PLANNING

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UNIT

2

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What is Planning?• Deciding in advance what to do, how to do it ,

when to do it and who has to do it.

• Planning is the pre-selection of objectives

and outlines the action before starting any

business.

• Planning is decision making in advance.

• Choosing the alternatives and making the

decision is called planning.

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Nature of Planning• Goal oriented: Every plan must contribute in some

positive way towards the accomplishment of objectives.

• Primacy of Planning: Planning is the first of the managerial functions

• Efficiency, Economy and Accuracy

• Co-ordination

• Limiting Factors: money, manpower etc

• Flexibility

• Planning is an intellectual process: The quality of planning will vary according to the quality of the mind of the manager.

Importance of Planning

• Provides direction

• Leads to economical utilization of resources

• Reduces the risks

• Facilitates decision making

• Encourages Innovation & Creativity

• Improves morale

• Facilitates control

Planning Process (or)

Steps in Planning

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Being Aware of opportunitiesMarket, competition, Customers, Strengths Weakness

Establishing objectivesWhere we want to be, what to achieve and when

Developing premisesIn what environment ( I & E), scenarios

Determining alternative coursesHow many and which are most promising

Evaluating alternative coursesIn the light of objectives

Selecting a course

Formulating derivative plans

Quantifying plans by budgeting

Steps in planning

1. Being aware of opportunities• All managers should take look at future

opportunities and see them clearly and completely.

• They should know their strengths and weakness, understand what problems they wish to solve and why, and know what they expect to gain.

• Setting realistic objectives depends on(i) About market (ii) About expected competition (iii) What customers wants

2. SETTING OBJECTIVES

• The second step in planning is to establish or set objectives

• Objectives specify the expected results and indicate the end points of

(i) What is to be done (ii) Where the primary emphasis is to be placed (iii) What is to be accomplished by the strategies, policies, procedures, rules, budgets and programs.

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3. DEVELOPING PREMISES

• It is important for all the managers involved in planning to agree on the premises.

• Forecasting is important in premising: What kind of markets will be there? What volume of sales? What prices? What products? What technical developments? What cost? Etc

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4. INDENTIFYING ALTERNATIVE COURSES OF ACTION

• to search and examined alternative

courses of actions.

• The planner must usually make

preliminary examination alternative

courses to accomplish the goal.

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5. EVALUATING ALTERNATIVE COURSES

• After determining alternative courses and examining their strong and weak points, the next step is to evaluate the alternatives.

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6.SELECTING A COURSE

• Selecting an alternative is the real point of decision making. This is the point at which the plan is adopted.

• the manager has to decide one best alternative or several alternative courses of action.

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7.FORMULATING DERIVATIVE PLANS

• The seventh step in planning is formulating derivative plans.

• When a decision is made next step is to formulate a supporting plan, such as to buy equipment, materials, hire and train workers and develop a new product.

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8. Quantifying Plans by Budgeting

• the final step in planning is to quantify them by converting them into budgets.

• The overall budgets of an enterprise represent the sum total of income and expenses with resulting profit.

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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 range

Long range plan Point of

distinction

Short range plan

Covers many years &

affects many

departments of an

organization

Meaning Covers less than one

year and is more

specific & detail

5 yrs or more Time Up to one year

Mission ,long term goals

and strategies

Deals

with

Current operations of

organization

Top management Prepared

by

Lower level executives

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Strategic Vs Operational

Strategic Plan Point of

distinctionOperational Plan

5 years or more Time

horizonUnder one year

Adapt to external

environment based on

internal strengths

Purpose Implement internal goals

Top management Level

involvedMiddle & lower level

Primarily judgmental Basis for

planningExact data & Standards

used

Corporate Vs Functional

• Corporate Plan: – A comprehensive plan that outlines the broad

objectives of a company as a whole and develops plans to achieve those objectives

– Focus on organizational performance

• Functional Plan:– Is unit planning and deals with different

departments.– Focus on departmental performance

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Proactive Vs Reactive

• Proactive Planning:

–Managers challenge the future, anticipating future contingencies

• Reactive Planning:

–Organizations react to events as and when they arise

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Standing Vs Single Use

• Standing Plans

– Developed for activities that recur regularly over a period of time

• Ex:

– Objectives, Policies, Procedures, Methods, Rules

• Single Use plans– Developed to carry

out a course of action that is not likely to be repeated in future

• Ex: – Programmes,

Schedules, Projects, Budgets

Types of Plans – Key Point

• Strategic Plans

–Apply to the entire organization.

• Operational Plans

– Specify the details of how the overall goals are to be achieved.

