Module 2

Management & Entrepreneurship Module-2

Planning Function- Module 2

Meaning and nature , importance and
purpose of planning process

Objectives

Types of plans

Decision Making

Steps in planning and planning premises

Hierarchy of Plans

Management & Entrepreneurship Module-2

Planning meaning
Basic and important managerial function

Thinking in advance

A process of chalking out a future course
of action for accomplishing a purpose of
the enterprise.

Bridge the gap between present and the
desired future

Helps to utilize available time and
resources in an efficient and effective
manner

Management & Entrepreneurship Module-2

An exercise which determines in

advance;
The ends [what is to be done or
achieved?]

The means [how it is to be done?]

The timing [when to do what?]

The responsibility and accountability
[who should do what?]

The reason [why it should be done?]

Management & Entrepreneurship Module-2

Planning transforms options and alternatives into a blueprint or

a road map for future actions through selection and decision
making

Planning involves defining an organization's goals, establishing

an overall strategy for achieving those goals , and developing
plans for organizational work activities.

Can be done for entire organization corporate planning,

business unit- business planning, division- divisional planning,
department-departmental planning, at the level of an individual
manager or employee -personal planning.

Definition by George Terry:

Planning is the selecting and relating of facts and the making
and using of assumptions regarding the future in the
visualization and formulation of proposed activities believed
necessary to achieve desired results.

Management & Entrepreneurship Module-2

Why Is Planning Important?

What
has to
be done

A task can not be

accomplished if the
manager is not
aware of:

How is
it to be
done

When is
it to be
done

Management & Entrepreneurship Module-2

Nature of Planning

Planning is base for all management functions: as it is a basic function

among all management functions and logically precedes the execution of
all other managerial functions.

Focus on objectives: a plan must concentrate on accomplishing certain

objectives. It lays down the ways and the means to achieve them. It
forecast which actions will tend towards the achievement of ultimate
objective.

Primacy of planning: Planning is the first of the managerial functions to

be performed. It is based upon the organisational objectives. It is
indispensable in every activity of the management.

An intellectual process: involves creative thinking, imagination,

foresight, evaluation, sound judgment and decision making .

Management & Entrepreneurship Module-2

Future oriented and involves forecasting: is always

concerned with looking into future. It is forward looking,
trying to see, through the uncertain future, what lies ahead.

Flexibility : the process of planning should be adaptable to

changing environmental conditions. It is a bad plan that
admits no modification. A plan must be adjustable, always
ready to incorporate internal as well as external changes.

Involves choosing among alternatives: it is concerned with

selecting the best course of action from among the
alternatives. Decision making is an integral part of the
planning function of management.

Planning and control are inseparable: acts as pre-condition

for one another

Management & Entrepreneurship Module-2

Why Do Managers Plan?

Purposes of Planning

Provides direction
Reduces uncertainty
Minimizes waste
Sets the standards for controlling
Avoids repetition of certain activities.
Provides performance standards.

Management & Entrepreneurship Module-2

IMPORTANCE OF PLANNING

Minimises Risk and Uncertainty:

In todays increasingly complex organisations, intuition alone
can no longer be relied upon as a means for making decisions.
This is one reason why planning has become so important. By
providing a more rational, fact-based procedure for making
decisions, planning allows managers and organisations to
minimise risk and uncertainty. Planning does not deal with
future decisions, but with the futurity of present decisions.

Leads to success:
Planning does not guarantee success, but studies have shown
that, often things being equal, companies which plan not only
outperform the non planners but also outperform their own past
results. With the help of a sound plan, management can act
proactively and not simply react. It involves an attempt to shape
the environment on the belief that business is not just the
creation of environment but its creator as well.
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Focus Attention on the Organisations Goals:

This makes it easier to apply and coordinate the resources of
the organisation more economically. The whole organisation
is forced to embrace identical goals and collaborate in
achieving them.

Facilitates Control:
In planning, the manager set goals and develops plans to
accomplish these goals. These goals and plans then become
standards or benchmarks against which performance can be
measured. The function of control is to ensure that the
activities conform to the plans. Thus, control can be exercised
only if there are plans.

Train executives:
Planning is also an excellent means for training executives.
They become involved in the activities of the organisation
and the plans arouse their interest in the multifarious aspects
of planning.
Management & Entrepreneurship Module-2

Difference between Strategic and

Tactical Planning
Strategic Planning

Tactical Planning

It decides the major goals and policies

of allocation of resources to achieve
these goals.

It decides the detailed use of resources

for achieving each goal.

