Management Process

Management Process
S.N.Selvaraj, M.B.A., M.Phil., Assistant Professor, Email: snselvaraj66@gmail.com Page 1
UNIT – II PLANNING & DECISION MAKING
Planning: Meaning and Purpose of Planning – Steps in Planning – Types of Planning
– Objectives and Policies. Decision Making: Process of Decision Making – Types of
Decisions.
PLANNING: MEANING AND PURPOSE OF PLANNING
Planning is the most fundamental function of management. It precedes other
functions. Without setting the goals to be reached and the course of action to be
followed, organizing, staffing, directing and controlling cannot be effective.
Planning provides framework within which coordinating, motivating and controlling
can be undertaken. Every individual and organization plans the line of action to be
followed in future. Action follows planning and there is nothing to do unless the
objectives and the ways of achieving them are decided. Planning is in fact a
prerequisite to effective management.
Meaning of Planning
Planning is the management function of anticipating the future and the conscious
determination of a future course of action to achieve the desired results. A plan is a
blueprint of the course of action to be followed in future. Planning involves
forecasting because in order to plan the future course of action, it is essential to
anticipate the future.
Definition of Planning
According to M.E.Hurley, “Planning is deciding in advance what is to be done. It
involves the selection of objectives, policies, procedures, and programs from among
alternatives”.
According to Cleland and King, “Planning is the process of thinking through and
making explicit the strategy, actions and relationships necessary to accomplish an
overall objective or purpose”.
Nature and Characteristics of Planning
The nature of planning can be visualized from the following features of planning:
1. Planning is Goal-Oriented: Planning is not an end in itself. Rather it is a means
towards the accomplishment of objectives. The goals may be implicit or
explicit but well-defined goals are essentials for efficient planning.
2. Planning is Primary Function: Planning is the basis of the management process.
All other functions of management are designed to attain the goals set under
planning. It precedes the execution of all other functions. Without planning
there is nothing to organize, no one to actuate and no need to control.
3. Planning is All-Pervasive: Planning is the function of each and every manager
irrespective of the level and area of his/her operations. Planning is an essential
ingredient in management at all executive levels.

Management Process
4. Planning is an Intellectual Process: Planning is a mental process involving
imagination, foresight and sound judgment. It requires a mental disposition of
thinking before doing and acting in the light of facts, rather than guesses.
5. Planning is a Continuous Process: Planning is an on-going process and dynamic
exercise. As a manager carries out his functions, he continues to plan, revising
his old plans and choosing alternative plans as the need arises.
6. Planning is Forward-Looking: All planning is done with an eye on the future.
Planning involves looking ahead and preparing for the future. Therefore,
forecasting is the essence for planning. A plan is really a synthesis of various
forecasts.
7. Planning Involves Choice: Planning is basically problem of decision-making or
choosing among alternative course of action. There is no need for planning if
there is only one way of doing something. Plans are decisions made after
evaluation of alternative course of action.
8. Planning is an Integrated Process: Planning does not just happen, it has to be
initiated. Different plans are interdependent and interrelated. Every lower plan
serves as a means towards the end of higher plans. Planning is a time-bound
concept and every plan has a definite time horizon.
9. Planning is Directed towards Efficiency: Planning has no relevance if it does not
facilitate the achievement of objectives economically and efficiently.
Purpose/ Principles of Planning
 Principle of Contribution to Objectives: Every major and derivative plan should
contribute positively towards the accomplishment of enterprise objectives. This
principle is derived from the raison d’etre of the enterprise.
 Principle of Efficiency of Plans: The efficiency of a plan is measured by the amount
it contributes to objectives minus the costs and other undesirable consequences
involved in the formulation and operation of the plans.
 Principle of Primacy of Planning: This principle emphasizes that a manger can
hardly perform other managerial functions without a road map of plans to guide
him. Planning is the primary requisite of other management functions because
these functions are designed to support the accomplishment of enterprise goals.
 Principle of Planning Premises: Perhaps the main deficiency of planning arises from
poorly structured plans. A coordinated structure of plans can be developed only
when managers throughout the organization understand and agree to utilize
consistent planning premises.
 Principle of Policy Framework: A consistent and effective framework of enterprise
plans can be developed if the basic policies that guide thinking in decisions are
expressed clearly. The decisions which lead to plans cannot be accurately focused
on enterprise objectives without a framework of policies.
 Principle of timing: When the plans are structured to provide an appropriately
timed, intermeshed network of derivative and supporting programs, the plans can
contribute effectively and efficiently towards the attainment of enterprise
objectives. Both premises and policies are useless without proper timing.

