Unit –2
Understanding Management
Meaning of Planning:
Every organization has to decide about its future course of actions. This will enable the organization to survive and succeed in this competitive business world. No organization can do without planning. Unless we plan, we are leaving future events to chance.
Planning provides a sense of direction to business activities. Planning bridges the gap from where we are and where we want to go. Therefore, planning is very vital for a business enterprise.
In the words of Koontz and O’Donnell, “Planning is deciding in advance what to do, how to do it, when to do it, and who is to do it.”
James Stoner defines “Planning is the process of establishing goals and a suitable course of action for achieving those goals”
“Planning is a trap laid down to capture the future.” WELL PLAN IS HALF DONE.
NATURE AND CHARACTERISTICS OF PLANNING:
The nature and characteristics of planning can be explained as follows:
(I) Planning is Goal Oriented: Planning is goal oriented in the sense that plans are developed and executed to achieve goals. At first the goals are set, and then plans are framed to accomplish them. Planning has no meaning, unless it contributes to the achievement of goal.
(2) Future Oriented: Planning is future related activity. Necessary forecasts, are made about the future and accordingly plans are made.. ‘n other words, plans are made for the future activities. - whether short term, medium term or long term.
(3) Continuous Activity: Planning is a continuous activity. It is an on going process. Effective planning requires constant and continuous checking of events. Accordingly, plans are drawn and redrawn depending upon the situation or circumstances at the time of implementation.
(4) Link Between the Present and Future: Planning acts as a link between the past, present and future. Although planning is a future related activity, yet it does not mean that while planning. the managers do not consider the past and present events. One cannot, totally Ignore, the past and present events and achievements while planning for the future events. It is the past experience that helps in preparing realistic future plans.
(5) Primacy of planning: Planning is the primary or basic function of management. Without planning, it would be difficult to organize. to direct and to control. Planning precedes all other managerial functions and every managerial action needs to be properly planned.
(6) Pervasiveness of Planning: Planning is the function of every manager. The need for planning exists at all levels of management. The top level, the middle level and the lower level managers need to plan. Planning is required not only in business organizations, but also in non - business organizations, such as government organizations, educational institutions, charitable trusts etc.
(7) Planning is an Intellectual Process: The success of plans depends upon to a great extent on the quality of mind (intelligence) of manager. A great deal of imagination and intelligence is needed to prepare sound plans. Normally, a number of alternative plans are required to be prepared. Finally, the best feasible plan is selected. A lot of judgment, experience and intelligence is required to select the best feasible plan.
(8) Integrated Process: Every plan need to be integrated with other plans. The plan of one section or department needs to integrated or co ordinate Wit those of other sections or departments in order to achieve organizational goals.
(9) Planning Provides a Sense of Direction: Planning bridges the gap from where we are and where we want to go. Planning shows the direction to effective action. Without planning, activities are likely to be undertaken in a haphazard manner. This would lead to chaos and confusion.
(10) Planning Generates Efficiency : Every manager plans in order to achieve highest efficiency. Efficiency is the relation between returns and cost. Through well designed plans, it is possible to achieve highest possible returns at the lowest possible cost. This is because planning facilitates optimum utilization of resources, thereby generating higher efficiency.
2.3 NEED AND IMPORTANCE OF PLANNING:
Planning is an important of functions of management. It Acts as base for the achievement of organizational goals. Importance of planning is as follows.
1.] Provide Direction: A proper plan always gives proper direction for the achievement towards the desired goals. A manager can give proper direction to his subordinates so that right work can be done at the right time so as to get right results. Planning helps to perform all the activities in smooth and systematic manner.
2.] Reduce risks and uncertainties: Modern business world in full of risk and uncertainties. Planning helps to reduce these risks and uncertainties as it involves anticipation of future and prepare for possible risks.
3.] Increases Efficiency: Good planning leads to proper and efficient working of the employees in an organization. Planning helps of to define the objectives of the organization with reference to available resources. Plans are efficient if they achieve their purpose at a reasonable cost, where cost is measured not only in terms of time or money or production but also in the degree of individual and group satisfaction.
4.] Integrated Process: Planning is done for all the departments in the organization. All the departments are interconnected and hence their plans needs to be integrated with each other to achieve the desired result.
5.] Provide clear objectives: Planning beings with determination of objectives. It makes clear the purpose of objectives, in fact, it makes objectives more clear and specific. It helps employees in achieving their objectives or goals of the organizations.
