 Planning is the fundamental management function, which

involves deciding beforehand, what is to be done, when

is it to be done, how it is to be done and who is going to do
it. It is an intellectual process which lays down
organization's objectives and develops various
courses of action, by which the organization can achieve
those objectives.
 A plan is a blueprint for goal achievement that specifies
the necessary resource allocations, schedules, tasks, and
other actions.
Objectives of Planning
 To focus attention on objective & results.

 To reduce uncertainty and change.

 To provide sense of direction.

 To encourage innovation and creativity.

 To help in coordination.
NATURE OF PLANNING
 Planning is goal-oriented.
 Planning is a primary function
 Planning is all-pervasive
 Planning is a continuous process
 Planning is forward-looking
 Planning involves choice
 Planning is directed towards efficiency
IMPORTANCE OF PLANNING
 It helps managers to improve future performance, by
establishing objectives and selecting a course of action, for
the benefit of the organization.
 It minimizes risk and uncertainty, by looking ahead into
future.
 It facilitates coordination of activities. Thus, reduces
overlapping among activities and eliminates unproductive
work.
 It states in advance, what should be done in future, so
it provides direction for action.
 It uncovers and identifies future opportunities and
threats.
 It sets out standards for controlling. It compares
actual performance with the standard performance
and efforts are made to correct the same.
Advantages of Planning
 It gives direction to managers and non-managers.

 Helping to Management

 Effective Utilization of Resources

 Minimum Cost

 Help in Coordination

 Facilitates Decision-making
 Defining the organization’s objectives or goals.

 Establishing an overall strategy for achieving those goals.

 Developing a comprehensive hierarchy of plans to integrate

and coordinate activities.
 Planning can reduce the impact of change.
Disadvantages of Planning
 Lack of Reliable Data

 Time Consuming Process

 Expensive

 External Factors may Reduce Utility

 Sudden Emergencies

 Resistance to Change
PLANNING PROCESS
Recognizing Need for Action
 An important part of the planning process is to be aware of the
business opportunities in the firm’s external environment as well as
within the firm. Once such opportunities get recognized the managers
can recognize the actions that need to be taken to realize them. A
realistic look must be taken at the prospect of these new opportunities
and a SWOT analysis should be done.
 Say for example the government plans on promoting cottage industries
in semi-urban areas. A firm can look to explore this opportunity.
 Setting Objectives
 This is the second and perhaps the most important step of the
planning process. Here we establish the objectives for the whole
organization and also individual departments. Organizational
objectives provide a general direction, objectives of departments will be
more planned and detailed.
 Objectives can be long term and short term as well. They indicate the
end result the company wishes to achieve.
 Developing Premises
 Planning is always done keeping the future in mind, however, the
future is always uncertain. So in the function of management certain
assumptions will have to be made. These assumptions are the
premises. Such assumptions are made in form of forecasts, existing
plans, past policies etc.
 These planning premises are also of two types – internal and
external. External assumptions deal with factors such as political
environment, social environment, advancement of technology,
competition, government policies etc. Internal assumptions deal with
policies, availability of resources, quality of management etc.
 These assumptions being made should be uniform across the
organization. All managers should be aware of these premises and
should agree with them.
 Identifying Alternatives
 The fourth step of the planning process is to identify the
alternatives available to the managers. There is no one way
to achieve the objectives of the firm, there is a multitude of
choices. All of these alternative courses should be
identified. There must be options available to the manager.
 Maybe he chooses an innovative alternative hoping for
more efficient results. If he does not want to experiment he
will stick to the more routine course of action. The problem
with this step is not finding the alternatives but narrowing
them down to a reasonable amount of choices so all of
them can be thoroughly evaluated.
Examining Alternate Course of
Action
 The next step of the planning process is to evaluate
and closely examine each of the alternative plans.
Every option will go through an examination where all
there pros and cons will be weighed. The alternative
plans need to be evaluated in the light of the
organizational objectives.
Selecting the Alternative
 Finally, we reach the decision making stage of the
planning process. Now the best and most feasible plan
will be chosen to be implemented. The ideal plan is
the most profitable one with the least amount of
negative consequences and is also adaptable to
dynamic situations.
 The choice is obviously based on scientific analysis and
mathematical equations. But a managers intuition and
experience should also play a big part in this decision.
Sometimes a few different aspects of different plans are
combined to come up with the one ideal plan.
Formulating Supporting Plan
 Once you have chosen the plan to be implemented,
managers will have to come up with one or more
supporting plans. These secondary plans help with the
implementation of the main plan.
Implementation of the Plan
 And finally, we come to the last step of the planning
process, implementation of the plan. This is when all
the other functions of management come into play and
the plan is put into action to achieve the objectives of
the organization. The tools required for such
implementation involve the types of plans-
procedures, policies, budgets, rules, standards etc.
 Major Barriers to Planning
 Barrier # 1. Dynamic and Complex Environments
 Barrier # 2. Reluctance to Establish Goals
 Barrier # 3. Resistance to Change
 Barrier # 4. Constraints
 Barrier # 5. Time and Expense
 Barrier # 6. Psychological Difficulties
 Barrier # 7. Technical Problems
 Barrier # 8. Misunderstanding
 Barrier # 9. Lack of an Appropriate ‘Planning Climate’
 Planning Premises
 Planning premises are defined as the anticipated
environment in which plans are expected to operate.
They include assumptions or forecasts of the future
and known conditions that will effect the operation of
plans.
Type : 1
 Internal Premises come from the business itself. It
includes skills of the workers, capital investment
policies, philosophy of management, sales forecasts,
etc.