Management Process
 Principle of Alternatives: In choosing from among alternatives, the best alternative
will be that which contributes most efficiently and effectively to the
accomplishment of a desired goal.
 Principles of Limiting Factor: While choosing from among alternatives, the planner
should focus on those factors which are critical to the attainment of the desired
goal. This will help in selecting the most favorable alternative.
 Principle of Commitment: Logical planning should cover a time necessary to
forecast the fulfillment of commitment involved in a decision. This is necessary to
make reasonably sure of meeting commitment.
 Principle of Flexibility: This principle deals with the ability to change which is built
into plans. The risk of loss due to unexpected events can be reduced by building
flexibility into the plans.
 Principle of Navigational Change: The manager should periodically check on events
and expectations and redraw plans to maintain a course toward the desired goal.
 Principle of Competitive Strategies: While formulating plans, a manager should take
into account the plans of rivals or competitors. The plans should be chosen in the
light of what a competitor will do in the same situation.
Planning Premises
Plans are prepared for future. But future is uncertain. Therefore, management makes
certain assumptions about the future. These assumptions should not be based upon
hunch, intuition or guesswork. Rather these should be developed through scientific
forecasting of future events. The assumptions about future derived from forecasting
and used in planning are known as planning premises.
According to Koontz and O’Donnell, “Planning premises are the anticipated
environment in which plans are expected to operate. They include assumptions or
forecasts of the future and known conditions that will affect the course of plans”.
Planning premises are the building blocks on which the super-structure of planning is
based. These premises relate to the strategic or crucial and limiting factors. Consistent
and coordinated plans can be prepared on the basis of good planning premises.
One of the major purposes of premises is to facilitate the planning process by guiding,
directing, simplifying and reducing the degree of uncertainty in it. Premises guide
planning. Developing sound premises is vital for successful planning.
Classification of Planning Premises
1) External and Internal Premises: External premises are those which lie outside
the firm. These are of many kinds – (a) general business environment including
economic, technological, political and social conditions, (b) the product market
consisting of the demand and supply forces for the product or service, and (c)
the factor market for land, labor, capital etc. Internal premises refer to the
factors within the enterprise. These include sales forecast, capital investment in
plant and equipment, competence of management personnel, skill of labor
force, etc.

Management Process
2) Tangible and Intangible Premises: Tangible premises are those which can be
quantified, e.g. money, units of production, etc. On the other hand, Intangible
premises refer to the qualitative factors like public relations, company‟s
reputation, employee morale, etc. These cannot be expressed in quantitative
terms. However, such premises play an important role in planning.
3) Controllable and Uncontrollable Premises: Those premises which are entirely
within the control and realm of management are known as controllable
premises. These include the policies, programs and rules of the enterprise.
Premises over which an enterprise has absolutely no control are uncontrollable
premises. These include war, natural calamities, new inventions, population
trends, etc. Some premises are semi-controllable such as union-management
relations, supply position in the industry, etc.
STEPS IN PLANNING
There is no standard planning process. Each enterprise has to develop its own modus
operandi for planning depending on its size, nature and environment. The first step in
planning is a thorough analysis of the external and internal environment of the
enterprise. Analysis of external environment will help to identify the opportunities and
constraints for the enterprise. Analysis of internal environment such as resources and
requirement will help to identify the strength and weakness of the enterprise.
However, the main steps in planning process are as follows:
Figure: The Planning Process
1. Determine Objectives: Plans are formulated to achieve certain objectives. They
should be clearly specified and measurable as far as possible. They should be
spelled in key areas of operations and for different divisions and departments.
2. Develop Planning Premises: Planning is done for future which is uncertain.
Therefore, certain assumptions are made in preparing plans. Planning premises are
the limitations that lay down the boundary for planning. Planning premises can be
of several types.
Determine
Objectives
Develop
Planning
Premises
Formulate
Strategies
Choose
Policies
Review
and Revise
Plans
Develop
Derivative
Plans
Integrate
Different
Plans
Implement
Plans

