UNIT II
PLANNING
Q1) What is planning?
A1) Planning is a major and primary function of management. No organisation can operate properly without planning. Planning is a preparatory step for action. It means systematized pre-thinking for determining a course of action to achieve some desired result. Planning is essentially a process of deciding in advance what is to be done, when and where it is to be done, and how it is to be done, and by whom. To plan is to look ahead and chalk out the future course of operations of an enterprise. Through planning, the manager fixes the objectives of the organisation as a whole and, in the light of this, the goals of its various departments. Then he proceeds to prepare a kind of ‘blueprint’ mapping out the ways of attaining these objectives.
According to Koontz and O’Donnell, planning is, “an intellectual process, the conscious determination of courses of action, the basing of decisions on purpose, facts and considered estimates.”
Thus, planning is the groundwork for all future plans of the organization. Planning bridges the gap between where the organization currently finds itself and where it wishes to be. So in essence, business planning comprises of setting objectives for the organization and developing a plan of action to achieve these objectives. Once the objectives are set, the managers and workers can have a clear vision of what to work towards. Planning requires innovation, creativity and multi-tasking from the managers. Planning is the process by which the managers of an organisation set objectives, make an overall assessment of the future, and chart the courses of action with a view to achieving the organisational goals.
Q2) What are the components of planning?
A2) The successful achievement of the objectives of any institution highly depends on planning. So, important components and elements are included in planning, on whose basis, the future execution of the institution may be possible.
Following is an analysis of the elements or components of planning:
1. Objectives
Objectives are those targets, which an organization intends to obtain during various time periods. Objectives mean those basic points which all activities of the business are directed to achieve. Objectives act as important aims for planning. The objectives are the end and planning is the means. This is the basic point and first stage of planning. The objective is the foundation of planning. Objectives create the flow of activities, provides motivation to employees to work sincerely and also help in the accomplishment of the activities in the future.
2. Policies
The principles guiding the decisions are called policies. Policies mean those general particulars and guiding principles, which specify the general limitations and line of direction, meaning thereby that while the objectives specify what to do, the policies specify how these are to be achieved. Policies are mainly those which guide the idea in taking decisions. Policies should be clear and well decided and should be written in clear language. These should be in accordance with the objectives.
3. Procedure
Procedure implies the determination of the sequence of activities for accomplishing any particular work. In other words, procedures tell how the work will be performed, in what stages it will be distributed and when and by whom it will be performed. The procedure is the action of related activities, which builds a time schedule and decides the method of performance of the work.
4. Rules
Rules mean those directive elements or plans of work or behavior, which are to be followed compulsorily by all the persons in the organization. In other words, this is such a schedule which tells what specific activity is to be carried out in particular circumstances. Rules are those schemes, which guide the necessary activities.
5. Programme
Programme means the determination of the sequence of various activities of work. In other words, determination of the sequence of various works to be done in any Institution and priorities is called programme. The programme is the series of necessary efforts for achieving an objective, which is systematic and order of priorities. Programmes may be of many types, short term programmes, like – training programmes, market research programmes, sales promotion programmes.
A programme has the following stages.
1. Identification of necessary activities.
2. Division of activities in various steps or stages.
3. To make each person, personally responsible for activities of the particular type.
4. To determine sources for every step.
5. To determine the time to be taken for every work.
6. To decide target dates for every part of the programme.
This way, the programme is also an important component of planning. However, different programmes affect each other. So, precautions should be taken in the preparation of the programmes for various departments and sub-departments of the institution.
6. Methods
Generally, methods explain the specific ways of the performance of each activity or stage of procedures. In other words, methods mean the specified process of performing any function of the institution. The objectives, available facilities, time, expenditure to incur on the efforts, capital are used into consideration. Methods are the authentic ways to accomplish the activities relating to production, tool room, workshop repetitive and routine etc. Standards methods decide the best way for the assigned work.
7. Budget
In simple words, budget means advance determined plan for the targets, efforts, and cost for executing any particular programme. In other words, the budget in the form of a plan is the calculative analysis of the expected result. Budget is an estimate of future requirements which is sequentially systematic, in which few activities of an organization for a specified time are incorporated. Budget, in the form of planning, is a description to clarify future results in numerical terms. Budgets are also expressed in terms of labour hours, units of the commodities, machinery, currency, and facilities, etc. besides monetary form. Budgets are used to establish control of business activities. Budget is a firm determination of the managers regarding the volume of sources required for implementation of the plans, so as to achieve the determined targets.
8. Time Schedule
Deciding of time for every stage of the programme is called a time schedule. If the work is not completed in time, it has no significance. Hence, time scheduling for each stage of the programme is essential. Time scheduling is decided at the time of planning itself.
9. Standards
Standards mean those yardsticks, on whose basis work performance is evaluated. Yardstick or context is a unit for standard measurement in the form of Level.
10. Strategies
Strategies mean preparing one’s own plans, by keeping the competitors in view, so that the objectives of the institution may be achieved, by sustaining the competition. In the words, when plans are prepared to meet the challenges of competitors in view, it is called strategies. Strategy is that behavior of the officers, which aim at achieving success in objectives of oneself or the organization and whose basis, actual or possible functions of others.
Q3) Differentiate between policies and procedures.
A3) The differences between policy and procedure are:
1.Policies provide guidance in decision making, whereas procedures provide guidance in the performance of works.
2.Policies are generally decided and developed at the level of top-level management, whereas procedures are decided in developed at the lower level.
3.Procedures are developed on the basis of the policies.
4.The policies frame the boundaries of the area of operation, whereas the procedures decide the way to achieve the specified objectives.
5.Policies for various departments may be different, whereas the procedure simultaneously affects the working methods of several Departments.
The advantages of procedure are, that the work becomes easy, the works done frequently remain uniform, increases the economics, as lesser supervision is required due to procedures and it also acts as the source of controls.
Q4) Chalk out the differences between methods and procedures.
A4) Following are the differences between methods and procedures.
1.Procedures determine various steps, whereas methods are related only to a specific step.
2.Methods determine the best way for accomplishing a specified step of the procedure.
3.Procedures are related to various departments, whereas methods are related to one department only.
Q5) Discuss the principles of planning.
A5) The important principles of planning may be stated as follows:
1. Principle of Commitment: This means that certain resources must be committed or pledged for the purpose of planning. Planning is not an easy task. So, necessary help is to be taken from experts. The enterprise must be ready to exhaust the available resources for the achievement of a plan.
2. Principle of the Limiting Factor: A plan involves varied factors of different importance. This principle implies that more emphasis has to be put on that factor which is scarce or limited in supply or extremely costly. This will help in selecting the most favourable alternative.
3. Principle of Reflective Thinking: Planning, being an intellectual activity is based on rational considerations. These involve reflective thinking which signifies problem-solving thought process—a process by which past experiences are superimposed on the facts of the present situation and possible future trends. None can be a planner whose mind is not active, who does not possess any deliberate power and whose sense of judgement is not strong.
4. Principle of Flexibility: Though a plan is prepared after reflective thinking, this does not mean that no departure can be made in the course of its operation. The plan should be so prepared that there is sufficient scope for changing it from time to time. Changes must necessarily be effected in the plan for taking into account new developments that may take place in the course of the operation of the plan.
5. Principle of Contribution to Enterprise Objectives: A major plan is prepared and it is supported by many derivative plans. But all plans must contribute in a positive way towards the achievement of the enterprise objectives.
