Planning and decision making

1. Planning & Decision
making
Asif Jamal
Visiting Lecture & Motivational Speaker

2. Introduction
• A Plan:
• is a specific documented intention consisting of an objective (end) and an
action statement (means)
• Planning:
• Is an intellectual process;
• it requires the conscious determination of courses of action, and
• the basing of decisions on purpose, knowledge and considered estimates.
(Koontz, O’Donnell & Weihrich, 1980)
• is a task of:
• setting objectives,
• specifying how to achieve them,
• implementing the plan. and
• evaluating the results. (Boddy, 2005).

3. Planning
 Allows for coping with uncertainty
• by formulating courses of action to achieve specified
results
 Three Types of Uncertainty
1. State uncertainty: Occurs when the environment, or a
portion of the environment, is considered unstable
2. Effect uncertainty: Occurs when impacts of
environmental change are unpredictable
3. Response uncertainty: Arises when the consequences
of decisions are unpredictable

4. Planning cont’d.
• It is deciding in advance:
• what to do,
• how to do it,
• when to do it, and
• who is to do it.
• In this sense planning is essentially decision making,
and
• It is the responsibility of management
• Because it affects all downstream mgmt functions,
• it has been called the primary management function.

5. 55
Planning: The Primary Management
Function

6. 66
Classification of Plans
• Standing plans
• Those that are repeatedly used ie. policies, procedures
and rules
• Single use plans
• Those designed for the attainment of specific objectives
within a relatively short time span, ie a programme and
budgets

7. 77
Types of Plans
• Strategic plans
• Set out the overall direction for the business, are broad in
scope and cover all major activities.
• Chandler (1962) defined them as:
• determining the the basic long-term goals and objectives of
an enterprise and
• the adoption of courses of action and the allocation of
resources necessary for carrying out these goals.
• Tactical/Divisional plans
• for each major unit of the business
• focus on how to compete

8. Types of Plans cont’d
• Operational plans
• First line managers tool for planning daily, weekly, and
monthly activities
• Business plans
• set out the markets the business intends to serve, how it
will do so and what finance they require (Blackwell,2004)

9. 9
Types of Plans

10. Types of Plans cont’d
(Koontz, et. al.)
• Purpose/mission
• Objectives
• Strategies
• Policies
• Procedures
• Rules
• Programmes, and
• Budgets.

11. Purpose or mission
• A broad definition of an organizations operations
and scope, aiming to distinguish it from similar
organizations (Boddy,2005).

12. 1212
Objectives
• Represent the desired ends and can be used as
yardsticks for measurement of performance,
• to indicate to what extent an organization’s mission is
being carried out.
• Eg.
• An airlines mission is the provision of cheap air freight
facilities,
• its objectives could include:
• Cutting costs so that its able to offer profitable low freight
charges.

13. 1313
Objectives cont’d
• Objectives are fundamental to the control of
organizational activity, and
• are vital for the formulation of policies, programmes and
rules.
• Objectives should be SMART expressed in quantitative,
measurable, and concrete terms. Ie.
o What specific result is to be achieved?
o When is the result to be achieved?
o How is the result to be measured?
o Who will be responsible for achieving the result?

14. 1414
The Importance of
Objectives (Kreitner 2007,
p. 161)
• Target:
• Sets specific goals to achieve
• Measuring stick:
• Gauges how much was achieved
• Commitment:
• Encourages pursuit of the objective
• Motivation:
• Provides a challenge for achievement

15. 1515
A Typical Means-Ends Chain of
Objectives

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Strategies
• Are courses of action to be taken in light of the
adverse environmental forces so as to achieve
company objectives.

17. 1717
Policies
• These are statements that reflect the basic objectives
and provide guidelines for selecting actions to
achieve objectives.

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Procedures
• Series of related sequential steps to deal with a
structured problem.
• Narrower and more specific than policies
• Often utilized when high degrees of accuracy in
performance are required if policies are to be executed
effectively.
• Eg. if an airline has a policy of servicing incoming aircraft
within a reasonable time of landing, that
• calls for the drawing up of appropriate procedures

19. 1919
Rules
• Simplest type of operational plans
• They state specific action for particular situations – no
discretion.
• Differ :
• from procedures in that they are not related to time
sequences, and
• from policy which is essentially guides decision-making

20. 2020
Programmes
• Single use plans comprising relatively wide related
activities and requiring complex coordination
• Involve, objectives, policies, procedures and budgets
and fixed period.