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Types of Plans – Key Point

• Long-Term Plans– Plans with time frames extending 5 years

• Short-Term Plans– Plans with time frames of one year or less

• Specific Plans– Plans that are clearly defined and leave no room for

interpretation

• Directional Plans– Flexible plans that set out general guidelines and

provide focus,

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Types of Plans – Key Point

• Single-Use Plan

–one-time plan specifically designed to

meet the need of a unique situation.

• Standing Plans

–Ongoing plans that provide guidance

for activities performed repeatedly.

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TYPES OF PLANS/ Hierarchy of Plans

Mission or purposes

Objectives or goals

Strategies

Policies

Procedures

Rules

Programs

Budgets

Mission or purpose

The basic purpose or function or tasks of an enterprise or agency or any part of it

Objectives or goals

The end towards which activity is aimed

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StrategiesThe determination of the basic long term

objectives of an enterprise and the adoption of courses of action and allocation of resources necessary to achieve these goals

PoliciesGeneral statements or understanding

that guide or channel thinking in decision making

Procedures

Plans that establish a required method of handling future activities

Rules

Rules spell out specific required actions or non actions allowing no discretion

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ProgramsA complex of goals, policies, procedures,

rules, task assignments, steps to be taken, resources to be employed, an other elements necessary to carry out a given course of action

BudgetsA statement of expected results

expressed in numerical terms

Cascading of Objectives

Management by Objectives (MBO)

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Management by Objectives (MBO)• Is a method whereby managers and

employees define goals for every department, project, and person and use them to monitor subsequent performance.

4 major activities:1. Set goals

2. Develop action plans

3. Review progress

4. Appraise overall performance

Step 1: Set Goals

Take Corrective Action

Review Progress

Step 3:

Review

Progress

Appraise Performance

Step 4: Appraise Overall Performance

Action Plans

Step 2: Develop Action Plans

• Corporate Strategic Goals• Departmental Goals• Individual Goals

Benefits of MBO Problems with MBO

1. Improvement of

management

1. Danger of inflexibility

2. Performance can be

improved at all company

levels.

2. An environment of poor

employer-employee relations

reduces MBO effectiveness.

3. Employees are motivated. 3. Strategic goals may be

displaced by operational goals.

4. Departmental and

individual goals are

aligned with company

goals.

4. Mechanistic organizations and

values that discourage

participation can harm the

MBO process.

5. Too much paperwork saps

MBO energy.

Strategic Management

The set of managerial decisions and actions that determines the long-run performance of an organization.

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Strategic management process

a six-step process that encompasses strategic planning, implementation, and evaluation.

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FORMATION OF MISSION & OBJECTIVES

SWOT ANALYSIS CONSIDERATION OF

STRATEGIC ALTERNATIVES

EVALUATION AND CONTROL

IMPLEMENTATION CHOICE OF STRATEGY

STRATEGIC MANAGEMENT PROCESS

1.Mission and Goals

• Mission

– a statement of the purpose of an

organization

• Major goals

– the foundation for further planning

• Secondary goals

– Are objectives to be attained that lead to superior performance.

2.SWOT(Identifying Organizational

Opportunities)

a. External Analysis

b. Internal Analysis

Strengths Weaknesses

Opportunities Threats

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a. External Analysis

• Identify strategic opportunities and threatsin the operating environment.

Macroenvironment National

Immediate (Industry)

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b. Internal Analysis

• Identify strengths

– Quality and quantity of resources available

– Distinctive competencies

• Identify weaknesses

– Inadequate resources

– Managerial and organizational deficiencies

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Step 4: Formulating strategies

– Develop and evaluate strategic alternatives

– Select appropriate strategies for all levels in the organization that provide relative advantage over competitors

– Match organizational strengths to environmental opportunities

– Correct weaknesses and guard against threats

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• Step 5: Implementing strategies

– Implementation: effectively fitting organizational structure and activities to the environment.

– The environment dictates the chosen strategy; effective strategy implementation requires an organizational structure matched to its requirements.

• Step 6: Evaluating results

– How effective have strategies been?

– What adjustments, if any, are necessary?

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Strategic Managers for All Levels

Corporate-Level Managers

Oversee development of strategies for whole organization

CEO is principle general manager who consults with other senior executives

Business-Level Managers

Responsible for business unit that provides product/service to particular market

Functional-Managers

Supervise particular function/operation (e.g. marketing, operations, accounting, human resources)

LEVELS OF STRATEGIC MANAGEMENT

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Types of Organizational Strategies

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• Corporate Strategies

– Top management’s overall plan for the entire organization and its strategic business units

• Types of Corporate Strategies

– Growth: expansion into new products and markets

– Stability: maintenance of the status quo

– Renewal: examination of organizational weaknesses that are leading to performance declines

1.Corporate Strategies

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a. Growth Strategy

– Seeking to increase the organization’s businessby expansion into new products and markets.