6. Principle of Efficiency: A plan should be made efficient to attain the objectives of the enterprise at the minimum cost and least effort. It must also achieve better results with the minimum of unexpected happenings. Therefore, it is to be seen that what is expected is likely to be achieved.
7. Principle of Selection of Alternatives: Planning is basically a problem of choosing. The essence of planning is the choice among alternative courses of action. There is no need for planning if there is only one way for doing something. In choosing from alternatives, the best alternative will be that which contributes most efficiently and effectively to the accomplishment of a desired goal.
8. Principle of Planning Premises: A plan is prepared against some foundations or backgrounds known as ‘Planning Premises’. There must be complete agreement among the managers in respect of planning premises over which the structure of plan is to be framed.
9. Principle of Timing and Sequence of Operations: Timing and sequence of operations determine the starting and finishing time for each piece of work according to some definite schedule and give practical and concrete shape and form to work performance.
10. Principle of Securing Participation: To secure participation of the employees with whole-hearted co-operation in execution of the plan, it is necessary that the plan must be communicated and explained to them for their full understanding. This understanding provides the basis for additional knowledge about new facts and matters to the employees. This is needed for improvement in the quality of planning. It also ensures an obligation of the personnel of the enterprise to execute the plan by individual and joint participation.
11. Principle of Pervasiveness: Though major planning function is entrusted to the top management, it is not restricted to the top level only. It is a function of every manager at every level in the organisation.
12. Principle of Strategic Planning: Strategic planning is essential where there is competition. It is prepared in the light of what the competitors are intending to do. Planners must take into account the strategies of the rival organisations, otherwise the planning projection may land them in trouble.
13. Principle of Innovation: A good system of planning should be responsive to the opportunities for innovation. Innovation consists in creating something new for increasing satisfaction of the consumers. This may also be stated as an important strategy of business. Innovation is a necessity for its sustaining growth in this dynamic world. Innovation is achieved through research and development and planning is required to provide such scope.
14. Principle of Follow-up: In the course of execution of a plan, certain obstacles may crop up in midway and planning may require revision, alteration or correction. This is why there must be a follow-up system in the planning process itself. This allows timely changes in the planning and makes it more effective.
Q6) What is the importance of planning in an organization?
A6) Planning is an important function of management. It tells the manager where the organization should be headed. It also helps the organization reduce uncertainty. Let us take a look at some important functions of planning.
1.Planning provides a sense of Direction-
Planning means coming up with a pre-determined action plan for the organization. It actually states in advance what and how the work is to be done. This helps provide the workers and the managers with a sense of direction and a guidance in a way. Without planning their actions would be uncoordinated and unorganized.
2.Planning reduces Uncertainty-
Planning not only sets objectives but also anticipates any future changes in the industry or the organization. So it allows the managers to prepare for these changes, and allow them to deal with the uncertainties. Planning takes into consideration past events and trends and prepares the managers to deal with any uncertain events.
3.Planning reduces Wastefulness-
The detailed plans made keep in mind the needs of all the departments. This ensures that all the departments are on the same page about the plan and that all their activities are coordinated. There is clarity in thought which leads to clarity in action. All work is carried out without interruptions or waste of time or resources.
4.Planning invokes Innovation-
Planning actually involves a lot of innovation on the part of the managers. Being the first function of management it is a very difficult activity. It encourages the manager to broaden their horizons and forces them to think differently. So the managers have to be creative, perceptive and innovative.
5.Makes Decision-Making Easier-
In business planning the goals of the organization have been set, an action plan developed and even predictions have been made for future events. This makes it easier for all managers across all levels to make decisions with some ease. The decision-making process also becomes faster.
6.Establishes Standards-
Once the business planning is done, the managers now have set goals and standards. This provides the manager’s standards against which they can measure actual performances. This will help the organization measure if the goals have been met or not. So planning is a prerequisite to controlling.
Q7) What are the limitations of planning?
A7) While business planning is important and a requisite for every organization, it does have some limitations. Let us take a look at some limitations of business planning.
1.Rigidity- Once the planning function is complete and the action plan is set, then the manager tends to only follow the plan. The manager may not be in a position to change the plan according to circumstances. Or the manager may be unwilling to change the plan. This sort of rigidity is not ideal for an organization.
2.Not ideal in dynamic conditions- In an economic environment rarely anything is stagnant or static. Economic, political, environmental, legal conditions keep changing. In such a dynamic environment it becomes challenging to predict future changes. And if a manager cannot forecast accurately, the plan may fail.
3.Planning can also reduce creativity- While making a plan takes creativity after that managers blindly follow the plan. They do not change the plan according to the dynamic nature of the business. Sometimes they do not even make the appropriate suggestions to upper management. The work becomes routine.
4.Planning is expensive- Planning is a cost-consuming process. Since it is an intellectual and creative process, specialized professionals must be hired for the job. Also, it involves a lot of research and facts collection and number crunching. At certain times the cost of the planning process can outweigh its benefits.
Q8) Explain the process of planning.
A8) As planning is an activity, there are certain reasonable measures for every manager to follow:
1.Setting Objectives
This is the primary step in the process of planning which specifies the objective of an organisation, i.e. what an organisation wants to achieve. The planning process begins with the setting of objectives. Objectives are end results which the management wants to achieve by its operations. Objectives are specific and are measurable in terms of units. Objectives are set for the organisation as a whole for all departments, and then departments set their own objectives within the framework of organisational objectives.
2.Developing Planning Premises
Planning is essentially focused on the future, and there are certain events which are expected to affect the policy formation. Such events are external in nature and affect the planning adversely if ignored. Their understanding and fair assessment are necessary for effective planning. Such events are the assumptions on the basis of which plans are drawn and are known as planning premises.
3.Identifying Alternative Courses of Action
Once objectives are set, assumptions are made. Then the next step is to act upon them. There may be many ways to act and achieve objectives. All the alternative courses of action should be identified.
4.Evaluating Alternative Course of Action
In this step, the positive and negative aspects of each alternative are to be evaluated in the light of objectives to be achieved. Every alternative is evaluated in terms of lower cost, lower risks, and higher returns, within the planning premises and within the availability of capital.
5.Selecting One Best Alternative
The best plan and the most profitable plan having minimum negative effects, is adopted and implemented. In such cases, the manager’s experience and judgement play an important role in selecting the best alternative.
6.Implementing the Plan
This is the step where other managerial functions come into the picture. This step is concerned with “DOING WHAT IS REQUIRED”. In this step, managers communicate the plan to the employees clearly to convert the plans into action. This step involves allocating the resources, organising for labour and purchase of machinery.
7.Follow Up Action
Monitoring the plan constantly and taking feedback at regular intervals is called follow-up. Monitoring of plans is very important to ensure that the plans are being implemented according to the schedule. Regular checks and comparisons of the results with set standards are done to ensure that objectives are achieved.
Q9) What are the features of a good plan?
A9) A good plan should have the following features:
1.Integration- A good plan should integrate the short-term requirements of the firm with its long-term requirements. Plans must be oriented towards the achievement of overall organisational goals. Short-term plans should contribute to long-term plans. They should set direction for desired course of action for achieving the long-term plan.
2.Market Research- Planners must conduct a thorough market research before framing plans. What potential customers say they are going to do and what they end up doing may be two different things. Plans should, therefore, forecast on the market requirements through a well conducted market research.
