Planning in Principles of Management

UNIT II – PLANNING
R.ArunKumar,AP/Mech,RIT

SYLLABUS
Nature and purpose of planning – planning process – types of
planning – objectives – setting objectives – policies – Planning
premises – Strategic Management – Planning Tools and Techniques
– Decision making steps and process.

Objective:
 To study different types of planning, its tools and techniques.
Outcome:
 The student will be able to explain the different types of
planning process and tools used for planning.

NATURE AND PURPOSE OF PLANNING:
 Planning is the most basic form of all management functions.
 Everyone used to plan in our day to day activities.
 We plan to execute our official work, improvise career, plan our
investment, etc.

BOEING 787 AIRCRAFT

 Planning involves defining the organizations' goals,
establishing strategies for achieving those goals and
developing plans to integrate and coordinate work
activities.

 Planning is deciding in advance what to do, how to do it, when
to do it, and who is to do it.
 Planning bridges the gap from where we are to where we
want to go.
 It makes it possible for things to occur which would not otherwise
happen.
- Harold Koontz and Cyril O’Donell

 In formal planning, specific goals covering a specific period of
time are defined.
 Shared among all the members of an organization to reduce
uncertainty and create common understanding about what need
to be done.

NATURE OF PLANNING:
1. Pervasiveness:
 Occurs irrespective of level of management. Every manager
has a planning function to perform.

NATURE OF PLANNING:
2. Primary in nature:
 Precedes other functions of an organization.
 Without planning other functions of an organization becomes
meaningless.

NATURE OF PLANNING:
3. Continuous in nature:
 Never ending activity.

NATURE OF PLANNING:
4. Flexible in nature:
 Future is unpredictable, thus planning must provide enough
room to cope with the changes in global market.

NATURE OF PLANNING:
5. Goal oriented:
 Carried out to attain the objective of an organization.
 Provides guidelines for attaining goals.

NATURE OF PLANNING:
6. Integrated process:
 Integrates the plans and actions of a manager.

NATURE OF PLANNING:
7. Forward looking:
 Without planning, business become random in nature.

NATURE OF PLANNING:
8. Intellectual process:
 Involves brain activity.

NATURE OF PLANNING:
9. Factual process:
 Process is based on some predictions and past experiences.

NATURE OF PLANNING:
10. Effective and efficient process:

PURPOSE OF PLANNING:
1. Provides direction:

2. Reduces uncertainty:

3. Minimizes waste and redundancy:

4. Set standards for controlling:

5. Provides basis for team work:

6. Adaption to change in work environment:

7. Improves morale:

8. Facilitates decision making:

PLANNING PROCESS,
TYPES OF PLANNING

GOALS:
 Goals are also called as objectives.
 Goals are desired outcomes or targets.
 They guide management decisions and form the criteria against
which the work results are measured.

TYPES OF GOALS:
 Financial goal
 Strategic goal

 Stated goals
 Real goals

“To bring inspiration and innovation to every athlete in the
world.”

“To be world’s high performance benchmark independent oil
and gas company”

“To be a global transformation partner”

PLANNING PROCESS:
 Planning is a process which contains number of steps within it.
 Planning process differs from organization to organization and
from objective to objective.
 With some minor modifications, process is applied for all types of
plans.

PLANNING PROCESS:

PLANNING PROCESS:
1. Situation analysis:
 Manager should collate all the information relevant to a given
activity for which planning is to made.
 Should analyze past experience, current trends and future scope.
 Helps to bring the issues and problems related to activity to
light.

PLANNING PROCESS:
2. Identification of opportunities:
 The exact planning starts.
 Identify the opportunity and carry out SWOT analysis.
 If the organization gets positive result, it would pass on to next
stage, else the opportunity would be dropped.

PLANNING PROCESS:
3. Objective setting:
 Represents the destination of an organization.
 Objectives of an organization and various departments are fixed.
 Timeline to finish the objectives are also fixed during this stage.

PLANNING PROCESS:
4. Planning premises:
 Denotes the circumstances under which the planning will be
undertaken.
 It represents the assumptions that are to be considered.

PLANNING PROCESS:
5. Determining alternative course of actions:
 Requires imagination, foresight and ingenuity.
 E.g. To improve productivity and organization can focus on
increasing wages or incentives or technology investment, etc.

