Management & Entrepreneurship

(Course Code:10AL51)

Department of IEM

JSS Academy of Technical Education, Bengaluru-560060

Principles of Management

CHAPTER 2: PLANNING / DECISION-MAKING

Nature and importance.

Purpose of planning process.

Objectives.

Types of plans (Meaning Only).

Decision making.

Steps in planning and planning premises.

Hierarchy of plans.

Outline

Introduction

Planning is of great importance in all types of organization whether business

or non-business, private or public, small or large.

Introduction

Planning is pervasive / universal and it extends throughout the organization.

Definition

Definition

• The process of setting objectives and determining how to accomplish them.

Helps anticipate problems before they happen.

Bridges the gap between where the business is now and where it wants to be.

Planning:

• Planning is deciding in advance what to do, how to do it, when to do it and

who to do it.

• It involves anticipating the future and choosing the future course of action.

Definition

• It should answer the questions “what” “who” “when” “where” and “how”.

Purpose and Elements of Planning

Purpose of Planning

Planning

Set the standards to facilitate control

Provide direction

Minimize waste

Reduce the impact of change

Elements of Planning

Plan Documents that outline how goals are going to be met.

Goal End result / outcome of a plan or a specific results to be achieved.

Objectives Specific results toward which effort is directed.

Benefits of Planning

Benefits of planning

Focus An organization with FOCUS knows what it does best, what its customers

want and how to serve them.

Improves –

FlexibilityReady and able to change in response to, or anticipation of, emerging

problems and opportunities. (Adaptability).

Action Orientation

It emphasizes direction, establishes priorities, allocates resources more

efficiently, and anticipates change.

Control Planning & Control are interdependent.

Time Management Prioritize work task in the order of importance.

Nature / Features of planning

1. Focus on realizing the objectives / goals set.

2. Intellectual process involving mental exercise.

3. Selective as it selects the best course of action.

4. Universal, as all the levels of management plan.

5. Lays foundation of the successful actions of management.

6. It is flexible.

7. It is Continuous.

8. Efficiency is measured by what it contributes to the objectives.

Objective of Planning

1. To focus attention on objective and results.

2. To reduce uncertainty and change.

3. To provide sense of direction.

4. To encourage innovation and creativity.

5. To help in coordination.

6. To guide decision making.

7. To provide a basis for decentralization.

8. To facilitate control.

1. Intellectual process

2. Goal oriented

3. Pervasive / Universal

4. Pervades all managerial activity

5. Directed towards efficiency

6. Integrated process

Characteristics of Planning

• Clarity

• Simple

• Flexible

• Balanced

• Optimum use of resources.

Essentials of an ideal plan

The role of planning and controlling in the management process

Types of plans

Types of planning

Based on Time Frame

Short-range and long-range plans.

• Short-range plans = 1 year or less.

• Intermediate-range plans = 1 – 2 years.

• Long-range plans = more than 3 years.

• Top or Higher management levels focus on setting long-range plans and

directions for the organization.

• Lower management levels focus on short-range plans.

Strategic Plan

• Plans that apply to the entire organizations’ overall goals.

• Seek to position the organization in terms of its environment.

Examples

• A bigger market share.

• Lower costs to key competitors.

• Recognition as a leader in technology.

• Product innovation.

Based on Breadth

Operational / Tactical Plan

• Plans that specify the details of how the overall goals are to be achieved.

Example

An organizations monthly, weekly or day to day plans

Based on Breadth

Differences between strategic and operational planning

Specific Plan

• Plans that are clearly defined and that leave no room for interpretation.

Example

A manager who seeks to increase his unit’s work output by 8% over a given

12 months period.

Based on Specific

Based on Specific

Directional Plan

• Plans that are flexible and that set out general guidelines.

Example

Instead of detailing increase % of output, Manager formulates the plan for

improving profits by 5-10% over next 6 months.

Based on Frequency

Single use Plans

• A one time plan specifically designed to meet the needs of a unique situation.

Example

Program of changing name of brands, projects.

Standing Plans

• On going plans that provide guidance for activities performed repeatedly.

Example

Rules, policies, objectives, procedures, strategies.

Planning at various levels of Management

Steps in the Planning Process

Why and how do managers plan?

• Steps in the planning process

Identifying a problem

Identifying Decision Criteria

Allocating Weights to the Criteria

Developing Alternatives

Analyzing Alternatives

Selecting an Alternative

Implementing the Alternative

Eight steps in the decision-making process.

decision- making process

E.g. —A manager deciding what laptop computers to purchase.