3.Consistent- Plans should be consistent in terms of adaptability to environmental factors and organisational resources. They should be followed for a fairly long period of time. It is important that the plans are acceptable to those who frame them and also those who implement them. Frequent alterations in plans by higher levels can make their implementation ineffective at lower levels.
4.Acceptable- Best laid plans may turn out to be failures if they are not implemented properly. It is important, therefore, that plans are acceptable not only to those who frame them but also to those who implement them.
Q10) Discuss the role of planning in a fast changing environment.
A10) Planning is a primary management function which every organisation has to undertake irrespective of its size, nature and origin. A plan may be defined as detailed course of action designed today to do something tomorrow. Thus, planning is an intellectual attempt by a manager to anticipate the future for better organisational performance. To be successful today, all organizations must conduct their planning efforts in a way that accounts for the complex and rapidly evolving environment. Planning enables management to command the future rather than being swept away by future. In a fast changing environment the need for planning is all the more important because risk and uncertainty increases.
Strategic planning is actively engaging in a process that identifies change and modifies business activity to take best advantage of change. Therefore, by definition, the rapid the change is, the more important becomes strategic planning.
The external environment is not controllable. The managers of a business have no control over business competitors, or changes to law, or general economic conditions. However, the managers of a business or organization do have some measure of control as to how the business reacts to changes in its external environment. By properly anticipating these changes and reacting with a strategic plan, business can insulate it from the ill-effects of change brought by external factors. The following are some of the external factors which make strategic planning more relevant.
•Market (Competition): The strength of business competition is a constantly changing factor in the external business environment. Not only will competitors come and go, but they will also change marketing strategies, product lines and prices. Often such changes are not heralded and business managers must be alert as to what competitors are doing so as to draw a counter strategy.
•Technology: Technological change has been rapid in the last 50 years and is a factor in the external environment that constantly exerts pressure on the business or organization. If businesses do not adapt sufficiently quickly to technological change, they risk losing market share. It's not just that technological change affects the design of products, but even the delivery of services can change. Therefore a proper strategy to counter the rapid changes brought in by technology becomes more relevant.
•Legal: Taxation is one of most obvious changes in law through legislation. Sometimes taxation changes occur overnight with little warning and sometimes there is plenty of time for the business to prepare. Other law changes that commonly affect business include Workplace Health and Safety, Industrial Relations, Consumer Protection and Environmental Law, Therefore, strategic planning has to take care of the anticipated changes in law also.
•Political: Like law, changes in government policy can be well notified and discussed, or without warning. As an example of how government policy has an effect, is that many organizations depend on government financial assistance. When there is a change of government, such funding assistance can disappear in a short space of time. Therefore, strategic planning has to anticipate and take care of any regime change.
Therefore, strategic planning becomes all the more important in a rapidly changing business environment.
Managing risk is essential to an organization’s success. Even the largest corporations cannot control the economic and competitive environment around them. Unforeseen events occur that must be dealt with quickly, before negative financial consequences from these events become severe. Planning encourages the development of “what-if” scenarios, where managers attempt to envision possible risk factors and develop contingency plans to deal with them. The pace of change in business is rapid, and organizations must be able to rapidly adjust their strategies to these changing conditions.
Q11) How can planning be made more effective?
A11) Planning has to be precise and effective for the success of the organisation. According to Koontz and O’Donnell, the following steps nave to be taken in order to make planning effective:
1. Create climate for planning: Conducive climate must be provided so that activities proceed smoothly and systematically and as planned. Planning must not be left to chance. A stepwise sequence needs to be created so that top managers are able to remove obstacles to planning. This can be achieved by establishing clear-cut goals, realistic planning premises and offering required information and appropriate staff assistance at various levels as and when required.
2. Support from the top management: Since planning is pervasive in nature hence the concept of planning must be started at the top levels of the organisation. In other words, the planning cannot be initiated until and unless the top management supports this concept and provides continuous attention. They must be willing to extend a helping hand, whenever required.
3. Equal Participation: Plans can only be implemented if the employees acknowledge this concept and are ready to participate in the whole processes. So, it is necessary to secure acceptance and commitment from each and everyone in the organisation. One way to increase commitment is to encourage subordinates participation in the planning process. Planning comes alive when employees are involved in setting goals and determining the means to reach them.
4. Proper communication: Nothing can be possible in the organisation until and unless there is a proper and a well developed communication network hence goals, premises and policies must be properly communicated to people. People must know what they are supposed to do, when, how and where. The time limits must also be communicated in advance.
5. Integration: All the plans that have been formulated must be properly balanced and integrated with the organisational Mission Statement. They must support each other and should not work at cross purposes. Every attempt should be made to ensure that there is minimum wastage of the efforts and the resources so that the pay-offs of planning are more than the costs involved.
6. Strict monitoring: Plans must be subjected to regular and appraisal in view of the dynamic nature of the environment that includes both the internal as well as external changes. The best way to enable proper monitoring is by keeping the plan flexible to the extent possible.
Q12) Discuss the different types of planning.
A12) Planning may be of different types- Corporate, Functional, Proactive and Reactive, Formal and Informal 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 a whole, 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.
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 is 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 around 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 use.
Examples of strategic planning in an organisation may be- planned growth rate in sales, diversification of business. 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 following:
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.
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 is often defined as- “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.
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.
II. Functional Planning:
The planning that is made to make sure smooth working of the organisation taking into account the needs of each and every department is called functional planning.
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.
Functional assessment should have the following 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, alongside recommendations to refill those gaps and risks.
IV. Proactive and Reactive Planning:
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 is 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 is not complex, they do reasonably well with informal planning process.
Q13) What is decision making? Discuss the nature of decision-making.
A13) A decision can be defined as a course of action purposely chosen from a set of alternatives to achieve organizational or managerial objectives or goals. Decision making process is continuous and indispensable component of managing any organization or business activities. Decisions are made to sustain the activities of all business activities and organizational functioning. Decisions are made at every level of management to ensure organizational or business goals are achieved. Further, the decisions make up one of core functional values that every organization adopts and implements to ensure optimum growth and drivability in terms of services and or products offered.
According to Trewatha & Newport, “Decision-making involves the selection of a course of action from among two or more possible alternatives in order to arrive at a solution for a given problem”.
Since it is an ongoing activity, decision making process plays vital importance in the functioning of an organization. Since intellectual minds are involved in the process of decision making, it requires solid scientific knowledge coupled with skills and experience in addition to mental maturity.
Further, decision making process can be regarded as check and balance system that keeps the organisation growing both in vertical and linear directions. It means that decision making process seeks a goal.
The following is the nature of decision-making:
1. Goal-Oriented Process:
Decision-making is a goal-oriented process. It aims at achieving certain specific goals of the organisation.
2. Selection Process:
Decision-making is a selection process in which best alternative course of action is chosen from the given alternative courses of action.
3. Continuous Process:
Decision-making is a continuous process because a manager is required to take decisions continuously for different activities.
4. Art as Well as Science:
Decision-making is considered both an art and a science.
5. Responsibilities of Managers:
Decision-making is the responsibility of managers at different levels of management.
6. Positive as Well as Negative:
Decision-making can be both positive and negative i.e. it may be positive (to perform certain activities) or negative (not to perform certain activities).
7. Future Course of Action:
Decisions are made for future course of action based on the basis of past experiences and present conditions.
Q14) Explain the decision- making process.
A14) Decision making is a daily activity for any human being. There is no exception about that. When it comes to business organizations, decision making is a habit and a process as well. In the decision making process, we choose one course of action from a few possible alternatives making use of many tools, techniques and perceptions. Following are the important steps of the decision making process.