6.] Improvement morale of employees: Planning brings order and discipline in an organization. Employees know in advance as to what is expected of them and how to achieve that. This helps them to bring the best in their performance and also brings healthy attitude towards work, which in turn boost the confidence, morale and efficiency in them.
7.] Helps in optimum utilization of resources: Effective planning leads to proper allocation of resources for various activities. It also facilitates optimum utilization of resources which brings higher efficiency and better results.
8.] Encourage Innovation: In a planning process, manager gets opportunities by providing suggestions for improving performances. Planning is basically a decision making process which involves creative thinking and Imagination that ultimately leads to innovations and in turn growth and prosperity for the organization.
9.] Facilities Controlling: An effective controlling is possible with well though plans. Planning providers pre-determined goals against which actual performance is completed. Continuous monitoring is one on the performance so that immediate corrective action can be taken if anything goes wrong. In fact, Planning and Controlling are the two side of the same coin. If planning is the root, controlling is the fruit.
10.] Facilitates Co-ordination: All managerial functions lead to co-ordinate in the organization planning revolves around organizational goals. Integrated effects from various departments leads towards achieving organizational goals and it is possible only trough co-ordination among various departments. It is truly said that co-ordinate is essence of management and planning is the base for it.
Corporate, Operational, Functional and Proactive Planning!
I. Corporate Planning:
The term corporate planning denotes planning activities for the whole enterprise.
The basic focus of corporate planning is to determine the long-term objectives of the organisation as an entire . then to get plans to attain these objectives taking into mind the likely changes within the external environment (macro level). Corporate planning is usually carried out at the top level of management.
“Corporate planning includes the setting of objectives, organising the work, people and systems to enable those objectives to be attained, motivating through the planning process and thru the plans, measuring performance then controlling progress of the plan and developing people through better decision making, clearer objectives, more involvement and awareness of progress.” —David Hussey
Hussey has given a broad definition of corporate planning. It covers various functions of management besides defining planning. Corporate planning is that the total planning activities in the organisation and not the entire management functions.
“Corporate Planning is the continuous process of creating present risk taking decisions systematically and with the greatest knowledge of their futurity; organising systematically the efforts needed to carry out these decisions, and measuring expectations through organised, systematic feedback.” —Peter Drucker
The corporate planning activities are carrying out at the top level. they're important for the success of the whole organisation. the highest management is liable for the formulation of such plans and is prepared according to the inputs that are given to them either from the environment or the lower levels in the organisational hierarchy. The plans are generally long term and are broad based.
The corporate planning is of two types:
i. Strategic Planning
ii. Operational Planning
Strategic Planning consists of the method of developing strategies to reach a defined objective. It sets the long-term direction of the organisation during which it wants to proceed in future. according to Anthony it are often defined as the “process of selecting the objectives of the organisation, on changes on these objectives and on the policies that are to control the acquisition, use and disposition of these resources.”
An assessment of available resources is made at the top and then things are planned for a period of time of upto 10 years. It basically deals with the entire assessment of the organisation, strengths capabilities and weaknesses and an objective evaluation of environment is formed for future persuits.
Examples of strategic planning in an organisation may be; planned growth rate in sales, diversification of business into new lines, sort of products to be offered then on. Strategic planning also involves the analysis of various environmental factors specifically with reference to how organisation relates to its environment.
The strategic planning may be carried out serial of steps that include the
1. Specifying Missions and Objectives.
2. Elaborate Environmental Scanning.
3. Strategy Formulation.
4. Strategy Implementation
5. Evaluation and Control
Strategic planning is of prime importance for any organisation as they might specify the other decisions that require to be taken.
II. Operational or Tactical Planning:
Operational planning, is also called tactical or short-term planning, usually, covers one year approximately . Operational planning involves the conversion of strategic plans into detailed and specific action plans. These plans are designed to sustain the organisation in its products Operational planning is done at the middle or lower level of management Operational planning are often defined as follows:
“Operational planning is that the process of deciding, the most effective use of the resources already allocated and to develop an impact mechanism to assure effective implementation of the actions so that organisational objectives are achieved.”
An Operational plan is an annual work plan:
It narrates short term business strategies; it explains how a strategic plan will be put into operation (or what portion of a strategic plan will be put into operation (or what portion of a strategic plan are addressed) during a given operational period (fiscal year).