 External Premises come from the external

environment. That is, economic, social, political,
cultural and technological environment. External
premises cannot be controlled by the business.
Type : 2
 Controllable Premises are those which are fully
controlled by the management. They include factors
like materials, machines and money.

 Semi-controllable Premises are partly controllable.

They include marketing strategy.

 Uncontrollable Premises are those over which the

management has absolutely no control. They include
weather conditions, consumers' behavior, government
policy, natural calamities, wars, etc.
Type : 3
 Tangible Premises can be measured in quantitative
terms. They include units of production and sale,
money, etc.

 Intangible Premises cannot be measured in

quantitative terms. They include goodwill of the
business, employee's morale, employee's attitude and
public relations.
Type : 4
 Constant Premises do not change. They remain the
same, even if there is a change in the course of action.
They include men, money and machines.

 Variable Premises are subject to change. They change

according to the course of action. They include union-
management relations.
Objective Setting
 All organizations have a formal legally specified organ
for setting objectives.
 Top management determine the overall objectives
which other members strive to achieve.
 The objectives may be set by vote of members, by
few individuals who own the organization. In large
corporate, board of directors, or, executive
committee may set the objective.
Types of Objectives
 Organizational objectives form a broad range from
broad aim to specific.
 The objective of each sub-unit contribute to the
objectives of the larger unit.
 The objectives usually reflect socio-economic aspect of
mission.
Can be said as a hierarchy of objectives:
 Organizational objectives

 Objectives of Key Result Areas ( eg.- Productivity,

Manager’s performance)

 Sectional Objectives

 Individual Objectives
Operational Planning tools and
techniques
• Forecasting tries to predict the future.
• Contingency planning creates back-up plans for
when things go wrong.
• Scenario planning crafts plans for alternative future
conditions.
• Benchmarking identifies best practices.
• Staff planners provide special expertise.
• Participatory planning improves implementation.
• Goal setting helps align plans and activities.
TOOLS AND TECHNIQUES

Forecasting
Forecasting attempts to predict the future
 Qualitative forecasting relies on expert opinions
 Quantitative forecasting relies on mathematical
models and statistical analysis
TOOLS AND TECHNIQUES

Contingency and Scenario planning

Contingency planning identifies alternative courses of
action when things go wrong.
Scenario planning identifies future scenarios and how
to deal with them.
TOOLS AND TECHNIQUES

Benchmarking
Benchmarking identifies best practices used by others
 External comparisons provide insight for planning
 Best practices are methods that provide superior
performance
TOOLS AND TECHNIQUES

Planners and Participation

Staff planners provide expertise in the planning
process
Participatory planning improves the implementation
process
TOOLS AND TECHNIQUES

Goals
Goal setting aligns plans and activities
Specific • clearly target key result and outcomes to be accomplished

Timely • linked to specific timetables and “due dates”

Measurable • described so results can be measured without ambiguity.

Challenging • include a stretch factor that moves toward real gains.

Attainable • although challenging, realistic and possible to achieve.

Management By Objective
 MBO sharply focuses on objectives or, results and it
emphasizes participative management, approach that
provides high motivation to individuals in an
organization.
 MBO term is coined by Peter Drucker, 1954.
6 Step MBO Process
 1. Setting Organizational Purpose & organizational
Objective
 2. Key Result Areas
 3. Setting Subordinate Objectives
 4. Matching Resources
 5. Appraisal
 6. Recycling
Decision making
 Latin word ‘Decidere’ means cutting away or, cutting off.