Step 1: Identification of the purpose of the decision
In this step, the problem is thoroughly analysed. There are a couple of questions one should ask when it comes to identifying the purpose of the decision.
•What exactly is the problem?
•Why the problem should be solved?
•Who are the affected parties of the problem?
•Does the problem have a deadline or a specific time-line?
Step 2: Information gathering
A problem of an organization will have many stakeholders. In addition, there can be dozens of factors involved and affected by the problem. In the process of solving the problem, we will have to gather as much as information related to the factors and stakeholders involved in the problem. For the process of information gathering, tools such as 'Check Sheets' can be effectively used.
Step 3: Principles for judging the alternatives
In this step, the baseline criteria for judging the alternatives should be set up. When it comes to defining the criteria, organizational goals as well as the corporate culture should be taken into consideration.
Step 4: Brainstorm and analyse the different choices
For this step, brainstorming to list down all the ideas is the best option. Before the idea generation step, it is vital to understand the causes of the problem and prioritization of causes. Then, one can move on generating all possible solutions (alternatives) for the problem in hand.
Step 5: Evaluation of alternatives
We should use our judgement principles and decision-making criteria to evaluate each alternative. In this step, experience and effectiveness of the judgement principles come into play. We need to compare each alternative for their positives and negatives.
Step 6: Select the best alternative
Selection of the best alternative is an informal decision since we have already followed a methodology to derive and select the best alternative.
Step 7: Execute the decision
In this step the decision is converted into a plan or a sequence of activities. The plan is to be executed by oneself or with the help of subordinates.
Step 8: Evaluate the results
Now is the time to evaluate the outcome of our decision. We should see whether there is anything to learn and then we should correct it in future decision making. This is one of the best practices that will improve our decision-making skills.
When it comes to making decisions, one should always weigh the positive and negative business consequences and should favour the positive outcomes. This helps to avoid the possible losses to the organization and keeps the company running with a sustained growth.
Q15) Discuss the different types of decisions.
A15) The following are the main types of decisions every organization need to take:
1. Programmed and Non-programmed Decisions
Programmed decisions are concerned with the problems 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 type may pertain to e.g. Purchase of raw material, granting leave to an employee and supply of goods and implements to the employees, etc.
Non-programmed decisions relate to difficult situations for which there is no easy solution. These matters are very important for the organisation.
2. Routine and Strategic Decisions
Routine decisions are related to the general functioning of the organisation. They do not require much evaluation and analysis and can be taken quickly. Ample powers are delegated to lower ranks to take 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 many alternatives. These decisions are taken at the higher level of management.
3. Tactical (Policy) and Operational Decisions
Decisions pertaining to various policy matters of the organisation are policy decisions. These are taken by the top management and have long term impact on the functioning of the concern. For example, 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. Decisions concerning payment of bonus to employees are a policy decision. 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 is known as organisational decision.
If decision is taken by the executive in the personal capacity, thereby affecting his personal life, it is known as personal decision.
5. Major and Minor Decisions
Another classification of decisions is major and minor. Decision pertaining to purchase of new factory premises is a major decision. Major decisions are taken by top management. Purchase of office stationery is a minor decision which can be taken by office superintendent.
6. Individual and Group decisions
When the decision is taken by a single individual, it is known 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 very important and pertinent matters for the organisation are referred to this committee. The main aim in taking group decisions is the involvement of maximum number of individuals in the process of decision¬- making.
Q16) Discuss the elements of rationality and creativity in decision making.
A16) Rational decision making is a multi-step process, from problem identification through solution, for making logically sound decisions. The process of rational decision making favors logic, objectivity, and analysis over subjectivity and insight. The word “rational” in this context does not mean sane or clear-headed as it does in the colloquial sense. The rational model of decision making assumes that people will make choices that maximize benefits and minimize any costs. The idea of rational choice is easy to see in economic theory. For example, most people want to get the most useful products at the lowest price; because of this, they will judge the benefits of a certain object (for example, how useful is it or how attractive is it) compared to those of similar objects. They will then compare prices (or costs). In general, people will choose the object that provides the greatest reward at the lowest cost.
The rational-decision-making model does not consider factors that cannot be quantified, such as ethical concerns or the value of altruism. It leaves out consideration of personal feelings, loyalties, or sense of obligation. Its objectivity creates a bias toward the preference for facts, data and analysis over intuition or desires.
Critics of the rational model of decision-making claim that this model makes unrealistic and over-simplified assumptions. Individual rationality is limited by their ability to conduct analysis and think through competing alternatives. The more complex a decision, the greater the limits are to making completely rational choices.
Creativity is generally defined as an ability to think originally and bring out something new. It is a genuine human thinking process by which certain individuals conceive ideas which do not strike others. Creativity is a human faculty which helps individuals and groups to take sound decisions on various problems. It is a vital ingredient in successful decision-making. However, creativity by itself is not enough in decision making.
If a decision maker is going to produce novel alternatives when solving a problem, then he or she is going to need a little creativity to help the process along. Creativity allows the decision maker to more fully appraise and understand the problem. Creativity is the ability to link or combine ideas in novel ways and their unique alternatives have to be considered useful to others. Creativity is also known as divergent or lateral thinking. Lateral thinking moves away from the linear approach that is advocated in rational decision making. Some researchers feel that employee and manager creativity is the hallmark of an organization’s success—that solving old organizational issues in new ways creates organizational effectiveness. First, it’s important to note the characteristics of creative people, so we can understand what we are aiming for in our creative environment. Creative decision makers seem to have an ability to shift through the massive amounts of information that can be reviewed when making a decision, and decide what information is and is not relevant. Still, they listen to all sources to understand where problems are emerging. And when they’re ready, they present a solution that is bold and well informed. They do not rely on the rational decision making model. They rely on something more than that.
Four characteristics that creative leaders seem to have in common:
•Perseverance in the face of obstacles and adversity.
•Willingness to take risks.
•Willingness to grow and openness to experience.
•Tolerance of ambiguity.
•Effective use of analogy to apply a known situation to an unknown situation.
Studies show that most individuals have the capability of being at least moderately creative, so if organizations want to help individuals develop their creativity, they can leverage the three components of creativity. The three components of creativity suggest that creativity lies at the intersection of motivation, expertise and developed creative thinking skills.
Organizationally (and individually) speaking, there are certain factors that, when they exist, tend to point to a more creative atmosphere.
• Questioning attitude: Organizations that don’t invite the questioning of values, assumptions or norms are not likely to be very creative. Organizations need to continually question the long-held beliefs of their industry if they’re going to stay ahead of the curve and come up with creative ways to bring services and products to their customers.
• Culture: Our traditional values are sometimes at odds with the creative solutions we might come up with to solve organizational problems. If an organization’s culture puts too much emphasis on tradition, they’re likely to stifle creativity around problem solving.
• Leadership: Similar to culture, leaders who are bound to traditional characteristics of the leader-follower relationship, who don’t promote questioning attitudes or invite their employees to challenge the status quo, will not do much to foster a creative environment.
• Attitude towards risk: Finally, employees who are afraid to try something new will never put their creative solutions into action. Just as one of the characteristics of a creative leader is willingness to take risks, so employees must feel comfortable doing so in an organization.
Overall, creativity is likely to flourish in an environment that’s open and encourages participation.
Rational and creative decision-making helps managers to take wise decisions in all situations and changed circumstances.