These plans are to support strategic plans whenever some difficulty is faced in its implementation. Any changes in internal organisation or external environment need to be met through tactical plans.
For examples, there's sudden change in prices of products, difficulty in procuring raw materials, unexpected moves by competitors; tactical plans will help in meeting such unforeseen situations. The success of tactical plan depends upon the speed and adaptability with which management acts to fulfill sudden situation.
Operational planning is concerned with the efficient use of resources already allocated and with the development of a control mechanism to make sure efficient implementation of the action in order that business objectives are attained.
III. Functional Planning:
The planning that's made to make sure smooth working of the organisation taking into account the needs of each and every department. the aim of functional planning is to market standardised management practices for corporate functions within the department’s decentralised corporate management structure.
The following three basic activities need to be carried out in functional planning:
(1) Functional Guidance:
Managers must be told and guided what they must be doing to properly manage corporate functions within the enterprise.
(2) Goal Setting:
Certain quantifiable goals need to be set that would measure the effectiveness of the functional planning. Goals should be meaningful, achievable and measureable.
(3) Functional Assessments:
Functional assessment wraps up the functional planning process. Here the Comparison is formed between the goal setting and therefore the goal achievement. The functional assessment should have the subsequent characteristics:
(i) Substantiation:
Managers who are accountable for corporate functions must explain how resources and activities devoted to their function provide support to the achievement of the corporate priorities and functional targets.
(ii) Measure of Success.
Managers accountable for corporate functions must quantifiably measure the success in meeting goals identified in their functional guidance.
(iii) Foresight:
Managers should be in a position to identify developing gaps and risks faced in their respective functional areas, along side recommendations to refill those gaps and risks.
iv. Proactive and Reactive Planning:
Classification of planning into proactive and reactive is based on the organisation’s response to environmental dynamics. Planning is an open system approach and is affected by environmental factors which keep it up changing continuously. However, organisations response to those changes differs. based on these responses, planning could also be either proactive or reactive.
Proactive Planning:
It is based on the anticipation of the future outcomes and state of affairs that might affect the working of the organisation. Such a planning has got to be broad based, highly flexible and creative by nature.
The organisation that favours this type of planning often anticipates the future and takes necessary steps before the happening of the events. In India, companies like Reliance Industries, Hindustan Lever etc., have adopted this approach and their rate of growth has been much faster than others.
Reactive Planning:
As the name suggests, this type of planning isn't in the anticipation of the future but becomes active only the matter is confronted or has already occurred. this is merely the corrective action that's taken. This approach of planning is beneficial in an environment which is fairly stable over a long period of time.
v. Formal and Informal Planning:
Formal Planning exists in the formal hierarchy of the organisation and is usually carried out in the stepwise process. it's according to the pre expressed policies and the rules of the organisation. this type of planning is completed at a large scale and relies on the logical thinking. the planning process that's adopted is documented, and regular.
Informal Planning is typically carried out in very small organisations where the formal organisation structure may or might not exist. the planning is typically intuitive in nature and is short termed. Since the environment for smaller organisations isn't complex, they do reasonably well with informal planning process.
vi. Automated Planning:
Automated planning and scheduling may be a branch of AI that concerns the realisation of strategies or action sequences, typically for execution by intelligent agents, autonomous robots and unmanned vehicles. this sort of designing is generally found within the technologically advanced organisations.
1. Setting up of the objectives:
In planning function manager begins with setting up of objectives because all the policies, procedures and methods are framed for achieving objectives only. The managers found out very clearly the objectives of the company keeping in mind the goals of the company and therefore the physical and financial resources of the company. Managers prefer to set up goals which may be achieved quickly and in specific limit of your time . After fixing the goals, the clearly defined goals are communicated to all the employees.
2. Developing premises:
Premises refer to making assumptions regarding future. Premises are the base on which plans are made. it's a sort of forecast made keeping in sight existing plans and any past information about various policies. There should be total agreement on all the assumptions. The assumptions are made on the basis of forecasting. Forecast is that the technique of gathering information. Common forecast are made to seek out out the demand for a product, change in government or competitor policy, tax rate, etc.
3. Listing the various alternatives for achieving the objectives:
After fixing of objectives the managers make a list of alternatives through which the organisation can achieve its objectives as there are often many ways to attain the target and managers must know all the ways to succeed in the objectives.
