Chapter 2 Palnning

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Management and

Entrepreneurship

Subject Code:06AL51


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Chapter 2

PLANNING

Successful managers deal with

foreseen problems and unsuccessfulmanagers struggle with unforeseenproblems.Terry


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Goal inputs of claimants

1. Employees

2. Consumers3. Suppliers

4. Stock

holders

5.Governments6.Community

7. Other

Inputs1.Human2.Capital3.Managerial4.Technologica

l

EXTER

NAL

ENVIRON

MENT

EXTERNALENVIRONMENT

EXTERNALENVIRONMENT

Managerial Knowledge,Goals of claimants anduse of inputs(Part1 TheBasis of Management

Theory and Science)

PLANNING (Part2)

Organizing (Part3)

Staffing (Part 4)

Leading (Part 5)

Controlling (Part6)

Toproduce outputs

Facilitated bycommunicatio

n that alsolink the

organizationwith theexternal

environment(Part 1 & 7.

Domestic andinternal

environment)

Reenergizing the

systemEXTERNA

L

ENVIRONMENT

SYSTEM APPROACH TO MANAGEMENT


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Agenda

Nature of planning

Importance & Purpose of Planning

Objectives Types of Plans

Decision Making

Steps in Planning

Planning premises

Hierarchy of plans


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Objectives

To provide the students with an overview ofplanning process in organizations.

To give a snapshot of various plans that aregenerally put to use in organizations.

To provide an insight into the decision makingprocess and the various types of decisions.

To enable students understand the decision makingprocess under states of certainty, risk anduncertainty.


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What is Planning?

Deciding in advance what to do, how to do it ,

when to do it and who to do it.

A forecast for accomplishment. Predetermined course of action.

To produce a scheme for future action and to bring

about specified results at a specified cost in aspecified period of time.


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Definition Defined in to directions by management thinkers.

Based on futurity

As an intellectual function

Based on futurity: Planning is a trap laid down to capture the future (Allen)

Deciding in advance what is to be done in future (Koontz)

Informed anticipation of future(Haimann)

Anticipatory decision making (R L Ackoff)


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Definition

As an intelligence function:

Planning is a thinking process, an organized foresight,

a vision based on fact and experience that is requiredfor intelligent action(Alford & Beatty)

Deciding in advance what to do, how to do it, when to

do it and who is to do it (Koontz & O Donnell)

Planning focuses on future and it involves all theactivities that determine objectives for the future and the

appropriate means for achieving those

objectives. Outcome of planning is a plan, which is a

document that specifies the course of action theorganization will take.


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Nature of Planning

Provides basic foundation from which all future

management functions arise.

Goal oriented All pervasive

Intellectual exercise

Continuous process Futuristic

Integrated Process


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Planning- A bridge

Where we are Where we want tobe

Planning


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Importance of Planning

Provides direction

Creates a unifying frame work

Leads to economical utilization of resources

Reduces the risks of uncertainty

Facilitates decision making

Encourages Innovation & Creativity

Improves morale

Facilitates control


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Planning & Control Siamese

Twins

Planning Implementation of Plans

Controlling:

comparingplans with

results

Corrective

action

No undesirable

deviations fromplans

Undesirable

deviations


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Types of Plans

Long range Vs Short range

Strategic Vs Operational

Corporate Vs Functional

Proactive Vs Reactive

Standing Vs Single Use


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Long range Vs Short rangeLong range plan Point of

distinctionShort range plan

Covers many years &affects many departmentsof an organization

Meaning Covers less than one yearand is more specific &detail

5 yrs or more Time Up to one year

Organizations linkage withexternal factors

Primaryfocus

Linkage with various partsof an organization

Mission ,long term goalsand strategies

Deals with Current operations oforganization

Top management Prepared by Lower level executives


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Corporate Vs Functional Corporate Plan:

A comprehensive plan that outlines the broad objectivesof a company as a whole and develops plans to achievethose objectives

Holistic and Unified focus Focus on organizational performance

Functional Plan:

Is unit planning and deals with different departments inan isolated manner.