UNIT II
PLANNING
Q1) What is planning?
A1) Planning is a major and primary function of management. No organisation can operate properly without planning. Planning is a preparatory step for action. It means systematized pre-thinking for determining a course of action to achieve some desired result. Planning is essentially a process of deciding in advance what is to be done, when and where it is to be done, and how it is to be done, and by whom. To plan is to look ahead and chalk out the future course of operations of an enterprise. Through planning, the manager fixes the objectives of the organisation as a whole and, in the light of this, the goals of its various departments. Then he proceeds to prepare a kind of ‘blueprint’ mapping out the ways of attaining these objectives.
According to Koontz and O’Donnell, planning is, “an intellectual process, the conscious determination of courses of action, the basing of decisions on purpose, facts and considered estimates.”
Thus, planning is the groundwork for all future plans of the organization. Planning bridges the gap between where the organization currently finds itself and where it wishes to be. So in essence, business planning comprises of setting objectives for the organization and developing a plan of action to achieve these objectives. Once the objectives are set, the managers and workers can have a clear vision of what to work towards. Planning requires innovation, creativity and multi-tasking from the managers. Planning is the process by which the managers of an organisation set objectives, make an overall assessment of the future, and chart the courses of action with a view to achieving the organisational goals.
Q2) What are the components of planning?
A2) The successful achievement of the objectives of any institution highly depends on planning. So, important components and elements are included in planning, on whose basis, the future execution of the institution may be possible.
Following is an analysis of the elements or components of planning:
1. Objectives
Objectives are those targets, which an organization intends to obtain during various time periods. Objectives mean those basic points which all activities of the business are directed to achieve. Objectives act as important aims for planning. The objectives are the end and planning is the means. This is the basic point and first stage of planning. The objective is the foundation of planning. Objectives create the flow of activities, provides motivation to employees to work sincerely and also help in the accomplishment of the activities in the future.
2. Policies
The principles guiding the decisions are called policies. Policies mean those general particulars and guiding principles, which specify the general limitations and line of direction, meaning thereby that while the objectives specify what to do, the policies specify how these are to be achieved. Policies are mainly those which guide the idea in taking decisions. Policies should be clear and well decided and should be written in clear language. These should be in accordance with the objectives.
3. Procedure
Procedure implies the determination of the sequence of activities for accomplishing any particular work. In other words, procedures tell how the work will be performed, in what stages it will be distributed and when and by whom it will be performed. The procedure is the action of related activities, which builds a time schedule and decides the method of performance of the work.
4. Rules
Rules mean those directive elements or plans of work or behavior, which are to be followed compulsorily by all the persons in the organization. In other words, this is such a schedule which tells what specific activity is to be carried out in particular circumstances. Rules are those schemes, which guide the necessary activities.
5. Programme
Programme means the determination of the sequence of various activities of work. In other words, determination of the sequence of various works to be done in any Institution and priorities is called programme. The programme is the series of necessary efforts for achieving an objective, which is systematic and order of priorities. Programmes may be of many types, short term programmes, like – training programmes, market research programmes, sales promotion programmes.
A programme has the following stages.
1. Identification of necessary activities.
2. Division of activities in various steps or stages.
3. To make each person, personally responsible for activities of the particular type.
4. To determine sources for every step.
5. To determine the time to be taken for every work.
6. To decide target dates for every part of the programme.
This way, the programme is also an important component of planning. However, different programmes affect each other. So, precautions should be taken in the preparation of the programmes for various departments and sub-departments of the institution.
6. Methods
Generally, methods explain the specific ways of the performance of each activity or stage of procedures. In other words, methods mean the specified process of performing any function of the institution. The objectives, available facilities, time, expenditure to incur on the efforts, capital are used into consideration. Methods are the authentic ways to accomplish the activities relating to production, tool room, workshop repetitive and routine etc. Standards methods decide the best way for the assigned work.
7. Budget
In simple words, budget means advance determined plan for the targets, efforts, and cost for executing any particular programme. In other words, the budget in the form of a plan is the calculative analysis of the expected result. Budget is an estimate of future requirements which is sequentially systematic, in which few activities of an organization for a specified time are incorporated. Budget, in the form of planning, is a description to clarify future results in numerical terms. Budgets are also expressed in terms of labour hours, units of the commodities, machinery, currency, and facilities, etc. besides monetary form. Budgets are used to establish control of business activities. Budget is a firm determination of the managers regarding the volume of sources required for implementation of the plans, so as to achieve the determined targets.
8. Time Schedule
Deciding of time for every stage of the programme is called a time schedule. If the work is not completed in time, it has no significance. Hence, time scheduling for each stage of the programme is essential. Time scheduling is decided at the time of planning itself.
9. Standards
Standards mean those yardsticks, on whose basis work performance is evaluated. Yardstick or context is a unit for standard measurement in the form of Level.
10. Strategies
Strategies mean preparing one’s own plans, by keeping the competitors in view, so that the objectives of the institution may be achieved, by sustaining the competition. In the words, when plans are prepared to meet the challenges of competitors in view, it is called strategies. Strategy is that behavior of the officers, which aim at achieving success in objectives of oneself or the organization and whose basis, actual or possible functions of others.
Q3) Differentiate between policies and procedures.
A3) The differences between policy and procedure are:
1.Policies provide guidance in decision making, whereas procedures provide guidance in the performance of works.
2.Policies are generally decided and developed at the level of top-level management, whereas procedures are decided in developed at the lower level.
3.Procedures are developed on the basis of the policies.
4.The policies frame the boundaries of the area of operation, whereas the procedures decide the way to achieve the specified objectives.
5.Policies for various departments may be different, whereas the procedure simultaneously affects the working methods of several Departments.
The advantages of procedure are, that the work becomes easy, the works done frequently remain uniform, increases the economics, as lesser supervision is required due to procedures and it also acts as the source of controls.
Q4) Chalk out the differences between methods and procedures.
A4) Following are the differences between methods and procedures.
1.Procedures determine various steps, whereas methods are related only to a specific step.
2.Methods determine the best way for accomplishing a specified step of the procedure.
3.Procedures are related to various departments, whereas methods are related to one department only.
Q5) Discuss the principles of planning.
A5) The important principles of planning may be stated as follows:
1. Principle of Commitment: This means that certain resources must be committed or pledged for the purpose of planning. Planning is not an easy task. So, necessary help is to be taken from experts. The enterprise must be ready to exhaust the available resources for the achievement of a plan.
2. Principle of the Limiting Factor: A plan involves varied factors of different importance. This principle implies that more emphasis has to be put on that factor which is scarce or limited in supply or extremely costly. This will help in selecting the most favourable alternative.
3. Principle of Reflective Thinking: Planning, being an intellectual activity is based on rational considerations. These involve reflective thinking which signifies problem-solving thought process—a process by which past experiences are superimposed on the facts of the present situation and possible future trends. None can be a planner whose mind is not active, who does not possess any deliberate power and whose sense of judgement is not strong.
4. Principle of Flexibility: Though a plan is prepared after reflective thinking, this does not mean that no departure can be made in the course of its operation. The plan should be so prepared that there is sufficient scope for changing it from time to time. Changes must necessarily be effected in the plan for taking into account new developments that may take place in the course of the operation of the plan.
5. Principle of Contribution to Enterprise Objectives: A major plan is prepared and it is supported by many derivative plans. But all plans must contribute in a positive way towards the achievement of the enterprise objectives.