• Types of Growth Strategies

– Concentration

– Vertical integration

– Horizontal integration

– Diversification

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a. i. Concentration

– Focusing on a primary line of business.

a. ii. Vertical Integration

attempting to gain control of inputs (become a self-supplier).

attempting to gain control of output through control of the distribution channel or provide customer service activities (eliminating intermediaries).

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iii. Horizontal Integration

– Combining operations with another competitor in the same industry to increase competitive strengths and lower competition among industry rivals.

iv. Diversification

– Expanding by combining with firms in different, but related to field of operation

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The BCG Matrix

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• Renewal Strategies(re-establish)

– Developing strategies to counter organization weaknesses that are leading to performance declines.

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2.Competitive Strategies

• Competitive Strategy

– A strategy focused on how an organization will compete in each of its SBUs (strategic business units).

DECISION MAKING PROCESS

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Decisions and Decision Making

• Decision = choice made from available alternatives

• Decision Making = process of identifying problems and opportunities and resolving them

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Six Steps in Decision Making

Figure 7.4

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Decision Making Steps

Step 1. Recognize Need for a Decision• Managers must first realize that a decision must be

made.

Step 2. Generate Alternatives–Managers must develop feasible alternative

courses of action.• If good alternatives are missed, the resulting decision

is poor.

• It is hard to develop creative alternatives, so managers need to look for new ideas.

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Step 3. Evaluate Alternatives

– What are the advantages and disadvantages of each alternative?

– Managers should specify criteria, then evaluate.

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Step 4. Choose Among Alternatives

– Rank the various alternatives and make a decision

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Step 5. Implement Chosen Alternative– Managers must now carry out the alternative.

Step 6. Learn From Feedback– Managers should consider what went right and

wrong with the decision and learn for the future.

– Without feedback, managers do not learn from experience and will repeat the same mistakeover.

CASE Study: Which is Best Cool Drink

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Step 1: Identifying the problem

Step 2: Identification of decision criteria

1) Brand

2) Taste

3) Color

4) Packaging

5) Price

Step 3: Allocation of weights to criteria

Criteria Abhi Bj Amit Too TotalBrand 9 10 10 8 37

Taste 10 8 10 10 38

Color 6 5 7 6 24

Packaging 9 8 6 5 28

Price 8 9 9 8 34

Criteria WeightTaste 10

Brand 9

Price 8

Packaging 6

Color 4

Step 4: Development of alternatives

• Coca Cola

• Sprite

• Pepsi

• Fanta (orange)

• Lipton (ice tea)

• Tipco (fruit juice)

• Ichitan (green tea)

Step 5: Analyzing alternatives

Drink Taste Brand Price Packaging Color

Coca Cola 10 10 7 6 7

Sprite 8 9 8 7 6

Pepsi 9 10 6 8 6

Fanta (Orange) 6 7 8 8 10

Lipton (Ice Tea) 10 9 8 5 5

Tipco (Fuit Juice) 10 9 7 8 8

Ichitan (Green Tea) 10 8 8 6 5

Step 6: Selecting an alternative

Drink

Criteria*Weight

Taste Brand Price Packaging Color Total

Coca Cola 100 90 56 36 28 310

Sprite 80 81 64 42 24 291

Pepsi 90 90 48 48 24 300

Fanta (Orange) 60 63 64 48 40 275

Lipton (Ice Tea) 100 81 64 30 20 295

Tipco (Fuit Juice) 100 81 56 48 32 317

Ichitan(Green Tea) 100 72 64 36 20 292

Step 7: Implementing the decision

Step 8: Evaluating the decision’s effectiveness

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Decision Making Process

A) Define the Problem

B) Consider Your Value:

C) List Your Options

D) Weigh the Consequences:

E) Decide and Act

It is also a powerful strategic planning tool used to evaluate a project in business venture or in an organization or individual requiring a decision in pursuit of an objective

• How to choose a education after +2

CASE STUDY

• Marks

• Interest

• Economy

• Job opportunities

• Family Background

• No of years(3,4,5)

FACTORS

• Palani, Mani and Arun studying in a same school

• They are average students

• Let us take a decision on their future education.

THREE FRIENDS

• Likes adventure and sports

• Hails from poor family

• He had two elder brother who works in their

home town

PALANI

• Mother and Father are teachers

• They desire to make his son to acquire higher

degree

• Mani is interested in vehicles and machines

MANI

• Hails from an average family

• He is good in maths.

• He had a younger sister and it is his

responsibility to educate him.