Cont.…

The hierarchical nature of various plans

• Mission or Purpose

The mission or purpose identifies this basic function or task of the organization.

E.g. The purpose of university.

• A mission statement links the organization activities to the needs of the society.

The mission statement of Microsoft is:

“To enable people and businesses throughout the world to realize their full potential. We consider our mission statement a commitment to our

customers”.

Objectives

“Objectives are the goals, aims or purposes that the organizations wish to achieve over varying periods of time”.

• A managerial objective is the intended goal which describes scope and suggests direction to the efforts of a manager”.

Strategies

• A strategy is a plan which provides an optimal match between the firm and external environment.

Policies

• A policy is a general guideline for decision making.• Policy is a verbal, written or implied overall guide, setting up

boundaries that provide the general limits and directions in which managerial action will take place”.

Procedures

• Policies are carried out by means of more detailed guidelines called procedures.

• A procedure is a detailed set of instructions / systematic steps for performing a sequence of actions / handling activities.

• Rules are detailed and recorded instructions that a specific

action can or cannot be performed in a given situation.

• Rules are more rigid than policies.

• Rules generally pertain to the administrative area of a

procedure.

Rules

E.g.• Sanctioning overtime wages to workers.• Sanctioning traveling bills etc.,

Programme

• A programme is a sequence of activities directed towards the achievement of certain objectives.

• A programme provides the definite steps which will be taken to accomplish a given task in due time.

• Purchasing new machines.• Introducing new product in the

market.

E.g.

Budgets

• A budget is a single use plan.

• it is drafted for a particular period of time (e.g. Annually, quarterly, etc.)

• A budget is a statement of expected results expressed in quantitative terms i.e. money, man hours, product units etc.

• It provides a standard by which actual operations can be measured and variation could be controlled

Planning in the Hierarchy of Organizations

Decision Making

Decision: A reasoned / best choice among alternatives.

Examples:

• Where to advertise a new product

• What stock to buy

• What movie to see

• Where to go for dinner

• Decision-making is an essential part of modern management.

• It is selecting the best among alternative courses of action.

• Decision-making like any other managerial process is goal oriented.

Decisions Managers May Make – all Managerial functions

Decisions Managers May Make – all Managerial functions

Decisions Managers May Make – all Managerial functions

Decisions Managers May Make – all Managerial functions

Decision Making

Decision: A reasoned / best choice among alternatives.

Examples:

• Where to advertise a new product

• What stock to buy

• What movie to see

• Where to go for dinner

• Decision-making is an essential part of modern management.

• It is selecting the best among alternative courses of action.

• Decision-making like any other managerial process is goal oriented.

Making Decisions: Rationality (Case-1)

Hewlett-Packard (HP) acquired Compaq

• The company did no research on how customers viewed Compaq products.

• CEO publicly announced the deal.

• Privately warned top management team that CEO didn’t want to hear any

opposition pertaining to the acquisition.”

Situation• By the time they discovered that customers perceived Compaq products as

inferior—just the opposite of what customers felt about HP products—it was

too late.

• HP’s performance suffered and CEO lost his/her job.

ASSUMPTIONS OF RATIONALITY

• A rational decision maker would be fully objective and logical.

• The problem faced would be clear.

• The decision maker would have a clear and specific goal and know all

possible alternatives and consequences.

• Making decisions rationally lead to selecting the alternative that maximizes the

achieving of goal.

• Decisions are made in the best interests of the organization

These assumptions apply to any decision— personal or managerial.

Decision Making Process: Steps in Rational Decision Making

(1) Recognizing the problem.

(2) Deciding priorities among the problems.

(3) Diagnosing / Analysing the problem.

(4) Developing alternative solutions or course of actions.

(5) Evaluating alternatives.

(6) Converting the decision into effective action and follow up

of action.

Types of Decisions and Decision-Making Conditions

Types of Decisions

• Managers in all kinds of organizations face different types of problems and

decisions as they do their jobs.

• Depending on the nature of the problem, a manager can use one of two different

types of decisions.

1. STRUCTURED PROBLEMS AND PROGRAMMED DECISIONS

2. UNSTRUCTURED PROBLEMS AND NONPROGRAMMED DECISIONS

STRUCTURED PROBLEMS AND PROGRAMMED DECISIONS

STRUCTURED PROBLEMS

• Some problems are straightforward.

• The decision maker’s goal is clear, the problem is familiar, and information

about the problem is easily defined and complete.