6. Principle of Efficiency: A plan should be made efficient to attain the objectives of the enterprise at the minimum cost and least effort. It must also achieve better results with the minimum of unexpected happenings. Therefore, it is to be seen that what is expected is likely to be achieved.
7. Principle of Selection of Alternatives: Planning is basically a problem of choosing. The essence of planning is the choice among alternative courses of action. There is no need for planning if there is only one way for doing something. In choosing from alternatives, the best alternative will be that which contributes most efficiently and effectively to the accomplishment of a desired goal.
8. Principle of Planning Premises: A plan is prepared against some foundations or backgrounds known as ‘Planning Premises’. There must be complete agreement among the managers in respect of planning premises over which the structure of plan is to be framed.
9. Principle of Timing and Sequence of Operations: Timing and sequence of operations determine the starting and finishing time for each piece of work according to some definite schedule and give practical and concrete shape and form to work performance.
10. Principle of Securing Participation: To secure participation of the employees with whole-hearted co-operation in execution of the plan, it is necessary that the plan must be communicated and explained to them for their full understanding. This understanding provides the basis for additional knowledge about new facts and matters to the employees. This is needed for improvement in the quality of planning. It also ensures an obligation of the personnel of the enterprise to execute the plan by individual and joint participation.
11. Principle of Pervasiveness: Though major planning function is entrusted to the top management, it is not restricted to the top level only. It is a function of every manager at every level in the organisation.
12. Principle of Strategic Planning: Strategic planning is essential where there is competition. It is prepared in the light of what the competitors are intending to do. Planners must take into account the strategies of the rival organisations, otherwise the planning projection may land them in trouble.
13. Principle of Innovation: A good system of planning should be responsive to the opportunities for innovation. Innovation consists in creating something new for increasing satisfaction of the consumers. This may also be stated as an important strategy of business. Innovation is a necessity for its sustaining growth in this dynamic world. Innovation is achieved through research and development and planning is required to provide such scope.
14. Principle of Follow-up: In the course of execution of a plan, certain obstacles may crop up in midway and planning may require revision, alteration or correction. This is why there must be a follow-up system in the planning process itself. This allows timely changes in the planning and makes it more effective.
Q6) What is the importance of planning in an organization?
A6) Planning is an important function of management. It tells the manager where the organization should be headed. It also helps the organization reduce uncertainty. Let us take a look at some important functions of planning.
1.Planning provides a sense of Direction-
Planning means coming up with a pre-determined action plan for the organization. It actually states in advance what and how the work is to be done. This helps provide the workers and the managers with a sense of direction and a guidance in a way. Without planning their actions would be uncoordinated and unorganized.
2.Planning reduces Uncertainty-
Planning not only sets objectives but also anticipates any future changes in the industry or the organization. So it allows the managers to prepare for these changes, and allow them to deal with the uncertainties. Planning takes into consideration past events and trends and prepares the managers to deal with any uncertain events.
3.Planning reduces Wastefulness-
The detailed plans made keep in mind the needs of all the departments. This ensures that all the departments are on the same page about the plan and that all their activities are coordinated. There is clarity in thought which leads to clarity in action. All work is carried out without interruptions or waste of time or resources.
4.Planning invokes Innovation-
Planning actually involves a lot of innovation on the part of the managers. Being the first function of management it is a very difficult activity. It encourages the manager to broaden their horizons and forces them to think differently. So the managers have to be creative, perceptive and innovative.
5.Makes Decision-Making Easier-
In business planning the goals of the organization have been set, an action plan developed and even predictions have been made for future events. This makes it easier for all managers across all levels to make decisions with some ease. The decision-making process also becomes faster.
6.Establishes Standards-
Once the business planning is done, the managers now have set goals and standards. This provides the manager’s standards against which they can measure actual performances. This will help the organization measure if the goals have been met or not. So planning is a prerequisite to controlling.
Q7) What are the limitations of planning?
A7) While business planning is important and a requisite for every organization, it does have some limitations. Let us take a look at some limitations of business planning.
1.Rigidity- Once the planning function is complete and the action plan is set, then the manager tends to only follow the plan. The manager may not be in a position to change the plan according to circumstances. Or the manager may be unwilling to change the plan. This sort of rigidity is not ideal for an organization.
2.Not ideal in dynamic conditions- In an economic environment rarely anything is stagnant or static. Economic, political, environmental, legal conditions keep changing. In such a dynamic environment it becomes challenging to predict future changes. And if a manager cannot forecast accurately, the plan may fail.
3.Planning can also reduce creativity- While making a plan takes creativity after that managers blindly follow the plan. They do not change the plan according to the dynamic nature of the business. Sometimes they do not even make the appropriate suggestions to upper management. The work becomes routine.
4.Planning is expensive- Planning is a cost-consuming process. Since it is an intellectual and creative process, specialized professionals must be hired for the job. Also, it involves a lot of research and facts collection and number crunching. At certain times the cost of the planning process can outweigh its benefits.
Q8) Explain the process of planning.
A8) As planning is an activity, there are certain reasonable measures for every manager to follow:
1.Setting Objectives
This is the primary step in the process of planning which specifies the objective of an organisation, i.e. what an organisation wants to achieve. The planning process begins with the setting of objectives. Objectives are end results which the management wants to achieve by its operations. Objectives are specific and are measurable in terms of units. Objectives are set for the organisation as a whole for all departments, and then departments set their own objectives within the framework of organisational objectives.
2.Developing Planning Premises
Planning is essentially focused on the future, and there are certain events which are expected to affect the policy formation. Such events are external in nature and affect the planning adversely if ignored. Their understanding and fair assessment are necessary for effective planning. Such events are the assumptions on the basis of which plans are drawn and are known as planning premises.
3.Identifying Alternative Courses of Action
Once objectives are set, assumptions are made. Then the next step is to act upon them. There may be many ways to act and achieve objectives. All the alternative courses of action should be identified.
4.Evaluating Alternative Course of Action
In this step, the positive and negative aspects of each alternative are to be evaluated in the light of objectives to be achieved. Every alternative is evaluated in terms of lower cost, lower risks, and higher returns, within the planning premises and within the availability of capital.
5.Selecting One Best Alternative
The best plan and the most profitable plan having minimum negative effects, is adopted and implemented. In such cases, the manager’s experience and judgement play an important role in selecting the best alternative.
6.Implementing the Plan
This is the step where other managerial functions come into the picture. This step is concerned with “DOING WHAT IS REQUIRED”. In this step, managers communicate the plan to the employees clearly to convert the plans into action. This step involves allocating the resources, organising for labour and purchase of machinery.
7.Follow Up Action
Monitoring the plan constantly and taking feedback at regular intervals is called follow-up. Monitoring of plans is very important to ensure that the plans are being implemented according to the schedule. Regular checks and comparisons of the results with set standards are done to ensure that objectives are achieved.
Q9) What are the features of a good plan?
A9) A good plan should have the following features:
1.Integration- A good plan should integrate the short-term requirements of the firm with its long-term requirements. Plans must be oriented towards the achievement of overall organisational goals. Short-term plans should contribute to long-term plans. They should set direction for desired course of action for achieving the long-term plan.
2.Market Research- Planners must conduct a thorough market research before framing plans. What potential customers say they are going to do and what they end up doing may be two different things. Plans should, therefore, forecast on the market requirements through a well conducted market research.