It is done at higher levels of

management. Middle managers
sometimes are not even aware that
strategic planning is being considered.

It is done at lower levels of

management.

It is long-term planning.

It is short-term planning.

It is generally based on long-term

forecasts about technology, political
environment, etc. and is more
uncertain.

It is generally based on the past

performance of the organisation and is
less uncertain.

It is less detailed because it is not

involved with day-to-day operations of
the organisation.

It is more detailed because it is

involved with day-to-day operations of
the organisation.
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Types of Planning

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Based on Breadth

Strategic Plans
Apply to the entire organization.
Establish the organizations overall goals.
Seek to position the organization in terms of its
environment.
Cover extended periods of time.

Operational Plans
Specify the details of how the overall goals are to be
achieved.
Cover short time period.
Different operational plans: policies, procedures, method,
rules
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Based on Time Frame

Long-Term Plans
Plans with time frames extending beyond three
years

Short-Term Plans
Plans with time frames on one year or less
Guides day to day activities

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Based on Specificity

Specific Plans
Plans that are clearly defined and leave no
room for interpretation

Directional Plans
Flexible plans that set out general guidelines,
provide focus, yet allow discretion in
implementation.

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Based on Frequency of Use

Single-Use Plan
A one-time plan specifically designed to meet
the need of a unique situation.

Standing Plans
Ongoing plans that provide guidance for
activities performed repeatedly.

Management & Entrepreneurship Module-2

Planning Principles

Plan should be in written

Clearly defined objectives. Objectives should be
specific, realistic, time bound.
Should be approved by the person who is having
authority
Review of past performance and its feedback should
be considered
Should identify main issues
Budgetary and other supporting activities should be
done well in advance
Timelines and milestones for implementation of plan
need to be developed
Should have contingency plan
Should be reviewed periodically
Management & Entrepreneurship Module-2

Steps in Planning Process

Being aware of opportunities:

It includes a preliminary look at possible opportunities and the ability to see
them clearly and completely, a knowledge of where the organization stands
in the light of its strengths and weaknesses, an understanding of why the
organization wants to solve uncertainties, and a vision of what it expects to
gain. This provides an opportunity to set the objectives in real sense
because the organization tries to relate itself with the environment.

Setting objective or goals:

At this stage, major organisational and unit objectives are set. Objectives
specify the results expected and indicate the end points of what is to be
done, where the primary emphasis is to be placed, and what is to be
accomplished by the various types of plans.

Considering planning premises:

After determination of organisational goals, the next step is establishing
planning premises, that is, the conditions under which planning activities
will be undertaken. Planning premises are planning assumptions-the
expected environmental and internal conditions.
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Identifying alternatives:
Based on the organizational objectives and planning premises, various
alternatives can be identified. The concept of various alternatives suggests that
a particular objective can be achieved through various actions. For example: if
an organisation has set its objective to grow further, it can be achieved in
several ways like expanding in the same field of business or product line,
diversifying in other areas, joining hands with other organisations, or
taking/over another organisation, and so on.

Comparing alternatives in light of goals:

Various alternatives which are considered feasible in terms of preliminary
criteria may be taken for detailed evaluation. At this stage, an attempt is made
to evaluate how each alternative contributes to the organisational objectives in
the light of its resources and constraints.

Choosing an alternative:
After the evaluation of various alternatives, the most fit one is selected.
Sometimes , evaluation shows that more than one alternative is equally good.
In such case, a planner may choose more than one alternative. There is another
reason for choosing more than one alternative because the future is not
constant. Therefore, planner must be ready with alternative, normally known
as contingency plan, which can be implemented in changed situations.

Management & Entrepreneurship Module-2

Formulating supporting plans:

After formulating the basic plans, various plans are derived so as to
support the main plan. In an organisation there can be various
derivative plans like planning for buying equipments, buying raw
materials, recruiting and training personnel, developing new product
etc. These derivative plans are formulated out of the main plan and,
therefore, they support it.

Quantifying plans by making budgets:

Budgets for various periods can be prepared to give plans more
concrete meaning for implementation.

Implementation of plans:
After formulating basic and derivative plans, the sequence of activities
is determined so that plans are put into action. Based on plans at
various levels, it can be decided who will do what and at what time.

Review and revision:

Managers need to check the progress of their plans so that they can
take whatever remedial action is necessary to make the plan work, or
change the original plan if it is unrealistic.
Management & Entrepreneurship Module-2

Limitations of Planning
Lack of accurate information
Time consuming process
Expensive
Environmental constraints
Capital invested in Fixed Assets limits planning
Planning may create rigidity.
Plans cannot be developed for dynamic
environments.