For example, if the target is to extend in sale by 10% then the sale are often increased:
(a) By adding more line of products;
(b) By offering discount;
(c) By increasing expenditure on advertisements;
(d) By increasing the share within the market;
(e) By appointing salesmen for door-to-door sale etc.
So, managers list out all the alternatives.
4. Evaluation of various alternatives:
After making the list of varied alternatives along side the assumptions supporting them, the manager starts evaluating each and each alternative and notes down the positive and negative aspects of each alternative. After this the manager starts eliminating the alternatives with more of negative aspect and therefore the one with the most positive aspect and with most feasible assumption is chosen as best alternative. Alternatives are evaluated within the light of their feasibility.
5. Selecting an alternative:
The best alternative is chosen but as such there's no mathematical formula to pick the most effective alternative. Sometimes rather than selecting one alternative, a mixture of various alternatives also can be selected. the most ideal plan is most feasible, profitable and with least negative consequences.
After preparing the main plan, the organisation has got to make number of small plans to support the main plan. These plans are associated with performance of routine jobs in the organisation. These are derived from the major plan. So, they're also called derivative plans. These plans are must for accomplishing the target of main plan. The common supportive plans are plans to buy equipment, plan for recruitment and selection of employees, decide to buy raw material, etc.
6. Implement the plan:
The managers prepare or draft the main and supportive plans on paper but there's no use of those plans unless and until these are put in action. For implementing the plans or putting the plans into action, the managers start communicating the plans to all or any the workers very clearly because the workers actually have to carry on the activities according to specification of plans. After communicating the decide to employees and taking their support the managers start allocating the resources according to the specification of the plans. for instance , if the plan is to extend in sale by increasing the expenditure on advertisement, then to place it into action, the managers must allot more funds to advertisement department, select better media, hire ad agency , etc.
7. Follow-up:
Planning is a continuous process therefore the manager’s job doesn't get over just by putting the plan into action. The managers monitor the plan carefully while it's implemented. The monitoring of plan is extremely important because it helps to verify whether the conditions and predictions assumed in plan are holding true in present situation or not. If these aren't coming true then immediately changes are made within the plan.
1. Planning leads to rigidity:
Once plans are made to decide the future course of action the manager might not be in a position to alter them. Following predefined plan when circumstances are changed might not bring positive results for organisation. this type of rigidity in plan may create difficulty.
2. Planning may not work in dynamic environment:
Business environment is extremely dynamic as there are continuously changes taking place in economic, political and legal environment. It becomes very difficult to forecast these future changes. Plans may fail if the changes are very frequent.
The environment consists of number of segments and it becomes very difficult for a manager to assess future changes within the environment. for instance there may be change in economic policy, change in fashion and trend or change in competitor’s policy. A manager cannot foresee these changes accurately and plan may fail if many such changes happen in environment.
3. It reduces creativity:
With the planning the managers of the organisation start working rigidly and they become the blind followers of the plan only. The managers don't take any initiative to make changes in the plan consistent with the changes prevailing in the business environment. They stop giving suggestions and new ideas to bring improvement in working because the guidelines for working are given in planning only.
4. Planning involves huge Cost:
Planning process involves lot of cost because it's an intellectual process and companies got to hire the professional experts to hold on this process. along with the salary of these experts the company has got to spend lot of time and money to gather accurate facts and figures. So, it's a cost-consuming process. If the benefits of planning are not more than its cost then it shouldn't be carried on.
5. It is a time consuming process:
Planning process may be a time-consuming process because it takes long time to evaluate the alternatives and select the best one. Lot of time is required in developing planning premises. So, due to this, the action gets delayed. And whenever there is a need for prompt and immediate decision then we've to avoid planning.
6. Planning doesn't guarantee success:
Sometimes managers have false sense of security that plans have worked successfully in past so these are going to be working in future also. there's a tendency in managers to rely on pretested plans.
It is not true that if a plan has worked successfully in past, it'll bring success in future also as there are numerous unknown factors which can cause failure of plan in future. Planning only provides a base for analysing future. it's not an answer for future course of action.
7. Lack of accuracy:
In planning we are always thinking in advance and planning cares with future only and future is always uncertain. In planning many assumptions are made to decide about future course of action. But these assumptions aren't 100% accurate and if these assumptions don't hold true in present situation or in future condition then whole planning will fail.