Focus on departmental performance


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Proactive Vs Reactive

Proactive Planning:

Managers challenge the future, anticipating

future contingencies and get ready withalternative routes for unforeseen circumstances

Reactive Planning:

Organizations react to events as and when theyarise


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Standing Vs Single Use

Standing Plans

Developed for

activities tat recurregularly over a

period of time

Ex:

Objectives, Policies,

Procedures, Methods,

Rules

Single Use plans

Developed to carry

out a course ofaction that is notlikely to berepeated in future

Ex: Programmes,Schedules, Projects,Budgets


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Hierarchy of Plans

Purpose

or Mission

Procedures

Strategies

Policies: Major or Minor

Rules

Objectives

Programs: Major or minor and supporting

Budgets: numberized programs


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Purposes/ Mission Terms used interchangeably

Identifies basic function or task of an enterprise or any

part of it.

Ex:

Business : production and distribution of goods

State highway dept:design,building and operation of

a system of state highwaysUniversity:Teaching & Consultancy

Court : Interpretation of laws and their applications.


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Purpose Vs Mission Business:

Purpose is to produce goods and services.

Mission : Producing certain line of products.

Ex:Du Pont : Better things through chemistry

Hallmark: The social expression business


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Objectives / Goals

Ends toward which the activity is aimed.

Results to be achieved

Endpoint of planning Clash of objectives amongst departments

Ex: objective of a business is to make a certain profit by

producing a given line of home entertainmentequipment,while the goal of the manufacturing dept isto produce required no. of tvs of given design andquality at a given cost.


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Characteristics of Objectives

Are multiple in number

Either tangible or intangible Have a priority

Arranged in a hierarchy

Some time clash with each other


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Requirements of Sound Objectives

Must be both clear and acceptable

Support one another Precise and measurable

Should always remain valid


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Advantages of Objectives

Basis for planning

Act as motivators

Eliminate haphazard action Facilitates coordinated behavior

Basis for managerial control

Facilitate better management

Lessen misunderstanding& conflict

Provide legitimacy


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Relationship of objectives and the

organizational Hierarchy

1. Socio-

economic

purpose

3. Overall objectives of the

organization (long-rage,

strategic)

4. More specific overall objectives

(e.g, in key result areas

5. Division objectives

2. Mission

6. Department and Unit objectives

7. Individual objectives

Performance

Personal development objectives

Board of

directors

Top-level

management

Middle levelmanagers

Lower-level

managers

(Some)

(Some)

or anizational HierarchHierarch ob ectives


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Strategies

General programs of action and deployment ofresources to attain comprehensive objectives

Determination of long term objectives of anenterprise and the adoption of courses of action andallocation of resources necessary to achieve the

goals. Dont attempt to outline how to accomplish

objectives,but provides a framework for guidingthinking and action

Includes major policies Ex: GMs Strategy:Marketing directly rather than throughdistributors,Concentrating on proprietary products,or havingfull line of autos.


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Vision/Purpose/Mission /Objectives Vision is the dream that management creates for the organizations preferred

future.Ex: Become world leader in health care field in a decade

Purpose is the primary role of the organization defined by the society inwhich it operates

Ex: Hospital-Provide health care

Mission is the unique aim that sets an organization apart from the others of its

typeEx: Hospital to treat heart disorders only

Objectives are the ends( specific targets)toward which enterprise activities areaimed

Ex: Hospital admit certain number of indoor patients


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Policies

General statements which guide in decision making

All policies need not be statements.( practice over a period of

time can be interpreted as policy)

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

Ex: Recruiting only through campus for the post of probationary

officers.


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Procedures

Establish a required method of handling futureactivities.

Guides to action ,rather than thinking

Detail the exact manner in which certain activitiesmust be accomplished.

Procedures and Policies are related

Ex:Company policy of granting vacations, Procedures establishedto implement this policy will provide for scheduling of vacations

with out disrupting the work, determining rates of vacation

pay,spelling out the means for applying vacation


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Rules

Spell out specific required actions or non actions,

allowing no discretion.

Are different from procedures in that they guide action

without specifying a time sequence.

