecting a panel of experts to which questionnaires are given to obtain accurate and complete information. However, the specialty of this method is that the information given/obtained from one questionnaire is used to prepare and weigh another questionnaire, so that comprehensive information through such a series of questionnaires. 6. Market Research method: - Personal interviews, sending questionnaires, etc. are the methods to conduct market research. When a new product has to be made, this method is more useful. 7. Panel consensus: It is the collective ideas and estimates provided by a group of experts who are familiar with the problem. 8. Visionary forecasts: - The intuition, insight, judgment, vision of a person, who is known for this in a particular field may help in forecasting. 9. Historical analogy: - Based on the past records and history of the product, forecasting may be made for new products. 10. Morphological Research method: - The morphological research method concerns itself with the development and the practical applications of basic methods, which will allow us to discover and analyze the structural or morphological interrelations among objects, phenomena and concepts, and explore the results obtained for the construction of a sound model. In this method, with the help of various permutations and combinations, all possible technological alternatives can be derived for a given problem. 11. Relevance tree method: - In this method, the basic objectives and their feasibility are determined first, and then efforts are made to accomplish these things through various technological innovations. This method helps in developing various possible alternatives and the best method of accomplishing a task.

IMPORTANCE OF FORECASTING: -

It helps: 1. In managerial planning by providing key information. 2. Managers to think for the future and to look ahead. 3. In the best utilization of resources through proper direction. 4. In accomplishing the objectives practically and possibly. 5. In minimizing adverse effects and maximizing opportunities. 6. The management to follow a definite course of action. 7. To improve the efficiency of the management process, by developing the mental faculties of the managers, and 8. In co-ordination and effective control.

CHALLENGES/LIMITATIONS OF FORECASTING: Forecasting is: 1. Subject to a degree of error and precision cannot be attained in it. 2. Sometimes based on guesswork which is not fully scientific, and 3. Based on certain assumptions, so there may be some possibility of error.

PLANNING PREMISES These are assumptions taken by management on policy decisions. Planning premises constitute the very basis of planning. Such assumptions are absolutely important so as to make plans more realistic and workable. Managers usually assume that certain entities will behave in a particular manner. Such assumptions are based on institutional as well as systematic prediction. Planning premises provided a framework within which decisions are taken

TYPES OF PREMISES Premises/assumptions may be classified as follows: 1. Internal premises and External premise: - Internal premises are those that can be obtained from internal factors, like sales forecasts, the programs and

policies of the company, competent personnel, skilled labor, etc. External premises are derived from the external environment like political, economic, social and technological forces like population tends income levels, employment levels, government policies, national income, etc. 2. Tangible and intangible premises: - Tangible premises are those, which can be expressed in quantitative terms, money, time, units of production, etc., can be expressed in terms of money. Intangible premises are those, which cannot be measured in quantitative terms. These factors are the good will of a business, public relations, employee morale and motivation. 3. Controllable, semi-controllable and uncontrollable premises: - Factors, which can be controllable, like materials, money and machines, etc., are callable premises. The management has maximum control over its future commitments on these factors. Semi-controllable premises are those assumptions over which the management can exercise only partial control. Labour relations, marketing strategy, etc. are such areas where partial control can be exercised. Non-controllable management has absolutely no control. For instance, war, natural calamities, new discoveries and inventions, etc. 4. Constant and variable premises: - Constant premises are those, which will act in the same manner, irrespective of the course of action taken. These premises are definite, known and clear, for example; men, money and machines. Variables premises are those, which differ in relation to the course of action taken, like union-management relations.

DECISION MAKING AND CONTROL

Dfn; It is the selection from among alternatives of a course of action. It is at the core of planning. The reason why it is crucial is that the manager is making a commitment of resources, direction, or reputation. Decision making therefore was to be done with a lot of thinking. It has to be a rational activity. Decisions are of two types: Strategic and tactical. A strategic decision is a major choice of actions concerning achievement of organizational objectives. Such decisions have a major impact on the organization and contribute to the achievement of organizational objectives.

Whereas tactical or operational decisions are related to the day-to-day operations of the organization, decisions may be taken by an individual in the organization or by a group of persons.

THE DECISION MAKING PROCESS

The following are various phases in the decision-making process. First, one must understand organizational mission and objectives. Managers have to take decisions to achieve the objectives of the organizations.

Decision making process Specific objectives Identification of problems. Search for alternatives Evaluation of alternatives

Results.

Action.

Choice of alternatives.

1. Objectives/Goals: - Decisions have to be taken to achieve a particular objectives/goals of the organization. The manager has to understand first the specific objective of taking the decisions before diagnosing a problem. 2. Problem diagnosis and Analysis: - In any particular situation, in order to take a decision, the problem has to be diagnosed first. Just like a doctor diagnosing a disease before prescribing a drug, a manager has to diagnose the real problem in the situation. For example, if there is a high rate of absenteeism in the organization, the management has to analyze the rate of absenteeism from different perspectives. Whether it is uniform throughout the year or in a particular period of all cadres or only at the lower level, what the reasons are for such absenteeism, etc. The problem has to be analyzed thoroughly. Thus, analysis of the problem is very important: if the problem is diagnosed, half of it is solved.