For example, if in the plan it's assumed that there'll be 5% rate of inflation and in future condition the rate of inflation becomes 10% then the entire plan will fail and many adjustments will be required to be made.
External Limitations of Planning:
(i) Natural calamity:
Natural calamities like flood, earthquake, famine etc. may end in failure of plan.
(ii) Change in competitors’ policies:
Sometimes plan may fail thanks to better policies, product and strategy of competitor which wasn't expected by manager.
(iii) Change in taste/fashion and trend in the market:
Sometimes plans may fail when the taste/fashion or trend in market goes against the expectation of planners.
(iv) Change in technologies:
The introduction of new technologies can also cause failure of plans for products using old technology.
(v) Change in government/economic policy:
Managers haven't any control over government decisions. If government economic or industrial policies aren't framed needless to say by manager then also plans may fail.
In preparing plans for the longer term , the management authority has got to make some predictions about what's likely to happen within the future.
It shows that the managers know something of future happenings even before things actually happen.
Forecasting provides them this knowledge. Forecasting is that the process of estimating the relevant events of future, supported the analysis of their past and present behaviour.
The future can't be probed unless one knows how the events have occurred within the past and how they're occurring presently. The past and present analysis of events provides the bottom helpful for collecting information about their future occurrence.
Thus, forecasting could also be defined because the process of assessing the future normally using calculations and projections that appreciate of the past performance, current trends, and anticipated changes within the foreseeable period ahead.
Whenever the managers plan business operations and organisational set-up for the years ahead, they need to require into account the past, this and the prevailing economic, political and social conditions. Forecasting provides a logical basis for determining in advance the nature of future business operations and therefore the basis for managerial decisions about the material, personnel and other requirements.
It is, thus, the basis of planning, when a commercial enterprise makes an effort to look into the future in a systematic and concentrated way, it's going to discover certain aspects of its operations requiring special attention. However, it must be recognised that the process of forecasting involves an element of guesswork and therefore the managers cannot stay satisfied and relaxed after having prepared a forecast.
The forecast will have to be constantly monitored and revised—particularly when it relates to a long- term period. The managers should attempt to reduce the element of guesswork in preparing forecasts by collecting the relevant data using the scientific techniques of analysis and inference.
On the basis of the definition, the subsequent features of forecasting are often identified:
1. Forecasting relates to future events.
2. Forecasting is required for planning process because it devises the longer term course of action.
3. It defines the probability of happening of future events. Therefore, the happening of future events is often precise only to a particular extent.
4. Forecasting is formed by analysing the past and present factors which are relevant for the functioning of an organisation.
5. The analysis of varied factors may require the use of statistical and mathematical tools and techniques.
Role of Forecasting:
Since planning involves the future, no usable plan are often made unless the manager is in a position to require all possible future events into account. This explains why forecasting may be a critical element within the planning process. In fact, every decision within the organisation is based on some kind of forecasting.
It helps the managers within the following ways:
1. Basis of Planning:
Forecasting is that the key to planning. It generates the planning process. Planning decides the future course of action which is predicted to require place in certain circumstances and conditions. Unless the managers know these conditions, they can't choose effective planning.
Forecasting provides the knowledge of planning premises within which the managers can analyse their strengths and weaknesses and may take appropriate actions in advance before actually they're put out of market. Forecasting provides the knowledge about the nature of future conditions.
2. Promotion of Organization:
The objectives of an organisation are achieved through the performance of certain activities. What activities should be performed depends on the expected outcome of those activities. Since expected outcome depends on future events and therefore the way of performing various activities, forecasting of future events is of direct relevance in achieving an objective.
3. Facilitating Co-ordination and Control:
Forecasting indirectly provides the way for effective co-ordination and control. Forecasting requires information about various factors. Information is collected from various internal and external sources. most units of the organisation are involved during this process.
It provides interactive opportunities for better unity and co-ordination within the planning process. Similarly, forecasting can provide relevant information for exercising control. The managers can know their weaknesses within the forecasting process and that they can take suitable action to overcome these.
4. Success in Organisation:
All business enterprises are characterised by risk and need to work within the ups and downs of the industry. the risk depends on the future happenings and forecasting provides help to beat the problem of uncertainties.