PLANNING PROCESS:
6. Evaluation of alternatives:
 Analyzing various aspects and results of all the alternatives.
 Involves micro analysis of all the alternatives.

PLANNING PROCESS:
7. Selection of best alternatives:
 After micro analysis, the best methodology is preferred for to
accomplish the goal of an organization.

PLANNING PROCESS:
8. Derivative plans:
 Organization have to think about secondary or sub plans to
accomplish.
 E.g. If an organization prefers to provide transport facility instead
of outsourcing, then it have to think about financial burden, etc.

PLANNING PROCESS:
9. Implementation of plans:
 Communicating plan to all employees and providing instructions.
 Deploying facilities like raw materials, man power, machinery,
etc.
 Linking implementation with reward system and ensuring
execution.

PLANNING PROCESS:
10. Follow up:
 Monitoring the consequences of implementation, so that
necessary corrective actions can be to fine tune the plan.

PLANNING TYPES:

TYPES OF PLANNING

PLANNING TYPES:
1. Breadth: Based on the range of area.
 Strategic planning
 Operational planning

PLANNING TYPES:
Strategic Plans:
 Apply to the entire organization.
 Establish the organization’s overall goals.
 Seek to position the organization in terms of its environment.
 Cover extended periods of time

PLANNING TYPES:
Operational Plans
 Plans that encompasses a particular operational area of
the organization..
 Specify the details of how the overall goals are to be achieved
 Cover short time period.

PLANNING TYPES:
2. Time frame: Based on duration for achieving the goal.
 Long term goal
 Short term goal

PLANNING TYPES:
Long term goals:
 Plans with time frames extending beyond three years.

PLANNING TYPES:
Short term goals:
 Plans with time frames on one year or less.
 Any plans between these time duration are called as
intermediate plans.

PLANNING TYPES:
3. Specificity: Based on range of defining.
 Specific plans
 Directional plans

PLANNING TYPES:
Specific Plans
 Plans that are clearly defined and leave no room for
interpretation.
 They have clearly defined objectives.
 No uncertainty

PLANNING TYPES:
Directional Plans
 Flexible plans that set out general guidelines, provide focus,
yet allow freedom in implementation.
 Directional plans are used when uncertainty is high.
 They provide focus but do not lock managers into specific goals
or courses of action.

PLANNING TYPES:
4. Frequency of use: Based on usage of planning.
 Single-Use Plan
 Standing Plans

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

PLANNING TYPES:
Standing Plans
 Ongoing plans that provide guidance for activities performed
repeatedly.

SINGLE USE PLANS VS STANDING PLANS
Single use plans
1.Programmes
2.Budgets
3.Projects
Standard/Repeated use plans
1.Objectives
2.Policies
3.Procedures
4.Rules
5.Strategies

Single Use Plans:
1. Programmes
 A specific plan devised to meet a particular situation.
2. Budget
 A financial or quantitative statement prepared prior to a definite
period of time.
3. Project
 Part of general programme.

Standing Use Plans:
1. Objectives
 Specific goals or targets to be accomplished.
 Realistic, flexible.
2. Policies
 Guiding principles established by the company to govern actions
usually under repetitive conditions.
3. Procedures
 Prescribe the manner or method by which the work is to be
performed.

Standing Use Plans:
4. Rules
 A decision made by the management regarding what is to be done
and what is not to be done in a given situation.
5. Strategy
 A special kind of plan formulated in order to meet the challenge
of the polices of competitors.

Tactical Planning:
 Deals with the low level units of an organization.
 Concerned with shorter time frames and narrower scopes.

Contingency Planning:
 Plans that are devised for specific situation.

Advantages of Planning:
 Helps in achieving objectives.
 Better utilization of resources.
 Economy in operation.
 Reduces uncertainty and risk.
 Effective control.
 Improves coordination.
 Guides in decision making.
 Improves output of an organization.
 Provides decentralization.

Disadvantages of Planning:
 Lack of accuracy.
 Time and cost.
 Inflexibility.
 Delay during emergency period.

OBJECTIVES AND
SETTING OBJECTIVES

DEFINITIONS:
 Objectives are those ends which the organizations seeks to
achieve by its existence and operations.
 Objective is a specific commitment to achieve a measurable
result within a specified time.