ARUN

• Take a decision on

all three friends by

considering the

factors and

situation given

above

DECIDE

• TRAIN TRACK AND CHILDREN

CASE STUDY

• A group of children were playing near 2 railway tracks, one still in use while the other disused. Only one child played on the disused track, the rest on the operation track

WHAT TO DECIDE

• The train came and you were just beside the

track interchange.

• It was not possible to stop the train but you

could make the train change its course to the

disused track and save most of the kids

WHAT TO DECIDE

• However, that would also mean the

lone child playing in the disused

track would be sacrificed. Or would

you rather let the train go way.

Let us take a pause to think what kind

of decision we would make

WHAT TO DECIDE

• Analyze the

situation

• Thick and reflect

• Decide

• Now go ahead

WHAT TO DECIDE

Most people might choose to divert the

course of the train, and sacrifice only one

child.

To save most of the children at the expense

of only one child was rational decision

most people would make morally and

emotionally

WHAT TO DECIDE

• But, have you ever thought that the child

choosing to play on the disused track had

in fact made the right decision to play at a

safe place.

• Nevertheless, he had to be sacrificed

because of his ignorant friends who

choose to play in the used track which is

dangerous.

WHAT TO DECIDE

• This kind of dilemma happens around us

everyday. In the office community, in politics

and especially in a democratic society the

minority is often sacrificed for the interest of

the majority. No matter how foolish or

ignorant the majority are and how farsighted

and knowledgeable the minority are.

WHAT TO DECIDE

• The child who choose not to play

with the rest on the operational

track was side lined. And in the

case he was sacrificed, no one

would shed a tear for him

WHAT TO DECIDE

• To make the proper decision is not try to

change the course of the train because the kids

playing on the operational track should have

known very well that track was still in use and

that they should have run away if they heard

train sirens.

WHAT TO DECIDE

• If the train was diverted, that lone

child would definitely die because he

never thought the train could make

over to that track.

• Notably that track was not in use

probably because it was not safe.

WHAT TO DECIDE

• If the train was diverted to the unused

track, we would put the lives of all

passengers on board at stake. And in your

attempt to save a few kids by sacrificing

one child, you might end up sacrificing

hundreds of people to save these few kids

WHAT TO DECIDE

• While we are all aware that life is full of

tough decisions that need to be made, we

may not realize that hasty decisions may

not always be the right one.

• Remember that What’s right is not always

popular and what’s popular isn’t always

right.

WHAT TO DECIDE

CASE STUDY: Buying a CAR

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BUYING A CAR

• Price

• Model

• Options

• Style

• Fuel Efficiency

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CASE STUDY: Buy a MOBILE

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1–101

LAPTOP

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Criterion Weight

Memory and Storage 10

Battery life 8

Carrying Weight 6

Warranty 4

Display Quality 3

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Evaluation of Laptop Alternatives Against Weighted Criteria

Decision-MakingProcess

Types of Problems and Decisions• Well-structured

- programmed• Poorly structured

- nonprogrammed

Decision-Making Conditions• Certainty

• Risk• Uncertainty

Decision Maker Style• Directive• Analytic

• Conceptual• Behavioral

Decision-Making Approach• Rationality

• Bounded Rationality• Intuition

Decision• Choose best

alternative- maximizing- satisficing

• Implementing• Evaluating

Types of Decisions

Programmed decision:

– A decision that is fairly structured or recurs (occur again)with some frequency (or both).

Non-programmed decision:

– A decision that is relatively unstructured and occurs much less often than a PROGRAMMED DECISION.

Rational Decision Making(logical)

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1.Recognize the need for a decision

• Manager recognize the need for a decision in the form of a problem or opportunity.

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2.Definition of the problem

• A problem is the gap between present and the desired state of affairs on the subject matter of the decision.

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3.Search and develop alternatives

• The alternative course of action can be developed by collecting more information, thinking creatively, consulting experts and undertaking research.

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4.Evaluate Alternatives

• After identifying alternative courses of action, they must be compared and evaluated. This step determines the relative cost of each alternative.

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5.Implement chose alternative

• The decision taken by the management will not serve the purpose if it is not executed properly.

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6.Learn from feedback• Feedback is important because decision

making is a continuous and never ending process

• Feedback information is very much useful in taking the corrective measures and in taking right decisions in the future

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Decision-Making Conditions

Certainty Risk Uncertainty

Level of ambiguity and chances of making a bad decision

Lower Moderate Higher

The decisionmaker faces

conditions of:

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1.Certainty:– A condition in which the

decision maker knows with reasonable certainty what the alternatives are and what conditions are associated with each alternative.

2. Risk:– A condition in which the

availability of each alternative and its potential payoffs and costs are all associated with probability estimates.

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3.Uncertainty• A condition in which

the decision maker does not know all the alternatives, the risks associated with each, or the likely consequences of each alternative.