Formal plans cannot replace intuition and
creativity.

Formal planning reinforces todays success, which
may lead to tomorrows failure.

Management & Entrepreneurship Module-2

Decision Making

Decision
Making a choice from two or more alternatives.
Definition by George Terry:
Decision making is the election based on some
criteria from two or more possible alternatives
Koontz & O'Donnel Decision is the selection
from among alternatives of a course of actions

Management & Entrepreneurship Module-2

The Decision-Making Process

Identifying a problem and decision criteria and
allocating weights to the criteria.
Developing, analyzing, and selecting an
alternative that can resolve the problem.
Implementing the selected alternative.
Evaluating the decisions effectiveness.

Management & Entrepreneurship Module-2

Steps in Decision Making

Management & Entrepreneurship Module-2

Identifying a Problem:
Every decision starts with a problem, a discrepancy
between an existing and a desired condition. Here
sales manager representative need new laptops
because their old ones are outdated and inadequate
for doing their job.

Identifying decision criteria:

Once a manager has identified a problem, he or she
must identify the decision criteria that are
important or relevant to resolving the problem.
Every decision maker has criteria that guide his or
her decisions, even if theyre not explicitly stated. In
our example manager decides after careful
consideration that memory and storage capabilities,
display quality, battery life, warranty, and carrying
weight are the relevant criteria for decision.
Management & Entrepreneurship Module-2

Allocation weights to the criteria:

If the relevant criteria arent equally important, the decision
maker must weight the items in order to give them the correct
priority in the decision. A simple way is to give the most
important criterion a weight of 10 and then assign weights to
the rest using that standard.

Developing alternatives:
The fourth step in the decision-making process requires the
decision maker to list viable alternatives that could resolve the
problem. This is the step where a decision maker needs to be
creative.

Analysing alternatives:
Once alternatives have been identified, a decision maker must
evaluate each one. There are times when decision maker might
not have to do this step. If one alternative scored highest on
every criterion, you wouldnt need to consider the weights
because that alternative would already be the top choice.
Management & Entrepreneurship Module-2

Selecting an alternative:
The sixth step in the decision-making process is choosing the
best alternative or the one that generated the highest total in
step 5.

Implementing the alternative:

In step 7 in the decision-making process, you put the decision
into action by conveying it to those affected and getting their
commitment to it.

Evaluating decision effectiveness:

The last step in the decision-making process involves evaluating
the outcome or result of the decision to see if the problem was
resolved. If the evaluation shows that the problem still exists,
then the manager needs to assess what went wrong. The
answers might lead you to redo an earlier step or might even
require starting the whole process again.

Management & Entrepreneurship Module-2

Types of Decision
2 Categories:
1. Programmed Vs Non Programmed Decisions [based
on nature of decision making]

Programmed Decisions

Non Programmed Decisions

Decisions taken for frequent

and repetitive activities

Decisions taken for non repetitive

problems, unique problems

Less use of judgement

More use of judgment

Decisions made by using

predefined rules and
regulations

Decisions made by using

experience, creativity
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2. Based on Managerial functions

Strategic Decision

Tactical Decision

Operatonal Decision

Provides direction to
Decision taken in order to
These are every day decisions
organization by establishing
implement and support strategic taken to implement and support
vision, mission and long term
decision
tactical decisions
goals
Critical and very important
for organization

Are moderately important to

organization

Less important compared to

tactical and strategic decisions.

Have long term impact and

costly to organization

Have short term impact and

Have moderate impact and less involve low cost. But series of
costly compare to strategic
poor operational decisions can
decisions
cause a serious damage to
organization

Taken by Top Management

Taken by middle level

management

ex: Decision to become a

premium player or a mass
producer

If orgnization decides to become

premium player, tactical decision deciding shift timings to
can be whether to select a brand employees
ambassadar or not

Taken by front line management;

supervisors, team leaders etc

Management & Entrepreneurship Module-2

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
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Rationality
Managers make consistent, value-maximizing
choices with specified constraints.
Assumptions are that decision makers:
 Are perfectly rational, fully objective, and logical.
 Have carefully defined the problem and identified all
viable alternatives.
 Have a clear and specific goal
 Will select the alternative that maximizes outcomes in
the organizations interests rather than in their personal
interests.