Characteristics of Organizational Objectives:
 Multiplicity
 Hierarchy
 Networking
 Time dimension
 Quantifiable and non – quantifiable objectives.
 Social sanction

1. Multiplicity:
 Multiplicity of objectives trigger the problem of fixing
priorities and harmonizing them.

2. Hierarchy: (Top – down and bottom – up approaches)
 Objectives are framed across different levels of an
organization.
 e.g. achieving profit, improving shares – top level management
cost reduction, waste management – middle level management
reducing absenteeism, maintenance – low level management

3. Networking:
 Objectives are intertwined and networked with one other.
 e.g. Marketing, HR and Production.

4. Time dimension:
 Objectives are time bound.
 e.g. short term, long term, intermediate term.

5. Quantifiable and non – quantifiable:
 Objectives based on numbers are called quantifiable.
 Objectives based on quality are called as non – quantifiable.
 e.g. Improving productivity, increasing profit to certain number.
Improving job satisfaction, enhancing quality of products.

6. Social sanction:
 Objectives will confirm to general needs of the society.

Importance and role of objectives:
 Legitimacy
 Sense of direction
 Motivational aid
 Control mechanism
 Co – ordination
 Unifying force

1. Legitimacy
 They describe the purpose of an organization.
 They provide the identity to an organization.

2. Sense of direction:
 Provides the guide way towards the target.
 Every employee must have clear idea about what he/she is
supposed to do in his/her job.

3. Motivational aid:
 Apart from incentives and rewards, objective of an organization
will be the driving force to attain a goal.

4. Control mechanism:
 Being a driving force, objectives restricts employees from
deviation.

5. Co – ordination:
 Objectives serve as unifying force for an organization.
 e.g. executives coordinates the efforts of their subordinates.

6. Uniqueness:
 They are core force to planning.
 They serve as reference points for the formulation of policies,
strategies, procedures, etc.

SETTING OBJECTIVES:

SETTING OBJECTIVES:
 Setting objective must meet following criteria:
1. Should be consistent with the values of management.
2. Should pin point strength of an organization.
3. Should satisfy external environment factors.

Objective setting guidelines:
 Objectives should be clear and specific.
 Should be expressed in measurable terms.
 Objectives should be attainable and realistic.
 Objectives should be time bound.
 Should be whole heartedly accepted by employees.
 Objectives should be challenging.
 Objectives should have sub-goals and linked to rewards.
 Objectives should be inter – connected and mutually
supportive.
 Objectives should be flexible and adaptable.
 It should be set down in all key – result areas.

Benefits of objectives formulation:
 Sets specific target.
 Provides direction for employee.
 Increases staff motivation.
 Helps to focus on specific task.
 Builds relationship.
 Helps to measure the performance of employee.
 Helps to prioritize.
 Enables the success to be measured.

Limitations in objectives formulation:
 Immeasurability
 Inadequate resource allocation
 Stress on employee
 Neglecting ground reality
 Avoiding consultation
 Unclear and rigid objective
 Time constraint

SMART Objectives:

MANAGEMENT BY
OBJECTIVES

MANAGEMENT BY OBJECTIVES:
 MBO was conceptualized by Peter F. Drucker and was made into
practice by Harold Smiddy.
 Harold Smiddy was a long time Vice President of GEC.

DEFINITION:
 Management By Objectives is a process of setting mutually
agreed upon goals and using those goals to evaluate
employee performance.

 Specific performance goals are jointly determined by employees
and managers.
 Progress towards accomplishing goals is periodically reviewed.
 Rewards are allocated on the basis of progress towards the goals.

KEY ELEMENTS OF MBO:
 Goal specificity
 Participative decision making
 An explicit performance/evaluation period
 Feedback

STEPS IN MBO:
 Step 1: The organization’s overall objectives and strategies are
formulated.

STEPS IN MBO:
 Step 2: Major objectives are allocated among divisional and
departmental units.

STEPS IN MBO:
 Step 3: Unit managers collaboratively set specific objectives
for their units with their managers.

STEPS IN MBO:
 Step 4: Specific objectives are collaboratively set with all
department members.