Procedure can be Sequence of rules ,but a rule may or

may not be part of procedure

Ex:

No Smoking is a rule quite unrelated to procedure.


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Programs

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.

-- Ex: Introducing new product in the market

Essential ingredients are : Time phasing, Budgeting

Absence of the above ingredients is a hope.


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Budgets

A statement of expected results expressed in numerical terms.

Referred as numberized program

Expressed in financial terms( Cash flows), labor hours, units ofproduction, etc

Fundamental planning instrument

Control devices


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Steps in PlanningBeing Aware of Opportunity

In light of:

The Market

CompetitionWhat customer want

Our strengths

Our weaknesses

Setting objectives or Goals

Where we want to be and what

we want to accomplish and

when

Considering planning

premises

In what environment internal

or external will our plans

operator?

Identifying Alternatives

What are the most promising

alternatives to accomplishing

our objectives?

Comparing alternatives in light of

goals sought

Which alternative will give us the

best chance of meeting our goals atthe lowest cost and highest profit?

Choosing an Alternative

Selecting the course of action we

will pursue

Formulating supporting plans

Such as plan to

Buy equipment

Buy materials

Hire and train workers

Develop a new product

Numerizing plans by Marking

Budgets

Develop such budgets as:

Volume and price of sales

Operating expenses

Necessary for plans

Expenditures for capital

Equipment


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Planning Premises

Assumptions about the organizations future.

Basis for plan formulation.

Ex: Information pertaining to population trends, Production

costs, material availability, governmental controls. Classification of Planning premises

External & Internal

Quantitative & Qualitative Controllable & Non controllable


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Internal & External Premises

Internal:

Sales forecasts, Policies of the organization., skill sets of the

employees, values of the management, etc External:

General business & economic environment ,Technological

changes, Government policies, population growth, politicalstability, sociological factors, demand for industrys product.


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Quantitative & Qualitative Premises

Quantitative: Measurable characters

Population growth, industry demand, capital and resources

invested in the organization, etc

Qualitative: Not measurable

Political stability, sociological factors, attitudes,

philosophies, etc


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Controllable & Non Controllable

Premises Controllable:

Companys advertising policy, skills of work force,

availability of resources, attitude and behavior of the

management, etc

Non Controllable: Strikes, Wars, natural calamities, emergencies, legislations,etc


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DecisionMaking

Essential part of management

Taking conscious and sub conscious decisions

is every day phenomenon

Permeates all managerial functions Ex: In directing determining the course, deciding the

orders and instructions to be given, providing dynamic

leadership. In controlling laying down of performance standards,

strategic control points, procedure for control


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Meaning of a Decision

Choice between two or more alternatives

Implies three thingsChoosing,

Availability of alternatives,

Having a purpose


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Types of Decisions

Programmed & Non Programmed

Major and Minor

Individual and Group

Simple and Complex


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Programmed and Non

Programmed Decision made in

accordance with somepolicy , procedure or

rule. Repetitive

Ex: Pricing Ordinarycustomers orders.

Salary payments toemployees

Decisions are noveland non repetitive

No cut and dry method

available. Ex: Allocation of

resources in

organizations

What to do about afailing product line


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Major and Minor Decisions

The relative significance of a decision can be

measured in the following ways:

Degree of futurity of decision

Impact of the decision on other functional areas

Recurrence of decisions

Qualitative factors that enter the decision


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Routine and Strategic Decisions

Tactical decisions

Supportive in nature,rather than central

Relate to present

Require littledeliberations

Ex: Deputingemployees to attendconferences

Require lengthydeliberations

Influence theorganization in amajor way

Ex: Changing theproduct line.


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Individual and Group Decisions

Problem is of routine

nature

Analysis is simple

Definite procedures to

deal with problemexists.

Strategic decisions

Influence will beacross the departments

Ex: Dialectic method

Devils advocacy


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Simple and Complex Decisions

Variables to be considered for solving a problem

are less -----Simple decisionEx: When taking decision based on rules

Variables to be considered are many for solving a

problem------Complex decisionEx: When taking decision to arrest the sales

decline.