Though forecasting cannot check the future happenings, it provides clues about those and indicates when the choice actions should be taken. Managers can save their business and face the unfortunate happenings if they know in advance what's going to happen.
STEPS IN FORECASTING:
The process of forecasting generally involves the subsequent steps:
1. Developing the Basis:
The future estimates of varied business operations will need to be based on the results obtainable through systematic investigation of the economy, products and industry.
2. Estimation of Future Operations:
On the basis of the info collected through systematic investigation into the economy and industry situation, the manager has got to prepare quantitative estimates of the future scale of business operations. Here the managers will need to take into account the planning premises.
3. Regulation of Forecasts:
It has already been indicated that the managers cannot take it easy after they need formulated a business forecast. they need to constantly compare the actual operations with the forecasts prepared so as to seek out out the reasons for any deviations from forecasts. This helps in making more realistic forecasts for future.
4. Review of the Forecasting Process:
Having determined the deviations of the actual performances from the positions forecast by the managers, it'll be necessary to look at the procedures adopted for the aim in order that improvements are often made in the method of forecasting.
TECHNIQUES OF FORECASTING:
There are various methods of forecasting. However, no method are often suggested as universally applicable. In fact, most of the forecasts are done by combining various methods.
A brief discussion of the main forecasting methods is given below:
1. Historical Analogy Method:
Under this method, forecast in reference to a particular situation is based on some analogous conditions elsewhere in the past. The economic situation of a country are often predicted by making comparison with the advanced countries at a particular stage through which the country is presently passing.
Similarly, it's been observed that if anything is invented in some part of the world, this is adopted in other countries after a gap of a certain time. Thus, based on analogy, a general forecast are often made about the nature of events in the economic system of the country. it's often suggested that social analogies have helped in indicating the trends of changes in the norms of business behaviour in terms of life.
Likewise, changes within the norms of business behaviour in terms of attitude of the workers against inequality, find similarities in various countries at various stages of the history of industrial growth. Thus, this method gives a broad indication about the future events of general nature.
2. Survey Method:
Surveys can be conducted to gather information on the intentions of the concerned people. for instance, information could also be collected through surveys about the probable expenditure of consumers on various items. Both quantitative and qualitative information could also be collected by this method.
On the basis of such surveys, demand for various products can be projected. Survey method is suitable for forecasting demand—both of existing and new products. To limit the cost and time, the survey is also restricted to a sample from the prospective consumers.
3. Opinion Poll:
Opinion poll is conducted to assess the opinion of the experienced persons and experts in the particular field whose views carry plenty of weight. for instance , opinion polls are extremely popular to predict the result of elections in many countries including India. Similarly, an poll of the sales representatives, wholesalers or marketing experts is also helpful in formulating demand projections.
If opinion polls give widely divergent views, the experts may be called for discussion and explanation of why they're holding a particular view. they'll be asked to discuss the views of the others, to revise their views within the context of the other views, and consensus may emerge. Then, it becomes the estimate of future events.
4. Business Barometers:
A barometer is used to measure the atmospheric pressure. within the same way, index numbers are used to measure the state of an economy between two or more periods. These index numbers are the device to review the trends, seasonal fluctuations, cyclical movements, and irregular fluctuations.
These index numbers, when utilized in combination with one another, provide indications on the direction during which the economy is proceeding. Thus, with the business activity index numbers, it becomes easy to forecast the future course of action.
However, it should be kept in mind that business barometers have their own limitations and they aren't sure road to success. all kinds of business don't follow the general trend but different index numbers need to be prepared for various activities, etc.
5. Time series Analysis:
Time series analysis involves decomposition of historical series into its various components, viz. trend, seasonal variances, cyclical variations, and random variances. When the varied components of a time series are separated, the variation of a specific situation, the topic under study, are often known over the period of time and projection are often made about the future.
A trend is often known over the period of time which can be true for the longer term also. However, statistical analysis should be used as a basis for forecasting when data are available for an extended period of time and tendencies disclosed by the trend and seasonal factors are fairly clear and stable.
6. Regression Analysis:
Regression analysis is supposed to disclose the relative movements of two or more inter-related series. it's used to estimate the changes in one variable as a results of specified changes in other variable or variables. In economic and business situations, variety of factors affect a business activity simultaneously.