STEPS IN MBO:
 Step 5: Action plans, defining how objectives are to be achieved,
are specified and agreed upon by managers and employees.

STEPS IN MBO:
 Step 6: The action plans are implemented.

STEPS IN MBO:
 Step 7: Progress toward objectives is periodically reviewed and
feedback is provided.

STEPS IN MBO:
 Step 8: Successful achievement of objectives is reinforced by
performance-based rewards.

Characteristics of Well written goals:
 Written in terms of outcomes, not actions
 Measurable and quantifiable
 Clear as to time frame
 Challenging yet attainable
 Written down
 Communicated to all necessary organizational members

STEPS IN GOAL SETTING:
1. Review the organization’s mission statement.
Do goals reflect the mission?

2. Evaluate available resources.
Are resources sufficient to accomplish the mission?

3. Determine goals individually or with others.
Are goals specific, measurable, and timely?

4. Write down the goals and communicate them.
Is everybody on the same page?

5. Review results and whether goals are being met.
What changes are needed in mission, resources, or goals?

PLANNING IN MBO PROCESS:

ADVANTAGES:
 Employee feel motivated when working in the organization
because of clear goals.
 Improvement of managing through result oriented planning.
 Classification of organization roles and structures as well as
delegation of authority according to the results expected of the
people occupying the roles.
 Encouragement of commitment to personal and organizational
goals.
 Development of effective controls that measure results and lead
to corrective action.
 Autonomy in implementation of plan.

DRAWBACKS:
 MBO is not the best approach for organization functioning in
dynamic environment.
 Overemphasis on individual accomplishment may create
problems with teamwork.
 Difficulty in implementation.
 Difficulty of setting verifiable goals with right degree of
flexibility.
 Overuse of quantitative goals and the attempt to use numbers
in areas where they are not applicable.

MBO AT MICROSOFT BY BILL GATES
 Eliminate politics, by giving everybody the same message.
 Keep a flat organization in which all issues are discussed
openly.
 Insist on clear and direct communication.
 Prevent competing missions or objectives.
 Eliminate rivalry between different parts of the organization.
 Empower teams to do their own things.

https://www.youtube.com/watch?v=9FZDVmSvsH0
https://www.youtube.com/watch?v=0qM5YYWaRC4

POLICIES AND PLANNING
PREMISES

DEFINITION:
 Policy is a general guideline for decision making.
 According to Koontz and Weihrich, “Policies are general
statements of understandings which guides or channelize
thinking in decision making or subordinates.

 Policies deal with ‘How to do’ but it do not dictate terms to
subordinates.
 Policy is only a framework within which decisions must be
made.

NATURE OF POLICY:
1. Relationship to organization’s objectives:
 Policies are based on the objectives and they contribute towards
the attainment of objectives.

NATURE OF POLICY:
2. Clarity of policy:
 Policies are clear, definite and explicit leaving no room for
interpretation.

NATURE OF POLICY:
3. Guideline towards decision making:
 Prescribes the criteria for current and future actions.

NATURE OF POLICY:
4. Policies are written:
 Policies are stared with precise covering of all anticipated
conditions.

NATURE OF POLICY:
5. Consistency:
 Provides steadiness in various operations of an organization.

NATURE OF POLICY:
6. Balance of policy:
 Should maintain balance between stability and flexibility.

NEEDS FOR POLICY:
 Operationalize objectives.
 Save time and effort.
 Facilitate delegation of authority.
 Speedup decision making.
 Control administration.

POLICY FORMULATION PROCESS:
1. Definition of policy
2. Creation of policy alternatives
3. Evaluation of policy alternatives
4. Choice of policy
5. Communication of policy
6. Implementation of policy
7. Review of policy

TYPES OF POLICIES:
Classification on the basis of sources:
1. Originated or Formulated policies:
 Originated by top level managers, flows down the level of the
management.
 Acts as a guidelines for lower level units to formulate their own
unit policies.

TYPES OF POLICIES:
2. Appealed policies:
 Policies formulated on the request or appeal of lower level
managers.

TYPES OF POLICIES:
3. Implied policies:
 Sometimes policies are not clearly stated and the actions of top
level managers provides guidelines for actions at the lower levels.