• Customer returns a purchase to a store.

• When a supplier is late with an important delivery.

• A news team’s response to a fast-breaking event.

• A college’s handling of a student wanting to drop a class.

Such situations are called structured problems because they’re straightforward, familiar, and

easily defined.

Examples

• A server spills a drink on a customer’s coat. The customer is upset and the manager needs to do something and it’s not an unusual occurrence.

• There’s probably some standardized routine for handling it.

Decision: • The manager offers to have the coat cleaned at the restaurant’s

expense. This is called programmed decision, a repetitive decision that can be handled by a routine approach.

PROGRAMMED DECISIONS

Examples

The manager relies on one of three types of programmed decisions:

Procedure Rule Policy

PROGRAMMED DECISIONS

• A procedure is a series of sequential steps a manager uses to respond to a structured problem.

Example:

• A purchasing manager receives a request from a warehouse manager for 15 PDA handhelds for the inventory clerks.

The purchasing manager knows how to make this decision by following the established purchasing procedure.

Procedure

• Rules are frequently used because they’re simple to follow and ensure consistency.

Example:• Rules about lateness and absenteeism permit supervisors to make

disciplinary decisions rapidly and fairly.

Rule

• Rules are detailed and recorded instructions that a specific

action can or cannot be performed in a given situation.

• Rules are more rigid than policies.

Policy

• Policy is a guideline for making a decision.

• In contrast to a rule, a policy establishes general parameters for the decision maker rather than specifically stating what should or should not be done.

Sample policy statements:

• The customer always comes first and should always be satisfied.• We promote from within, whenever possible.• Employee wages shall be competitive within community standards.

UNSTRUCTURED PROBLEMS AND NONPROGRAMMED DECISIONS

UNSTRUCTURED PROBLEMS AND NONPROGRAMMED DECISIONS

Many organizational situations involve unstructured problems.

• Problems that are new or unusual and for which information is incomplete.

Example:

• Whether to build a new manufacturing facility in China.

• Introducing a new product into market.

• Nonprogrammed decisions are unique and nonrecurring and involve custom-made solutions.

Differences between programmed and nonprogrammed decisions

Decision-Making Conditions

When making decisions, managers may face three different conditions:

1. Certainty.2. Risk.3. Uncertainty.

Decision-Making Conditions

CERTAINTY

Example:

• When a treasurer decides where to deposit the funds, he knows exactly the interest rate being offered by each bank and the amount that will be earned on the funds.

He is certain about the outcomes of each alternative.

Certainty, which is a situation where a manager can make accurate decisions because the outcome of every alternative is known.

Most managerial decisions aren’t like this.

RISK

Under risk, managers have historical data from past personal experiences or secondary information that lets them assign probabilities to different alternatives.

Example

Estimating the demand of a product for future where there is great amount of uncertainty.

• Making decision where you’re not certain about the outcomes / end results.

• This condition uncertainty.

• Under these conditions, the choice of alternative is influenced by the limited

amount of available information and by psychological orientation of the decision

maker.

An optimistic manager will follow a maximax choice (maximizing the maximum possible payoff);

A pessimist will follow a maximin choice (maximizing the minimum possible payoff); and

A manager who desires to minimize his maximum “regret” will opt for a minimax choice.

Uncertainty

Maxi-Min criterion

Maxi-Max criterion or Minimax regret criterion

If a manufacturer is pessimistic or cautions in his approach, he can choose that decision act, which maximizes the minimum pay-off.

If a manufacturer is optimistic he may choose that decision act, which maximizes the maximum pay-off.

Decision-Making StylesLinear–Nonlinear Thinking StyleRecent research done with four distinct groups of people.

Outcome:

The way a person approaches decision making is likely affected by

his or her thinking style.

• William’s tenure as Nike’s CEO lasted a short and turbulent 13 months.

• Analysts attributed his abrupt dismissal to a difference in decision-making approaches between him and Nike co-founder Knight.

• William tended to rely more on data and facts when making decisions.

• Whereas Knight had always used, his judgment and feelings to make decisions.

Decision-Making StylesCase example - Managers have different styles when it comes to making decisions

Decision-Making StylesLinear thinking style

Characterized by a person’s preference for using external data and

facts and processing this information through logical thinking to

guide decisions and actions.

Decision-Making StylesNonlinear thinking style

Characterized by a preference for internal sources of information

(feelings and intuition) and processing this information with internal

insights and feelings to guide decisions and actions

Overview of Managerial Decision Making

End of module