Regression analysis helps in isolating the effects of such factors to a great extent. for example, if we all know that there's a positive relationship between advertising expenditure and volume of sales or between sales and profit, it's possible to have estimate of the sales on the idea of advertising, or of the profit on the basis of projected sales, provided other things remain an equivalent .
7. Input-Output Analysis:
According to this method, a forecast of output is based on given input if relationship between input and output is understood . Similarly, input requirement are often forecast on the basis of ultimate output with a given input-output relationship. the basis of this method is that the various sectors of economy are inter¬related and such inter-relationships are well-established.
For example, coal requirement of the country are often predicted on the basis of its usage rate in various sectors like industry, transport, household, etc. and how the varied sectors behave in future. this method yields sector-wise forecasts and is extensively utilized in forecasting business events because the data required for its application are easily obtained.
Some of the important definitions of decision-making are given as under.
Decision-making is the selection based on some criteria from two or more possible alternatives. “-—George R.Terry
A decision are often defined as a course of action consciously chosen from available alternatives for the aim of desired result —J.L. Massie
A decision is an act of choice, wherein an executive forms a conclusion about what must be done in a given situation. a decision represents a course of behaviour chosen from variety of possible alternatives. -—D.E. Mc. Farland
From these definitions, it's clear that decision-making cares with selecting a course of action from among alternatives to realize a predetermined objective.
Following elements are often derived from the above mentioned definitions:
1. Decision–making may be a selection process and is concerned with selecting the best sort of alternative.
2. The decision taken is aimed toward achieving the organisational goals.
3. it's concerned with the detailed study of the available alternatives for finding the simplest possible alternative.
4. decision making is a mental process. it's the outline of constant thoughtful consideration.
5. It results in commitment. The commitment depends upon the nature of the choice whether short term or long term.
Features or Characteristics of Decision-Making:
From definitions and elements we can draw the subsequent important features of managerial decisions:
1. Rational Thinking:
It is invariably supported rational thinking. Since the human brain with its ability to find out , remember and relate many complex factors, makes the rationality possible.
2. Process:
It is the method followed by deliberations and reasoning.
3. Selective:
It is selective, i.e. it's the selection of the best course among alternatives. In other words, decision involves selection of the best course from among the available alternative courses that are identified by the decision-maker.
4. Purposive:
It is usually purposive i.e. it relates to the end. the answer to a problem provides an efficient means to the desired goal or end.
5. Positive:
Although every decision is usually positive sometimes certain decisions is also negative and should just be a decision to not decide. as an example , the manufacturers of VOX Wagan car once decided to not change the model (body style) and size of the car although the opposite rival enterprise (i.e. the Ford Corporation) was planning to introduce a new model every year, in the USA.
That a negative decision and is equally important was stressed by Chester I. Bernard-one of the pioneers in Management Thought-who observed, “The art of executive decision consists in not deciding questions that aren't now pertinent, in not deciding prematurely, in not making decisions that can't be made effective, and in not making decisions that other should make. ”
6. Commitment:
Every decision relies on the concept of commitment. In other words, the Management is committed to each decision it takes for 2 reasons- viz., (/) it promotes the steadiness of the concern and (ii) every decision taken becomes a neighborhood of the expectations of the people involved within the organisation.
Decisions are usually such a lot inter-related to the organisational lifetime of an enterprise that any change in one area of activity may change the opposite areas too. As such, the Manager is committed to decisions not only from the time that they're taken but upto their successfully implementation.
7. Evaluation:
Decision-making involves evaluation in two ways, viz., (i) the executive must evaluate the alternatives, and (ii) he should evaluate the results of the decisions taken by him.
TYPES OF DECISION MAKING
1. Programmed and non-programmed decisions:
Programmed decisions are concerned with the issues of repetitive nature or routine type matters.
A standard procedure is followed for tackling such problems. These decisions are taken generally by lower level managers. Decisions of this sort may pertain to e.g. purchase of staple, granting leave to an employee and supply of products and implements to the workers, etc. Non-programmed decisions relate to difficult situations that there's no easy solution.
These matters are vital for the organisation. for instance , opening of a new branch of the organisation or an outsized number of employees absenting from the organisation or introducing new product within the market, etc., are the choices which are normally taken at the higher level.
2. Routine and strategic decisions:
Routine decisions are associated with the general functioning of the organisation. they do not require much evaluation and analysis and may be taken quickly. Ample powers are delegated to lower ranks to require these decisions within the broad policy structure of the organisation.