TYPES OF POLICIES:
4. Externally imposed policies:
 Policies that are imposed by some external forces such as unions,
government, association, etc.

TYPES OF POLICIES:
Classification on the basis of functions:
 Production policy
 Sales policy
 Financial policy
 Personnel policy, etc.

TYPES OF POLICIES:
Classification on the basis of organization levels:
 Company policy
 Department policy
 Derivative policy

Advantages:
 Ensures uniformity in actions.
 Speeds up decision at lower levels.
 Delegation of Authority or work becomes easier.
 Gives practical shape to the objectives by elaborating and
directing the way in which the predetermined objectives are to be
attained.

PLANNING PREMISES:
 Usually plans are prepared for future, which are uncertain. Thus
the management makes certain assumptions about the future.

DEFINITION:
 According to Koontz and Weihrich, Planning premises are the
anticipated environment in which plans are expected to
operate.
 According to Dr.G.R.Terry, Planning premises are the
assumptions providing a background against which the
estimated events affecting the planning will take place.

IMPORTANCE:
 Well organized planning can be done.
 Risk of uncertainty reduces.
 Risk of flexibility reduces.
 Co-ordination becomes effective.
 Increases in profitability.

CLASSIFICATION:
1. Internal and External:
 Internal are assumptions considered within an organization.
e.g.: Man power, Resource availability, Capacity of a plant.
 External are assumptions considered outside an organization.
e.g.: Business environment, Demand in market, Technological
advancement

CLASSIFICATION:
2. Tangible and Intangible premises:
 Tangible are the assumptions that deals with numbers.
e.g.: Working hour, Monetary unit.
 Intangible are the assumptions that can’t be measured.
e.g.: Employee welfare, Motivation.

CLASSIFICATION:
3. Controllable and uncontrollable:
 Assumptions that are completely under control.
e.g.: Procedures, Organization structure.
 Assumptions that can’t be controlled by an organization.
e.g.: Population growth, Taxation policy of government.

Premises about raw materials:
 What type of material and quantity?
 What will be the price of raw material?
 Availability of raw material resource and transportation cost.
 Is there any possibility to prepare required raw material in the
company?
 If raw material is going to be purchased , should it be imported or
indigenously acquired?

Premises about personnel:
 How much skilled , unskilled , male, female, workmen, are needed
for implementation of a plan?
 How much training should be imparted in the context of new
technological development ?
 To make an estimate regarding present and future employees.

Premises about organization:
 What will be the structure of the organization?
 Coordination among departments.
 Whether to centralize or decentralize the authority?

Premises about basic policies:
 Whether to give importance to quality or low price?
 Premises about automation of office.
 Premises for capital.
 The methods of directing to be followed .
 Policies and rules of employment.

STRATEGIC MANAGEMENT

DEFINITION:
 The decisions and actions that determine the long-run
performance of an organization.
 What the managers do to develop an organization’s strategy.
 It involves all the management functions.

 They are the plans for how the organization will do whatever
it is in business to do.
 Helps an organization to attract and satisfy its customers in
order to achieve its goals.

WALMART (vs) KMART

BUSINESS MODEL:
 Design which defines how a company is going to make money.
 Business model focuses on two factors:
1. Whether customer will value what the company is
providing?
2. Whether the company can make any money doing that?

IMPORTANCE OF STRATEGIC MANAGEMENT:
 Can make a difference in how well an organization can
perform?
 Managers face continually change in situations.
 Organizations are complex and diverse.

Interbrand/BusinessWeek
100 Top Global Brands (2005)
1. Coca-Cola
2. Microsoft
3. IBM
4. General Electric
5. Intel
Harris Interactive/Wall Street Journal
National Corporate Reputation (2005)
1. Johnson & Johnson
2. Coca-Cola
3. Google
4. United Parcel Service
5. 3M Company
Hay Group/Fortune
America’s Most Admired Companies
(2006)
Great Place to Work Institute/Fortune
100 Best Companies to Work For (2006)
1. General Electric
2. FedEx
3. Southwest Airlines
4. Procter & Gamble
5. Starbucks
1. Genentech
2. Wegman’s Food Markets
3. Valero Energy
4. Griffin Hospital
5. W. L. Gore & Associates