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Rational Decision Making

1. Recognizing the problem2. Deciding priorities among problems

3. Diagnosing the problem

4. Developing alternative solutions or courses of action

5. Measuring and comparing the consequences of

alternative solutions

6. Converting the decision into effective action and

follow-up of action.


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Flow diagram of Rational

decision making processRecognizing

problems

Decidingpriorities

Diagnozing

the problem

Developing

Alternativesolutions

Measuring andComparing

alternatives

Decisionimplementation

&

follow up


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Recognizing the problem Deviation from past experience

Ex: Employees turnover has grown

Deviation from plan

Ex: Department is exceeding its budget

Other people bringing problems to manager

Ex: Customers complaining about latedeliveries

Competitors out performance Ex: Other companies developing new

processes


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Deciding priorities

Some problems can be solved at the subordinate

level

Some problems can be referred upwards

Some problems can be deferred and allowed to be

solved without any effort Ex: Napoleans 3 week delay in looking at mail


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Diagnosing the Problem

Symptoms of problem can mislead

Careful diagnosis is a pre requisite

Ex: Sales Decline

Reasons could be:

Poor selling procedures, sharp competition,

saturation of old markets

Real reason---Changes in customers demand


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Developingalternative solutions

For every problem there are alternative solutions.

Ex: Manager considering a proposal to raise

production to meet increased demand

Alternatives: build a new plant, buy betterequipment, add extra shift, authorize overtime


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Measuring & Comparing

alternative solutions Involves quality and acceptability of various

alternative solutions.

Quality involves assessing tangible and intangible

out comes

Ex: Calculating the cost of various alternatives

Good industrial relations in a particular area

Industrial Relations Vs Low local taxes


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Measuring& Comparing

alternative solutions Technical matters Quality is important

Ex: Engg., Production

Human matters Acceptability is important

Ex: Working conditions, office layout

Another alternative is Pilot testing


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Converting Decision to Action &

Follow up Translation requires effective communication of

decision to employees in clear and un ambiguous

manner.

Ensure employee acceptance

Ensure employee participationin the

implementation


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Decision Making Models Economic man model

Developed by classical economists

Selects the alternative which gives the maximum

advantage( Rational decision)Gathers complete information

Mentally stores this information completely

Can recall when required

Rank all alternatives on the basis of merits


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Decision Making Models Administrative Man model

Also called bounded rationality model

Proponent---Herbert Simon

No ability to Maximize, but can only

Satisfice

No ideal Alternative

Choose the best alternative amongst the

available alternatives


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Decision Making Models

Social man Model

Developed by classical psychologists

Proponent ----- Freud

Guided by emotions, feelings, social pressures

Unconscious desires guide decision making

Rational decision making is only a myth.


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Environment of decision making

Certainty

Risk

Uncertainty

Turbulence


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Certainty

The decision maker can specify the consequences

of a particular decision.

Ex: Company has to make shipments to manycustomers from various warehouses

Least cost distribution pattern

Variables: Types of transport available, Costs perunit for each type from each source to each

destination , etc


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Risk

Consequences of a particular decision cannot be

specified with certainty but can specified with

known probability values

Alternative evaluation is done by calculating the

expected value of the payoff associated with

alternative

Expected payoff is the sum of the value of eachpossible outcome times its associated probability.


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Uncertainty

Exists when the decision maker does not even know

the probabilities associated with the possible out comes

Identifies possible outcomes and their related payoffs

Criteria used to arrive at decisions are Maximin,

Maximax, Minimax Regret


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Turbulence

Situation where the environment is itself rapidly

changing or uncertain

Decision making under the condition of complete

ignorance

Possible outcomes and their payoffs cannot bedetermined.

Th ti f D i i


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The continuum of Decision-

Making conditions

MANAGERIAL CONTROL

Certainty Risk Uncertainty

High Low

Turbulence


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Web References www.12manage.com

www.cliffsnotes.com

www.swlearning.com

www.gutenburg.org

www.cheathouse.com www.business.com

www.businessmanagement.suite101.com

www.greatmanagement.org www.harehall.co.uk
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Chapter 2 Palnning