 Is the cornerstone of planning.

 Is the catalyst that drives the planning process. –

Underlies every aspect of setting goals and formulating
plans.

 Decision making is the act of choosing one alternative

from among a set of alternatives.
Contd..
Sometimes effective decisions must be made to:

 Optimize some set of factors such as profits, sales,

employee welfare and market share

 Minimize loss, expenses or employee turnover

 Select best method for going out of business, laying off

employees, or terminating a strategic alliance.
Types of Decisions
 Herbert Simon has grouped it in 2,

 Programmed decision is one that is fairly structured or recurs

with some frequency (or both).Routine & Repetitive within the
organizational framework. Eg.-McDonald’s employees are trained.

 Non programmed decision is one that is unstructured and

occurs much less often than a programmed decision. Non-
recurring and readymade solutions are not available. Most of
the strategic decisions (as it is framed under partial ignorance).
 Decision-Making Styles
High
Tolerance for Ambiguity

Analytic Conceptual

Directive Behavioral

Low

Rational Way of Thinking Intuitive

 Ambiguity – the condition of being doubtful or
uncertain
 Rational – based on reason
 Intuitive – Based on what one feels to be true even
without conscious reasoning
Analytical
 High tolerance for ambiguity

 Gather as many facts as possible

 Develop complex solutions

 Enjoys challenging situations

Conceptual
 High tolerance for ambiguity

 Consider broad range of information

 Tend toward participative decision making

Behavioral
 Low tolerance for ambiguity

 Focus on people

 Low data input into decisions

 Deep concern for people

Directive
 Low tolerance for ambiguity
 Systematic
 Technical in nature and based on facts
 Tend to be autocratic
 Use little information, consider few alternatives, and
tend toward control
 Simple, clear-cut decisions
 Efficient and rely on rules
Decision-Making Process
 Decision-Making Process includes:

recognizing and defining the nature of a decision situation

i.e. Specific objectives and indentifying problems
Search & identify alternatives
Evaluate the alternatives
choosing the ‘best’ [most effective] alternative and
putting it into practice.
Result
Feedback
Decision-Making Conditions
 Decision Making Under
Certainty

 Decision Making Under Risk

 Decision Making Under

Uncertainty
Decision Making Under Certainty

A state of certainty exists when a decision maker

knows, with reasonable certainty, what the
alternatives are and what conditions are associated
with each alternative.
Very few organizational decisions, however, are
made under these conditions.
One outcome of each alternative is known after
evaluation.
Decision Making Under Risk

A state of risk exists when a decision maker makes decisions

under a condition in which the availability of each alternative
and its potential payoffs and costs are all associated with
probability estimate.
Decisions such as these are based on past experiences, relevant
information, the advice of others and one’s own judgment.
 Probability can be attached to each outcome.
 1. Can be priori probability (chance calculated through obtaining
inferences from assumed conditions (Head & tail game but it’s
not certain.)
 2. By Empirical probability (recording actual experience)
 3. By Subjective probability (by own judgment)
Decision Making Under Uncertainty

A state of uncertainty exists when a decision maker does

not know all of the alternatives, the risks associated with
each, or the consequences each alternative is likely to have.
Most of the major decision making in today’s organizations
is done under these conditions.
To make effective decisions under these conditions,
managers must secure as much relevant information as
possible and approach the situation from a logical and
rational view.
Intuition, judgment and experience always play major roles
in the decision-making process under these conditions.
A View of Decision-Making
Conditions
The decision
maker faces
conditions of:

Certainty Risk Uncertainty

Level of ambiguity and chances of making a bad decision

Lower Moderate Higher

Simon’s approach to decision
making
 There are three different stages in the process of
decision making:

 1. Intelligence Activity : Foundation stage to discover

& Diagnose problem.(Objective defined)
 2. Decision Activity: Specific authority is entrusted to
either manager or, a team of managers.
 3.Choice Activity: Team should evaluate the
alternative ideas within framework of the decision
criteria.
Bounded Rationality Model
 Bounded rationality is the idea that when individuals
make decisions, their rationality is limited by the
information they have, the cognitive limitations of their
minds, and the time available to make the decision.

 Choosing between the alternatives.

 DECISION MAKING is
 - More Realistic Model.
 -Example: A Fair Price Why Bounded ?
 Constraint Like Time & Cost