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Exhibit 66 Assumptions of
Rationality

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Bounded Rationality
Managers make decisions rationally, but are limited
(bounded) by their ability to process information.
Assumptions are that decision makers:
 Will not seek out or have knowledge of all alternatives
 Will satisficechoose the first alternative encountered that
satisfactorily solves the problemrather than maximize the
outcome of their decision by considering all alternatives and
choosing the best.

Influence on decision making

 Escalation of commitment: an increased commitment to a
previous decision despite evidence that it may have been
wrong.

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Intuitive decision making

Making decisions on the basis of experience, feelings, and
accumulated judgment.

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Various Techniques used for Decision Making

Individual Decision Making Techniques

1. Risk Analysis:
Involves analyzing the risk involved in
each alternative.
2. Decision Trees
Various decision alternatives and their
outcomes are displayed in the form of
branches of a tree. Manager, out of his
experience and intuition assigns
probabilities to outcomes.

Management & Entrepreneurship Module-2

Group Decision Making Techniques

Brainstorming: A group of people are

encouraged to develop creative ideas or solutions
to problem. This can reduce fear of criticism by
other members

Nominal Group Technique: Encourages

interaction among group members in a structured
manner. Problem will be stated to group. Every
member will work independently on problem,
later all will discuss the solutions developed by
each of the member. Each solution will get votes
from all the members. A solution with highest
votes will be adopted
Management & Entrepreneurship Module-2

Delphi Group:
Problem will be submitted to a panel of experts. The
panel members never meet face to face, they dont even
know other members. Experts contribute individually
and their opinions will be combined and in effect
averaged to get the best solution.

Management & Entrepreneurship Module-2

Objectives
Broad aims what an organization wants to
achieve

Derived from mission statement

Shows what we want to accomplish, where
we want to be, how we want to do.

Objective example:

To increase profitability

To increase market share

Enhance productivity

Achieve innovation

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Setting Objectives

Its a process of converting vision and

mission into performance outcomes

Objectives can be set following areas;

Customer Service

Employee Welfare

Social Responsibility

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Traditional Objective Setting

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Points to remember while setting

objectives:
SMART Objectives

S: specific what to achieve

M: Measurable results should be measurable [
improving sales by 25% by next year]

A: Achievable should not be too difficult to
achieve the goal

R: Realistic- Should be practical and reasonable

T: Time bound- should be achieved in a time limit

Objectives should be developed for both short

term and long term period
Management & Entrepreneurship Module-2

Planning Premises
Assumptions about environment which
affect planning activity

George Terry: Planning premises are the
assumptions providing a background
against which the estimated events
affecting the planning will take place

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Classification
Internal & External Planning Premises

Tangible & Intangible Planning Premises

Controllable & Uncontrollable Planning
Premises

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Planning premises:
A] Internal and external premises:
Internal- sales forecasts, policies, capital
investment, skill of the labour force.

External
business environment, factors
influencing product demand, factors influencing
resource availability.

General & economic environment

Technological changes

Government policies & regulations

Population growth

Political stability

Sociological factors

Demand for the product

Management & Entrepreneurship Module-2

B] Tangible & Intangible premises:

Tangible premises are those which can be
quantitatively
measured,
population
growth, industry demand, capital &
resources invested in the organization.

Intangible premises are those which are
qualitative in nature and can not be
measured, political factors, employee
attitudes, business
and
economic
environment etc.

Management & Entrepreneurship Module-2

C] Controllable and non controllable

premises:

Non Controllable factors- strikes, wars,
natural calamities, emergency, legislation,
government rules

Controllable factors- company policy, skill
of managers, labour force, availability of
capital

Management & Entrepreneurship Module-2

Developing effective planning

premises
Identifying the premises

Developing the alternative premises

Verifying the consistency of the premises

Communicating the premises

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Hierarchy Of Plans
Top-Level
Management
Middle-Level
Management

Lower-Level
Management

Strategic Plans

Tactical Plans

Operational Plans
Management & Entrepreneurship Module-2

Strategic Plans
Long Range Plan.
Time Frame:3 or
more years.
Top Management
responsibility.
Concerned with
broad objectives
of the
organisation.
Focus on
planning and
forecasting.

Tactical /
Intermediate Plans
Intermediate
Plan.
Time Frame:2-3
years.
Performed by
managers at
middle level.
Concerned with
integrating the
work of various
departments in
the organisation.
Focus on
Coordination.

Operational Plans
Short range plan.
Time Frame: one
year.
Done usually at
lower levels.
Covers day-today operations;
implements
internal goals.
Focus on control,
primarily.

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Management & Entrepreneurship Module-2