Interbrand/BusinessWeek
100 Top Global Brands (2015)
1. Apple
2. Google
3. Coca - Cola
4. Microsoft
5. IBM
Harris Interactive/Wall Street Journal
National Corporate Reputation (2016)
1. Johnson & Johnson
2. Coca-Cola
3. Google
4. United Parcel Service
5. 3M Company
Hay Group/Fortune
America’s Most Admired Companies
(2016)
Great Place to Work Institute/Fortune
100 Best Companies to Work For (2016)
1. Apple
2. Alphabet
3. Amazon
4. Berkshire Hathaway
5. Walt Disney
1. Google
2. ACUITY Insurance
3. The Boston Consulting
Group (BCG)
4. Wegman’s Food Markets
5. Quicken Loans

STRATEGIC MANAGEMENT PROCESSES:

 Step 1: Identifying the organization’s current mission, goals
and strategies
 Mission is the reason for a firm’s being.
 Provides clues to what the organizations see as their purpose.

 Step 1: Identifying the organization’s current mission, goals
and strategies
Mission of Infosys:
 To achieve our objectives in an environment of fairness, honesty
and courtesy toward our clients, employees, vendors and society at
large.

 Step 2: Doing an external analysis

 Step 2: Doing an external analysis
 Analyzing environment is the critical step in strategic
management process.
 Find out the opportunities (smart phones) and threats.
 Opportunities are the positive trends and threats are the negative
trends.

 Step 3: Doing an internal analysis
 Gives information about organization’s specific resources and
capabilities.

 Step 3: Doing an internal analysis
 Gives information about organization’s specific resources and
capabilities.
 Here strengths and weakness are analyzed.

 Step 4: Formulating strategies
 After analyzing all the factors the strategies will be formulated.
 Three types of strategies are: corporate, business and
functional.

 Step 5: Implementing strategies

 Step 6: Evaluating results
 Adjustments and corrective actions.

TYPES OF STRATEGIES:
1. Corporate Strategy
1.1 Growth strategy
1.1.1 Concentration
1.1.2 Vertical integration
1.1.2.1 Backward vertical integration
1.1.2.2 Forward vertical integration
1.1.3 Horizontal integration (Related and Unrelated)
1.1.3.1 Related horizontal integration
1.1.3.2 Unrelated horizontal integration
1.2. Stability strategy
1.3. Renewal strategy
1.3.1 Retrenchment strategy
1.3.2 Turnaround strategy
2. Business Strategy
3. Functional Strategy

CORPORATE STRATEGY:
 Specifies what businesses a company is in or wants to be in?
 Top management’s overall plan for the entire organization
and its strategic business units.

CORPORATE STRATEGY:
 Corporate strategies are classified into three types:
1. Growth
2. Stability
3. Renewal

CORPORATE STRATEGY:
1. Growth Strategies:
 With growth strategy, an organization expands the number of
markets served or products offered.
 Expands in current businesses or new businesses.
1.1 Concentration
1.2 Vertical Integration
1.3 Horizontal Integration
1.4 Diversification

CORPORATE STRATEGY:
1.1 Concentration:
 Focuses only on primary line of business and increases the
number of products offered.
 e.g.: CRI Pumps, Coimbatore.

CORPORATE STRATEGY:
1.2 Vertical Integration:
1.2.1 Backward vertical integration.
 e.g.: eBay online payment mode
1.2.2 Forward vertical integration.
 e.g.: Bata showrooms

CORPORATE STRATEGY:
1.3 Horizontal Integration:
 Company grows by combining with competitors.
 e.g.: RNAIPL

CORPORATE STRATEGY:
1.4 Diversification:
1.4.1 Related diversification (variety of business in same field)
 e.g. Godrej
1.4.2 Unrelated diversification (different field)
 e.g. Tata Group of India

CORPORATE STRATEGY:
2. Stability Strategies:
 Organization continues to do what is currently doing.
 Serves the clients by offering same product.
 e.g.: Iruttu Kadai

CORPORATE STRATEGY:
3. Renewal Strategies:
 Arises when the organization is in problem.
3.1 Retrenchment Strategy (short run renewal)
3.2 Turnaround Strategy (problems are more serious)

CORPORATE PORTFOLIO ANALYSIS:
 In case of collection of businesses, management uses BCG (Boston
Consulting Group) matrix.