21. 2121
Budgets
• Statements in quantified terms of:
• future expenditures and revenue
• reflecting resources allocated to specified activities within
a stated period of time (usually 1 yr).
• They mirror basic organizational plans &
• are used as guides to and controls of, standards of
performance.
• They act as signals for corrective action to be taken

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Importance of Planning
1. To offset uncertainty and change
2. To focus attention on objectives
3. To gain economical cooperation
4. To facilitate control

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Steps in Planning
1. Be aware of opportunity
2. Establishing objectives
3. Premising
4. Determining alternative courses of actions
5. Evaluating alternative course of action
6. Selecting a course of action
7. Formulating derivative plans
8. Numbering plans by budgeting

24. 2424
Steps in Planning cont’d
1. Being aware of opportunity
• Includes a preliminary look at possible future
opportunities, a
• knowledge of where we stand in the light of our strengths
and weaknesses, an
• understanding of why we wish to solve uncertainties, and
• a vision of what we expect to gain

25. 2525
Steps in Planning cont’d
2. Establishing objectives
• Objectives specifying the:
• results expected,
• 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 network of:
• strategies, policies, procedures, rules, budgets, and
programs.

26. 2626
Steps in Planning cont’d
3. Premising
• assumptions about the environment (internal & external)
in which organizational plans are to be implemented. and
• should be limited aspects that are critical or strategic to
the plan – those with the most influence.
4. Determining alternative courses -
• the number of alternatives should be reduced so that the
most promising possibilities may be analysed

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Steps in Planning cont’d
5. Evaluating alternative courses
• examine their strong and weak points,
• weigh the various factors in light of premises and goals
• examine ROI, risk & cost.
6. Selecting a course of action
• this is a stage at which a plan is adopted,
• the real point of decision making

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Steps in Planning cont’d
7. Formulating derivative plans
• plans required to support the basic plan.
• Eg when a airline decides to acquire new planes,
derivatives plans will include:
• hiring and training various types of personnel;
• acquisition and positioning of spare parts;
• development of maintenance facilities;
• scheduling, advertising, financing and insurance.

29. 2929
Steps in Planning cont’d
8. Numbering plans by budgeting
• Convert plans to budgets.
• The overall budgets of an organization represent
the sum total of income and expenses.
o Each department or program of a business can have
its own budgets.
• If done well, budgets become important standards
against which planning progress can be measured

30. Planning; an example
(Plunkett et al)• Basic planning process by a first level manager
1.Being aware of an opportunity
• Increasing marketshare
2.Set Objective
• To ensure that the office is staffed from 8hrs to 21hrs,
Mon – Thurs. Target date January 1 2016.
30

31. 3.Premising
• Present staffing situation
• Office is staffed by two f/time hourly employees. 08hrs
to 16.30 and 08hrs to 17hrs
• Financial resources
• Operating budget has sufficient funds to support
additional staff at a range of K6 – K8 p/hr, but benefits
are restricted.
31

32. Premising cont’d
• Labour supply
• The potential number of p/time applicants is uncertain
based on the rate of pay available.
• Company policy
• Severe limits are placed on the use of overtime &
compensatory time.
• a p/time employee becomes eligible for a limited benefits
package when they work 19hrs per week
32

33. 4. Determining alternative
courses
1. Use present office staff by developing by developing a
combination package involving o/time and
compensatory time.
2. Use the present office staff by altering the work hours of
one or both.
3. Hire p/time staff to work 17 – 21hrs Mon – Thurs
4. Hire two p/time workers to work two nights each from 17
– 21hrs.
33

34. 5. Evaluating alternative
courses
1. Present staff/combination package
1. Problems with company pay policy & potential reaction
of present staff.
2. Present staff/altered work hours.
1. Would provide coverage but would affect daytime
productivity. Staff reaction – no!
3. One p/time staff
1. Would provide office coverage but stretch financial
resource, because new employee would be eligible for
limited benefits 34

35. Evaluating alternative
courses
4. Two p/timers/two nights each.
1. Would provide coverage and not exceed financial
resources or benefits restriction. Only question is:
‒ can labour supply produce two qualified applicants?
35

36. 6. Selecting a course of
action
• The alternative with the fewest questions and most
promise is alternative 1. the only problem lies in
attracting candidates.
36