3.Consistent- Plans should be consistent in terms of adaptability to environmental factors and organisational resources. They should be followed for a fairly long period of time. It is important that the plans are acceptable to those who frame them and also those who implement them. Frequent alterations in plans by higher levels can make their implementation ineffective at lower levels.
4.Acceptable- Best laid plans may turn out to be failures if they are not implemented properly. It is important, therefore, that plans are acceptable not only to those who frame them but also to those who implement them.
Q10) Discuss the role of planning in a fast changing environment.
A10) Planning is a primary management function which every organisation has to undertake irrespective of its size, nature and origin. A plan may be defined as detailed course of action designed today to do something tomorrow. Thus, planning is an intellectual attempt by a manager to anticipate the future for better organisational performance. To be successful today, all organizations must conduct their planning efforts in a way that accounts for the complex and rapidly evolving environment. Planning enables management to command the future rather than being swept away by future. In a fast changing environment the need for planning is all the more important because risk and uncertainty increases.
Strategic planning is actively engaging in a process that identifies change and modifies business activity to take best advantage of change. Therefore, by definition, the rapid the change is, the more important becomes strategic planning.
The external environment is not controllable. The managers of a business have no control over business competitors, or changes to law, or general economic conditions. However, the managers of a business or organization do have some measure of control as to how the business reacts to changes in its external environment. By properly anticipating these changes and reacting with a strategic plan, business can insulate it from the ill-effects of change brought by external factors. The following are some of the external factors which make strategic planning more relevant.
•Market (Competition): The strength of business competition is a constantly changing factor in the external business environment. Not only will competitors come and go, but they will also change marketing strategies, product lines and prices. Often such changes are not heralded and business managers must be alert as to what competitors are doing so as to draw a counter strategy.
•Technology: Technological change has been rapid in the last 50 years and is a factor in the external environment that constantly exerts pressure on the business or organization. If businesses do not adapt sufficiently quickly to technological change, they risk losing market share. It's not just that technological change affects the design of products, but even the delivery of services can change. Therefore a proper strategy to counter the rapid changes brought in by technology becomes more relevant.
•Legal: Taxation is one of most obvious changes in law through legislation. Sometimes taxation changes occur overnight with little warning and sometimes there is plenty of time for the business to prepare. Other law changes that commonly affect business include Workplace Health and Safety, Industrial Relations, Consumer Protection and Environmental Law, Therefore, strategic planning has to take care of the anticipated changes in law also.
•Political: Like law, changes in government policy can be well notified and discussed, or without warning. As an example of how government policy has an effect, is that many organizations depend on government financial assistance. When there is a change of government, such funding assistance can disappear in a short space of time. Therefore, strategic planning has to anticipate and take care of any regime change.
Therefore, strategic planning becomes all the more important in a rapidly changing business environment.
Managing risk is essential to an organization’s success. Even the largest corporations cannot control the economic and competitive environment around them. Unforeseen events occur that must be dealt with quickly, before negative financial consequences from these events become severe. Planning encourages the development of “what-if” scenarios, where managers attempt to envision possible risk factors and develop contingency plans to deal with them. The pace of change in business is rapid, and organizations must be able to rapidly adjust their strategies to these changing conditions.
Q11) How can planning be made more effective?
A11) Planning has to be precise and effective for the success of the organisation. According to Koontz and O’Donnell, the following steps nave to be taken in order to make planning effective:
1. Create climate for planning: Conducive climate must be provided so that activities proceed smoothly and systematically and as planned. Planning must not be left to chance. A stepwise sequence needs to be created so that top managers are able to remove obstacles to planning. This can be achieved by establishing clear-cut goals, realistic planning premises and offering required information and appropriate staff assistance at various levels as and when required.
2. Support from the top management: Since planning is pervasive in nature hence the concept of planning must be started at the top levels of the organisation. In other words, the planning cannot be initiated until and unless the top management supports this concept and provides continuous attention. They must be willing to extend a helping hand, whenever required.
3. Equal Participation: Plans can only be implemented if the employees acknowledge this concept and are ready to participate in the whole processes. So, it is necessary to secure acceptance and commitment from each and everyone in the organisation. One way to increase commitment is to encourage subordinates participation in the planning process. Planning comes alive when employees are involved in setting goals and determining the means to reach them.
4. Proper communication: Nothing can be possible in the organisation until and unless there is a proper and a well developed communication network hence goals, premises and policies must be properly communicated to people. People must know what they are supposed to do, when, how and where. The time limits must also be communicated in advance.
5. Integration: All the plans that have been formulated must be properly balanced and integrated with the organisational Mission Statement. They must support each other and should not work at cross purposes. Every attempt should be made to ensure that there is minimum wastage of the efforts and the resources so that the pay-offs of planning are more than the costs involved.
6. Strict monitoring: Plans must be subjected to regular and appraisal in view of the dynamic nature of the environment that includes both the internal as well as external changes. The best way to enable proper monitoring is by keeping the plan flexible to the extent possible.
Q12) Discuss the different types of planning.
A12) Planning may be of different types- Corporate, Functional, Proactive and Reactive, Formal and Informal 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 a whole, 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.
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 is 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 around 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 use.
Examples of strategic planning in an organisation may be- planned growth rate in sales, diversification of business. 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 following:
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.
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 is often defined as- “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.
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.
II. Functional Planning:
The planning that is made to make sure smooth working of the organisation taking into account the needs of each and every department is called functional planning.
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.
Functional assessment should have the following 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, alongside recommendations to refill those gaps and risks.
IV. Proactive and Reactive Planning:
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 is 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 is not complex, they do reasonably well with informal planning process.
Q13) What is decision making? Discuss the nature of decision-making.
A13) A decision can be defined as a course of action purposely chosen from a set of alternatives to achieve organizational or managerial objectives or goals. Decision making process is continuous and indispensable component of managing any organization or business activities. Decisions are made to sustain the activities of all business activities and organizational functioning. Decisions are made at every level of management to ensure organizational or business goals are achieved. Further, the decisions make up one of core functional values that every organization adopts and implements to ensure optimum growth and drivability in terms of services and or products offered.
According to Trewatha & Newport, “Decision-making involves the selection of a course of action from among two or more possible alternatives in order to arrive at a solution for a given problem”.
Since it is an ongoing activity, decision making process plays vital importance in the functioning of an organization. Since intellectual minds are involved in the process of decision making, it requires solid scientific knowledge coupled with skills and experience in addition to mental maturity.
Further, decision making process can be regarded as check and balance system that keeps the organisation growing both in vertical and linear directions. It means that decision making process seeks a goal.
The following is the nature of decision-making:
1. Goal-Oriented Process:
Decision-making is a goal-oriented process. It aims at achieving certain specific goals of the organisation.
2. Selection Process:
Decision-making is a selection process in which best alternative course of action is chosen from the given alternative courses of action.
3. Continuous Process:
Decision-making is a continuous process because a manager is required to take decisions continuously for different activities.
4. Art as Well as Science:
Decision-making is considered both an art and a science.
5. Responsibilities of Managers:
Decision-making is the responsibility of managers at different levels of management.
6. Positive as Well as Negative:
Decision-making can be both positive and negative i.e. it may be positive (to perform certain activities) or negative (not to perform certain activities).
7. Future Course of Action:
Decisions are made for future course of action based on the basis of past experiences and present conditions.
Q14) Explain the decision- making process.
A14) Decision making is a daily activity for any human being. There is no exception about that. When it comes to business organizations, decision making is a habit and a process as well. In the decision making process, we choose one course of action from a few possible alternatives making use of many tools, techniques and perceptions. Following are the important steps of the decision making process.