COMPETITIVE STRATEGIES:
 Strategy focused on how an organization should compete in each of
its Strategy Business Unit (SBU).

ROLE OF COMPETITIVE ADVANTAGE:
1. Quality as a competitive advantage:
 Iruttu Kadai

2. Sustaining competitive advantage:
 MIT

Five forces Model:

NEW ORGANIZATION STRATEGIES:
1. e-Business Strategies:

2. Customer Service Strategies

3. Innovation Strategies:

PLANNING TOOLS AND
TECHNIQUES

There are three categories of planning tools and techniques:
 Techniques for assessing the environment
 Techniques for allocating resources
 Contemporary planning

Techniques for assessing the environment:
 Many larger accounting firms have setup external analysis
departments to study the wider environment in which they
and their clients operate.
 Three techniques helps managers to do that:
1. Environmental scanning
2. Forecasting
3. Benchmarking

1. Environmental scanning:
 Managers used to screen large amount of information to anticipate
and interpret changes in the environment.

 Analyzing what is the need of customers and the market survival
strategy of the competitors.

1.1 Competitive Intelligence:
 Process by which the organizations gather information about their
competitors and get answers to questions Who they are? What
they are doing? How will they affect us?

1.2 Global Scanning:
 World markets are complex and dynamic.
 Managers must focus how he should update the business.

2. Forecasting:
 Predict the future events effectively.
1. Quantitative forecasting
2. Qualitative forecasting

2. Forecasting:
2.1 Quantitative forecasting:
 Set of mathematical rules to a series of past data to predict
outcomes.

2. Forecasting:
2.2 Qualitative forecasting:
 Uses judgment and opinions of knowledgeable individuals to
predict outcomes.

2. Forecasting:
 CPRF (Collaborative Planning, Forecasting and
Replenishment)
 Provides frame work for the flow of information, goods and services
between retailers and manufacturers.

Effectiveness of forecasting:
 Helps the managers in decision making.

Quantitative
 Time series analysis (Duration to complete)
 Regression models (Predicting a variable by assuming another
variable)
 Econometric models (Sales change due to taxation)
 Economic indicators (Using a factor to predict. e.g. GDP)
 Substitution effect (DVD vs Pen drive)
Qualitative
 Jury of opinion (Recruiting)
 Sales force composition (Predicting next year sales)
 Customer evaluation (Surveying dealers.)

3. Benchmarking:
 The search for the best practices among competitors and non-
competitors that lead to their superior performance.

Steps in Benchmarking:

Techniques for allocating resources:
 Managers must focus on the resource allocation before the
execution of a work.
Examples:
 Financial (equity, debts)
 Human (skilled labors)
 Physical (raw materials, equipment)
 Intangible (brand names, reputation)

 Managers must focus on the resource allocation before the
execution of a work.
1. Budgeting:
 Numerical plans for allocating resources to specific activities.
 Used to improve time, space and use of material resources.
 e.g. revenues, expenses and capital expenditures.

1. Budgeting:
Types of budgets:

1. Budgeting:
Methods to improve budgeting:
 Collaborate and communicate.
 Be flexible.
 Goals should drive budgets—budgets should not determine goals.
 Use budgeting/planning software when appropriate.

2. Scheduling:
 Plans that allocate resources by detailing what activities have to
be done, the order in which they are to be completed, who is to do
each, and when they are to be completed.

2. Scheduling:
2.1 Gantt Charts:

2. Scheduling:
2.2 Load Charts:

2. Scheduling:
2.3 PERT Analysis:
 A flow chart diagram that depicts the sequence of activities
needed to complete a project and the time or costs associated
with each activity.
 To understand this one must know the following terms:
1. Events: endpoints for completion.
2. Activities: time required for each activity.
3. Slack time: Time an individual activity can be delayed.
4. Critical path: Most time consuming sequence of events.

2. Scheduling:
Steps in PERT Analysis:
1. Identify every significant activity that must be achieved for a
project to be completed.
2. Determine the order in which these events must be completed.
3. Diagram the flow of activities from start to finish
4. Compute a time estimate for completing each activity.
5. Determine a schedule for the start and finish dates of each
activity and for he entire project.