Management Process
Controllable or Internal Premises are under the control of management, e.g.
resources, techniques are policies of the enterprise.
Uncontrollable or External Premises are beyond the control of the enterprise.
These relate to rate of population growth, general economic conditions,
government policies, political situation, etc.
3. Formulate Strategies: There can be several ways of achieving the same objectives.
The various available alternatives should be identified. For example, in order to
increase sales an enterprise may intensify sales efforts, explore new markets, or
develop new products. In order to develop all possible alternatives, a manager
must have imagination, skill and experience.
4. Choose Policies: After evaluating the various alternatives, the most appropriate
alternative is selected. This is the point at which the plan is adopted. Sometimes,
the evaluation may suggest that more than one alternative is good. In such a case, a
manager may choose several alternatives and combine them in action.
5. Develop Derivative Plans: Once the basic plan (policy and strategy) is decided,
various supporting or subsidiary plans are formulated. These include procedures,
programs, budgets, schedules, etc. Such plans are required to implement the basic
plan. The sequence of various activities is determined to ensure continuity in
operations.
6. Integrate Different Plans: The various alternatives are compared and weighed in
the light of objectives and premises. Each alternative has its merits and demerits
but all alternatives cannot be equally appropriate or practicable. Several statistical
and mathematical techniques are used to evaluate alternative courses of action and
to integrate various plans.
7. Implement Plans: After choosing the best and appropriate plan it should be
implemented in the right time to have the better results towards the achievement of
objectives of the enterprise.
8. Review and Revise Plans: In the course continuous action the plans are to be
reviewed periodically and if the manager feels to have modified results the same
may be revised according to the requirements of the enterprise.
TYPES OF PLANNING
S.No. Types of Planning On the Basis
1 Long-term Planning
On the Basis of
Time Period
2 Medium-term Planning
3 Short-term Planning
4 Corporate Planning
On the Basis of Scope5 Divisional Planning
6 Departmental (or) Unit Planning
7 Strategic Planning
On the Basis of Process
8 Operational Planning

Management Process
 Long-term Planning: Long-term planning covers a long period in future, e.g. 5, 10
or 15 years. It takes into account all long-term economic, social and technological
factors as well as their influence on the long-term objectives of the organization.
Long-term planning involves commitment of resources for long-term, e.g.
development of new product, etc. Long-term planning involves a great deal of
uncertainty and therefore, it tends to be less specific.
 Medium-term Planning: Medium-term planning also known as intermediate
planning. It focuses on a period between two and five years. Such planning is more
detailed and specific than long-term planning. It may include plans for purchase of
materials, sales budget, labor overhead expenses, etc. It also covers Project
Planning concerned with specific projects like modernization.
 Short-term Planning: Short-term planning covers a short period usually one year. It
deals with specific activities to be undertaken to accomplish the objectives laid
down under long-range planning. It relates to current functions and their sub-
functions, e.g. work methods, employee training, etc. It contains a detailed outline
of certain specific activities. It may also be called as Activity Planning.
 Corporate Planning: Corporate planning or Organization Planning is concerned
with the organization as a whole. It is usually for long-term and is done by the top
level of management. It lays down the overall objectives, strategies and policies
for the total enterprise. It is also known as Strategic Planning. The focus here is on
the total enterprise.
 Divisional Planning: Divisional planning determines the scope of a division‟s
activities and establishes policies and budgets to attain divisional goals. It is also
known as tactical planning or operational planning. Whereas corporate planning
is concerned with the selection of broad plans to achieve organizational goals,
divisional planning redefines these goals in terms of activities of each division, e.g.
production, sales, finance, personnel, etc. The focus is on specific functional areas
of business.
 Departmental or Unit Planning: Departmental planning involves development of
specific plans for each department or a division so as to accomplish the divisional
plans. The focus here is on day-to-day actions of work nits and on meeting planned
schedules and budgets.
 Strategic Planning: Strategic planning refers to the process or formulating a
unified, comprehensive and integrated plan relating the strategic advantages of the
firm to the challenges of the environment. It involves appraising the external
environment in relation to the enterprise, identifying the strategies to be adopted in
future to achieve the objectives. Strategic planning is the process of deciding on
the basic goals, the resources required to achieve these goals, the acquisition and
disposition of resources, etc.
Strategic planning is long term in nature. It is comprehensively concerned with the
total enterprise. Strategic planning offers the following advantages:
(i) Strategic planning identifies the opportunities and threats which the firm
is likely to face in future.
(ii) It determines the future direction of a company.