3. Search for alternatives After diagnosis, the management has to search for alternative solutions. The manager has to consider the limiting factors also. It means that the corporate culture, finance, position etc have to be considered. He has to use several sources for identifying various alternatives; his experience, corporate practices and innovative ideas.

4. Evaluating Alternatives. The management has to evaluate the impact and implementation of all the alternatives. The tangible and intangible factors in implementing the decisions must be studied. Some times the quantitative aspects also have to be considered in evaluating a decision

5. Choosing the best alternative. From the available alternatives, the best alternative has to be selected for implementation. Usually Managers follow three approaches in choosing the best one. These are experience, experimentation, research and analysis. As per the past experience of managers they choose the best available alternative. The second approach ia experimentation, in which the alternative is tested and finalized. In research and analysis, various computer based models are developed and the the best one chosen. Usually the personal values and aspirations of a manager play a major role in choosing the best alternative. 6. Action After choosing the best alternative, it is to be implemented by the managers. It requires organizational support and cooperation at all levels. The effectiveness of the decision depends upon the active cooperation of the staff. 7. Results and feedback. When the best alternative is implemented, its impact has to be examined; managers have to take a follow-up action in the light of the feedback received from the results.

The results are to be verified with the objectives of the organization. If there is any wrong decision, the reasons have to analyzed and the necessary changes incorporated in taking decisions in future. This review helps a lot in taking the right decisions. In the either above, one must be guided by objectives. Planning is a rational exercise and therefore one must have information and the ability to analyze them. One must have a desire to come up with the best solution.

Challenges facing decision making

a) Bounded rationality. People are created rational beings but the reality is that that rationality is limited and varies from one person to another. b) Adverse selection. When an individual is bombarded with a lot of information, the error of selecting the wrong information increases. c) Uncertainty. Decision making is simply bringing the future into today/ now. But the realities are manifested in that particular future, most things might change though not as earlier planned. d). Type A and B errors. Type A errors are those made when one makes a wrong decision by being too strict on a criteria of selecting that project. A possibility of a good objective is rejected because the criteria, used are too stringent.

Type B errors arise when a bad idea is accepted because of a lenient criteria, caused by a bounded rationality.

VARIETIES OF DECISION MAKERS

a)

Procrastinators:

These are people who fail to make decisions. They normally say lets think about it. They tend to lower the morale of the team and can waste time and resources. Organizations that are run by procrastinators have high employee walk-out. They tend to neglect their work and if they do, they do it haphazardly b) . Vacillators They normally switch back and forth in decision making. Like the procrastinators, vacillators also waste time and resources by being off and on. The organization with vacillators have high employee turnover. According to them there is nothing permanent. c). Fence sitters. These are people who dont like taking risks. They remain quiet and neutral until others arrive at a decision that is widely acceptable. d). The impulse decision makers. They make decisions very fast. They are quick decision makers. They rarely take into account information like other peoples feelings and resource constraints. They have a high tendency of wasting resources but the advantage is that they save time in decision-making. e). Pipe smokers. They always think about the problem but they relax and choose to do nothing because they feel most problems will solve themselves. f). Professional decision makers. They conduct a thorough research and connect and connect the facts. They are prone to A type of error.

TYPES OF DECISION MAKING

1). Decision by single individual. These are decisions made by one person in a particular group. This type of decision is normally found in formal organizations where to hierarchy make decisions on behalf of the organization. Charismatic leaders normally make them. 2). Minority decision making.

This is where a few people make decisions on behalf of of a particular group. It is appropriate when a manager wants to influence the majority members into a particular decision. It is also appropriate when majority members believe that minority can do it on their behalf. It is also applicable when minority decision makers are competent. However this type of decision making can fail when the opposite of the above occurs i.e. when the minority is in competent and the majority has a high level of competence.

3). Decisions by experts. This type is appropriate in the following situations: i). during emergencies or crisis. ii). When there is no time for discussions.. iii) .when there is only one person in the group with competence to make decisions. However the single individual decision making is not desirable because the individual will tend to be dictatorial. It depends on charisma, and a times personalities fail.

4). Decision by majority: This involves a broader participation and due scrutiny and thorough participation. The limitation is that the losers become better by the decision otherwise this is one of the best type of decision making. The winners on the other hand usually convince themselves that they are absolutely right in everything.

5). Unanimous/consensus decision making: This happens when there is full participation of all members. Full agreement is researched. The advantage is that it brings in full resources of every member. The problem with this kind of decision making is that it is time-consuming. However, this kind of decision making is effective when: i. All members express their opinion. ii. All members come together as a team.