37. 7. Implementation
1. To overcome the potential limitation (supply of
qualified candidates), pay the proposed employees
top rate of K8 p/hr.
2. Develop advertising by October 1.
3. Advertise both internally to externally
4. Establish Nov 1 as cutoff date for applications
5. Complete screening and interviews by Nov.21
6. Make hiring offers by Dec. 1.37

38. 8. Control & evaluation
1. Check daily to determine number of applicants
2. Extend the advertising deadline until a sufficient
number (20 – 30), applications are received.
3. If two candidates cannot be found, obtain additional
funds and implement alternative 3.
38

39. 3939
Why People Fail in
Planning
1. Lack of commitment to planning
• There is a natural tendency to let today's problems push
aside planning for tomorrows opportunities.
• Therefore there is need for a climate that forces people
to plan
2. Psychological difficulties
• Lack of confidence & risk taking
• Fear of adding to ones responsibility

40. 4040
Why People Fail in
Planning
3. Lack of meaningful objectives
• Goals must be clear, attainable, actionable and verifiable
(smart)
• Goals must be defined in light of our strengths &
weaknesses and the relevant environmental factor.
4. Tendency to underestimate the importance of planning
premises
• Plans must be made in the light of uniform and generally
understood planning premises.

41. 4141
Why People Fail in
Planning cont’d
5. Failure to see scope of plans
• Some mgrs concentrate solely on either major or minor
plans neglecting other types of plans:
• Eg. Missions/purposes, objectives/goals, strategies,
policies, rules, procedures and programs.
6. Failure to see planning as a rational process
• Planning requires clear goals, knowledge of alternatives
and a desire to come up with best possible solution

42. 4242
Why People Fail in
Planning cont’d
7. Excessive reliance on experience
• What happened in the past is not likely to suit a future
situation
8. Failure to use the principle of the limiting factor
• it requires that mgrs search out those factors in a
problem situation which make the most difference in the
solution and then deal primarily with them.

43. 4343
Why People Fail in
Planning cont’d
9. Lack of top management support
• Planning is not likely to be very effective if there is no
support from top mgmt.
10. Lack of clear delegation
• It is very difficult for people to plan if they do not know
what their job is, and
• if they do not have clear authority to make decisions.
11. Lack of adequate control techniques & info.
• It can hardly be very effective if those responsible do not
know how well they are working.

44. 4444
Why People Fail in
Planning cont’d
12.Lack of an appropriate planning climate within the
organization as a whole
• procedural inflexibilities inhibit effective planning, &
• too much pressure on line mgrs leaves them with no time
to prepare effective plans
13.Technical problems
• a mgr lacking technical skills will be deficient in solving
some of the technical problems which accompany
planning

45. 4545
Why People Fail in
Planning cont’d
14. Resistance to changes
• without proper levels of participation, & careful
planning for implementation,
• plans & objectives will be resisted by some
employees.
• limiting resistance to change requires patient selling
of ideas, careful dissemination of information and
aggressive leadership

46. 46
PERT Terminology
• Event:
• Denotes a performance milestone
• Activity:
• Work (jobs) in process
• Time:
• Estimated weighted times for completion of an activity—
optimistic (most likely) and pessimistic
• Critical path:
• The longest chain of required activities and events in a PERT
network that must be completed on time or else the entire
project will be delayed

47. 47
Formula for Calculating
Estimated PERT Times
Te = Time estimate (average)
To = Time estimate (optimistic)
Tm = Time estimate (most likely)
Tp = Time estimate (pessimistic)
6
4 pmo
e
TTT
T
++
=

48. 48
Break-Even Analysis
• Break-Even Point
• The level of sales at which there is no loss or profit
• The point at which the total of fixed and variable costs
equal total sales revenues
• Fixed Versus Variable Costs
• Fixed costs:
• Costs that must be paid regardless of output or sales
• Variable costs
• Costs that vary directly with production and sales

49. 49
Graphic Break-Even Analysis

50. 50
Break-Even Analysis
• Strengths
• Planners are forced to interrelate cost, volume, and profit in a
realistic way.
• Planners are able to ask what-if questions concerning the
impact of price, costs, and profit objective changes.
• Limitations
• A neat separation of fixed and variable costs is difficult to
achieve.
• Complex factors in supply and demand interfere with the
linear projections (point estimates) of the analysis.