Step 1: Identification of the purpose of the decision
In this step, the problem is thoroughly analysed. There are a couple of questions one should ask when it comes to identifying the purpose of the decision.
•What exactly is the problem?
•Why the problem should be solved?
•Who are the affected parties of the problem?
•Does the problem have a deadline or a specific time-line?
Step 2: Information gathering
A problem of an organization will have many stakeholders. In addition, there can be dozens of factors involved and affected by the problem. In the process of solving the problem, we will have to gather as much as information related to the factors and stakeholders involved in the problem. For the process of information gathering, tools such as 'Check Sheets' can be effectively used.
Step 3: Principles for judging the alternatives
In this step, the baseline criteria for judging the alternatives should be set up. When it comes to defining the criteria, organizational goals as well as the corporate culture should be taken into consideration.
Step 4: Brainstorm and analyse the different choices
For this step, brainstorming to list down all the ideas is the best option. Before the idea generation step, it is vital to understand the causes of the problem and prioritization of causes. Then, one can move on generating all possible solutions (alternatives) for the problem in hand.
Step 5: Evaluation of alternatives
We should use our judgement principles and decision-making criteria to evaluate each alternative. In this step, experience and effectiveness of the judgement principles come into play. We need to compare each alternative for their positives and negatives.
Step 6: Select the best alternative
Selection of the best alternative is an informal decision since we have already followed a methodology to derive and select the best alternative.
Step 7: Execute the decision
In this step the decision is converted into a plan or a sequence of activities. The plan is to be executed by oneself or with the help of subordinates.
Step 8: Evaluate the results
Now is the time to evaluate the outcome of our decision. We should see whether there is anything to learn and then we should correct it in future decision making. This is one of the best practices that will improve our decision-making skills.
When it comes to making decisions, one should always weigh the positive and negative business consequences and should favour the positive outcomes. This helps to avoid the possible losses to the organization and keeps the company running with a sustained growth.
Q15) Discuss the different types of decisions.
A15) The following are the main types of decisions every organization need to take:
1. Programmed and Non-programmed Decisions
Programmed decisions are concerned with the problems 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 type may pertain to e.g. Purchase of raw material, granting leave to an employee and supply of goods and implements to the employees, etc.
Non-programmed decisions relate to difficult situations for which there is no easy solution. These matters are very important for the organisation.
2. Routine and Strategic Decisions
Routine decisions are related to the general functioning of the organisation. They do not require much evaluation and analysis and can be taken quickly. Ample powers are delegated to lower ranks to take 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 many alternatives. These decisions are taken at the higher level of management.
3. Tactical (Policy) and Operational Decisions
Decisions pertaining to various policy matters of the organisation are policy decisions. These are taken by the top management and have long term impact on the functioning of the concern. For example, 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. Decisions concerning payment of bonus to employees are a policy decision. 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 is known as organisational decision.
If decision is taken by the executive in the personal capacity, thereby affecting his personal life, it is known as personal decision.
5. Major and Minor Decisions
Another classification of decisions is major and minor. Decision pertaining to purchase of new factory premises is a major decision. Major decisions are taken by top management. Purchase of office stationery is a minor decision which can be taken by office superintendent.
6. Individual and Group decisions
When the decision is taken by a single individual, it is known 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 very important and pertinent matters for the organisation are referred to this committee. The main aim in taking group decisions is the involvement of maximum number of individuals in the process of decision¬- making.
Q16) Discuss the elements of rationality and creativity in decision making.
A16) Rational decision making is a multi-step process, from problem identification through solution, for making logically sound decisions. The process of rational decision making favors logic, objectivity, and analysis over subjectivity and insight. The word “rational” in this context does not mean sane or clear-headed as it does in the colloquial sense. The rational model of decision making assumes that people will make choices that maximize benefits and minimize any costs. The idea of rational choice is easy to see in economic theory. For example, most people want to get the most useful products at the lowest price; because of this, they will judge the benefits of a certain object (for example, how useful is it or how attractive is it) compared to those of similar objects. They will then compare prices (or costs). In general, people will choose the object that provides the greatest reward at the lowest cost.
The rational-decision-making model does not consider factors that cannot be quantified, such as ethical concerns or the value of altruism. It leaves out consideration of personal feelings, loyalties, or sense of obligation. Its objectivity creates a bias toward the preference for facts, data and analysis over intuition or desires.
Critics of the rational model of decision-making claim that this model makes unrealistic and over-simplified assumptions. Individual rationality is limited by their ability to conduct analysis and think through competing alternatives. The more complex a decision, the greater the limits are to making completely rational choices.
Creativity is generally defined as an ability to think originally and bring out something new. It is a genuine human thinking process by which certain individuals conceive ideas which do not strike others. Creativity is a human faculty which helps individuals and groups to take sound decisions on various problems. It is a vital ingredient in successful decision-making. However, creativity by itself is not enough in decision making.
If a decision maker is going to produce novel alternatives when solving a problem, then he or she is going to need a little creativity to help the process along. Creativity allows the decision maker to more fully appraise and understand the problem. Creativity is the ability to link or combine ideas in novel ways and their unique alternatives have to be considered useful to others. Creativity is also known as divergent or lateral thinking. Lateral thinking moves away from the linear approach that is advocated in rational decision making. Some researchers feel that employee and manager creativity is the hallmark of an organization’s success—that solving old organizational issues in new ways creates organizational effectiveness. First, it’s important to note the characteristics of creative people, so we can understand what we are aiming for in our creative environment. Creative decision makers seem to have an ability to shift through the massive amounts of information that can be reviewed when making a decision, and decide what information is and is not relevant. Still, they listen to all sources to understand where problems are emerging. And when they’re ready, they present a solution that is bold and well informed. They do not rely on the rational decision making model. They rely on something more than that.
Four characteristics that creative leaders seem to have in common:
•Perseverance in the face of obstacles and adversity.
•Willingness to take risks.
•Willingness to grow and openness to experience.
•Tolerance of ambiguity.
•Effective use of analogy to apply a known situation to an unknown situation.
Studies show that most individuals have the capability of being at least moderately creative, so if organizations want to help individuals develop their creativity, they can leverage the three components of creativity. The three components of creativity suggest that creativity lies at the intersection of motivation, expertise and developed creative thinking skills.
Organizationally (and individually) speaking, there are certain factors that, when they exist, tend to point to a more creative atmosphere.
• Questioning attitude: Organizations that don’t invite the questioning of values, assumptions or norms are not likely to be very creative. Organizations need to continually question the long-held beliefs of their industry if they’re going to stay ahead of the curve and come up with creative ways to bring services and products to their customers.
• Culture: Our traditional values are sometimes at odds with the creative solutions we might come up with to solve organizational problems. If an organization’s culture puts too much emphasis on tradition, they’re likely to stifle creativity around problem solving.
• Leadership: Similar to culture, leaders who are bound to traditional characteristics of the leader-follower relationship, who don’t promote questioning attitudes or invite their employees to challenge the status quo, will not do much to foster a creative environment.
• Attitude towards risk: Finally, employees who are afraid to try something new will never put their creative solutions into action. Just as one of the characteristics of a creative leader is willingness to take risks, so employees must feel comfortable doing so in an organization.
Overall, creativity is likely to flourish in an environment that’s open and encourages participation.
Rational and creative decision-making helps managers to take wise decisions in all situations and changed circumstances.