Strategic decisions are important which affect objectives, organisational goals and other important policy matters. These decisions usually involve huge investments or funds. These are non-repetitive in nature and are taken after careful analysis and evaluation of the many alternatives. These decisions are taken at the upper level of management.
3. Tactical (Policy) and operational decisions:
Decisions concerning various policy matters of the organisation are policy decisions. These are taken by the top management and have future impact on the functioning of the priority . for instance, decisions regarding location of plant, volume of production and channels of distribution (Tactical) policies, etc. are policy decisions. Operating decisions relate to day-to-day functioning or operations of business. Middle and lower level managers take these decisions.
An example is also taken to distinguish these decisions. Decisions concerning payment of bonus to employees are a policy decision. On the opposite hand if bonus is to tend to the employees, calculation of bonus in respect of each employee is an operating decision.
4. Organisational and personal decisions:
When an individual takes decision as an executive in the official capacity, it's referred to as organisational decision. If decision is taken by the manager in the personal capacity (thereby affecting his personal life), it's referred to as personal decision.
Sometimes these decisions may affect functioning of the organisation also. for instance , if an executive leaves the organisation, it's going to affect the organisation. The authority of taking organizational decisions may be delegated, whereas personal decisions can't be delegated.
5. Major and minor decisions:
Another classification of decisions is major and minor. Decision concerning purchase of new factory premises may be a major decision. Major decisions are taken by top management. Purchase of office stationery may be a minor decision which may be taken by office superintendent.
6. Individual and group decisions:
When the decision is taken by one individual, it's referred to as individual decision. Usually routine type decisions are taken by individuals within the broad policy framework of the organisation.
Group decisions are taken by group of individuals constituted in the form of a standing committee. Generally vital and pertinent matters for the organisation are referred to this committee. the main aim in taking group decisions is that the involvement of maximum number of people in the process of decision¬- making.
Decision making is an important part of management. Therefore, management and deciding are considered inseparable.Decision making may be a process of choosing the simplest course of action among all available alternatives.
Organizations got to take various decisions, like decisions associated with investment and capital, production, distribution, and consumption of goods and services, to affect different economic problems. the most objective of decision making is to maximise profit, minimize cost, and achieve higher customer satisfaction.
Decision making may be a long and continuous process that involves a number of steps, which are shown in Figure-2:
THE STEPS INVOLVED IN THE DECISION-MAKING PROCESS
The steps involved in the decision-making process (as shown in Figure-2) are explained as follows:
1. Setting Objectives:
Refers to the first step of the decision-making process. it's necessary for an organization to define the objectives of taking a specific decision. The decision-making process of an organization is successful if the objectives are clear, realistic, and aligned with this market conditions.
In addition, it's preferred that the objectives should be in quantitative form, so that results can be measured more accurately. aside from this, the objectives should clearly mention the goals that an organization desires to attain and the time period to attain those goals. for instance , an organization can set an objective ‘to reduce the cost by 5% in the next fiscal year.’
2. Defining the problem:
An organization are often successful if it clearly identifies the problem that a decision is to be taken.
3. Identifying the causal factors:
Involves determining the factors which will affect the decision. for instance, for setting the price of a new product, it's required to determine the factors that influence the prices of the product. These factors are often availability of substitutes, climate , income level of consumers, demand and provide of the product, and costs incurred in manufacturing the product.
4. Finding out alternatives:
Refers to the step in which all the possible alternatives are generated for solving a problem. during this step, a corporation precisely identifies the multiple solutions to resolve a problem.
5. Collecting information:
Involves gathering data with respect to the alternatives generated so they can be properly analyse the information collected is said to the important economic variables that influences the problem. Generally, an organization collects information from internal and external sources.
Internal sources include records maintained by different departments of the organization, like marketing, human resource, production, finance and personnel department. On the opposite hand, external sources include information collected through surveys, interviews, and research conducted.
6. Evaluating information:
Constitutes a vital step of the decision-making process in this step, the collected data is analyzed in order that best alternative are often selected. Many of the alternatives are eliminated if they're not able to satisfy the requirements of the organization or don't match with the budget or other constraints of the organization.
All the alternatives are analyzed on the premise of their advantages and disadvantages. After conducting a radical analysis of the alternatives with the assistance of quantitative and qualitative tools, the best alternative is chosen.