2. Scheduling:
E.g.: Construction of an office building:

2. Scheduling:
E.g.: Construction of an office building:
Critical Path: A - B - C - D - G - H - J - K

3. Break – Even Analysis:
 Used to determine the point at which all fixed costs have been
recovered and profitability begins.
CostsVariableUnit-PriceUnit
CostsFixedTotal
:Breakeven

4. Linear Programming:
 Helps in selecting which is the most suitable or optimistic
method to find the solution.

4. Linear Programming:
Department
No. of hours required
for one potpourri bag
No. of hours required
for one scented candle
Monthly production
capacity
Manufacturing 2 hours 4 hours 1,200 hours
Assembly 2 hours 2 hours 900 hours
Profit per unit Rs.10 Rs.18

Contemporary Planning Techniques:
 Much suited for dynamic and complex situation.

1. Project Management:
 The task of getting a project’s activities done on time, within
budget, and according to specifications.
 Project is defined as one-time-only set of activities that has a
definite beginning and ending point time.

2. Scenario Planning:
Scenario Planning
 An attempt not try to predict the future but to reduce uncertainty
by playing out potential situations under different specified conditions.
Scenario
 A consistent view of what the future is likely to be.

2. Scenario Planning:
Preparing for unexpected events:
 Identify potential unexpected events.
 Determine if any of these events would have early indicators.
 Set up an information gathering system to identify early
indicators.
 Have appropriate responses (plans) in place if these unexpected
events occur.

DECISION MAKING STEPS
AND PROCESS

Decision Making:
 Managers at all levels and in all areas of organizations make
decisions.
 Top level managers – Goals, Location of manufacturing facility,
new markets etc.
 Middle level and lower level – production schedules, product
quality problems, pay rises and employee discipline etc.

Decision Making:
 Making a choice from two or more alternatives.
 For every action, decision making helps us to choose the best
solution.

Decision making steps:

Decision making steps:
Step1: Identifying the problem or fixing to the requirement.
Step2: Consider the factors to resolve problem (e.g. costs, features).
Step3: Adding importance / weights to each criteria.
Step4: Identify viable alternatives.
Step5: Analyze the alternatives.
Step6: Choosing all the alternates.
Step7: Implementation of alternatives.
Step8: Evaluation.

Decision in management functions:
 We believe that the decisions taken by managers are rational.

Decision making:
Bounded rationality:
 Managers make decisions rationally, but are limited (bounded) by
their ability to process information.
 Managers satisfies rather than maximize.
Escalation of commitment:
 Increased commitment to a previous decision despite evidence that
it may go wrong.

Decision making:
Role of intuition:
 Taking a decision on the basis of experience, feelings and
accumulated judgment.

Types of problems and decisions:
1. Structured problems and programmed decisions.
 e.g. for programmed decisions: Policy, procedure, rule.
2. Unstructured problems and non – programmed decisions.
 e.g. for non – programmed decisions: expel / change the employee.

Programmed vs Non – programmed decisions:

Types of decision makers:

Common decision making errors:

1. Overconfidence Bias
 Holding unrealistically positive views of one’s self and one’s
performance.
2. Immediate Gratification Bias
 Choosing alternatives that offer immediate rewards.
3. Anchoring Effect
 Fixating on initial information and ignoring subsequent
information.
4. Selective observation Bias
 Selecting, organizing and interpreting events based on the
decision maker’s biased perceptions.

5. Confirmation Bias
 Seeking out information that reaffirms past choices and
discounting contradictory information.
6. Framing Bias
 Selecting and highlighting certain aspects of a situation
while ignoring other aspects.
7. Availability Bias
 Losing decision-making objectivity by focusing on the most
recent events.
8. Representation Bias
 Drawing likeness and seeing identical situations when none
exist.

9. Randomness Bias
 Creating unfounded meaning out of random events.
10.Sunk Costs Errors
 Forgetting that current actions cannot influence past events
and relate only to future consequences.
11. Self-Serving Bias
 Taking quick credit for successes and blaming outside
factors for failures.
12. Hindsight Bias
 Mistakenly believing that an event could have been predicted
once the actual outcome is known (after-the-fact)

Planning in Principles of Management

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