Management Process
(iii) It defines the manner in which the resources of the enterprise are to be
deployed.
(iv) It lays down a systematic and logical procedure for carrying out the
operation of the firm.
(v) It provides a basis for the formulation of operational plans.
(vi) It facilitates coordination between the different divisions and
departments of the enterprise.
 Operational Planning: Operational planning or tactical planning is a short-term
exercise designed to implement the strategies formulated under strategic planning.
It is based on strategic plans, for example, the strategic plan of a company may be
to diversify into new lines of products. To carry out this plan, the firm may prepare
short-term plans regarding the new product to be manufactured and sold.
Strategic Planning Versus Operational Planning
S.No Strategic Planning Operational Planning
1
Lays down major goals and policies
of the organization
Decides the use of resources in day-
to-day operations
2
Done at the higher levels of
management
Done at lower levels of management
3 Long-term in nature Short-term in nature
4 Broad and general Detailed and specific
5
Based on long-term forecasts and
appraisal of environment
Based on past experience
The six P’s of Planning
1. Purpose: The first need of planning is the purpose. An effective planning
requires a clear understanding of the purpose of planning.
2. Philosophy: It states the beliefs as to how the organization‟s purpose is to be
achieved. For a long term survival and growth the philosophy must adopt
ethical conduct.
3. Promise: It is an assessment of the strengths and weaknesses of the organization
based on the knowledge and assumptions of the environment.
4. Policies: Policies are the general statements for the guidance of the personnel.
They are the guidelines and constraints which aid in management action.
5. Plans: These are the objectives and action statements. Plans guide us for
reaching the goals and in knowing the progress at different stages.
6. Priorities: An organization must fix goal priorities. The resources of finance,
materials, personnel, etc. are limited and these are to be allocated as per the
priorities set.

Management Process
OBJECTIVES AND POLICIES
Planning is of paramount importance both for an organization and an economy. Sound
plans are essential to effective management, because they serve as guides to all
management functions. Lack of well-defined objectives and priorities is the common
cause of failure. Failure to plan is planning to fail.
OBJECTIVES
Objectives are the ends for the achievement of which managerial activities are
directed. Objectives constitute the purpose, the attainment of which is necessary for
the business. No planning is possible without setting up of objectives.
Objectives are not only helpful in planning but also other managerial functions like
organizing, directing, controlling. Clear cut objectives help in proper decision-making
and in achieving better results.
Mc Farland defines objectives, “Objectives are the goals, aims or purpose that
organizations wish to achieve over varying period of time”.
Classification of Objectives
Management objectives can be classified as follows:
(1) Primary Objectives: These are the objectives for which a company has been
started. Primary objectives are related to the company and not to individuals.
Earning of profits out of providing goods and services to the customers is the
primary objective of a company.
(2) Secondary Objectives: These objectives help in achieving primary objectives.
Secondary objectives, like primary objectives, are impersonal in nature. The
goal of adding new products will be a secondary goal which will help in
achieving the primary objective, i.e. earning profit through goods and services.
(3) Individual Objectives: These are the goals which individual members in an
organization try to achieve on daily, weekly, monthly or yearly basis. These
objectives are achievable as subordinate to primary and secondary goals. An
individual tries to satisfy his needs and desires by working in an organization.
(4) Social Objectives: These are the goals of an organization towards society. These
include the obligations required by the community government agencies etc.
Social obligations of business have become essential these days. These are
expectations that business should also spend a part of its profits for the welfare
of community.
Features of Objectives
 Every organization has objectives rather it is started to achieve certain
objectives.
 The objectives of a business organization may be broad as well as specific.
 The objectives may be for long-term or short-term periods.
 Objectives have hierarchy – different levels of management.
 The aspirations of society should be reflected from the business objectives.
 Business objectives may have to be changed as per the new situations.

Management Process
Management by Objectives (MBO)
In the changing environment old techniques of management do not give better results.
The expansion of business in size and changes in technology has necessitated a new
thinking in managerial approach. A number of new techniques of management have
been developed in the recent past and Management by Objectives (MBO) is one of
them. Though MBO is practiced around the world yet there is no unanimity about this
meaning.
MBO is one of the techniques by which executives can improve organizational
performance and effectiveness. Peter Drucker as father of MBO technique, coined
this term in 1954.
Meaning and Definition of MBO
MBO is a process whereby superiors and subordinates sit together to identify the
common objectives and set the results which are to be achieved by the subordinates.
Management by objectives has been recognized as a system for achieving the
organizational objectives.
According to George S Ordiorue, “The system of management by objectives can be
described as a process whereby the superior and subordinate managers of an
organization jointly identify its common goals and assessing the contribution of each
of its members”.
Prof. Reddin says that MBO is “the establishment of effective areas and standards for
managerial positions and the periodic conversion of all these into measurable time
bound objectives linked vertically and horizontally with future planning”.
Features of MBO
 MBO is not merely technique but a philosophy to management.
 It is an approach which includes various techniques of better management.
 These objectives become the targets which are to be achieved by various
employees.
 It compares the targets and actual results to assess the performance.
 It provides for a regular review of performance.
 MBO provide guidelines for appropriate system and procedures.
Process of MBO
MBO is used to plan goals for the employees through their own participation. The
setting of goals is not a simple thing. It requires lot thinking and planning. The setting
of objectives requires following steps:
 Setting Objectives at the Top: The first step in MBO process is to analyze the
purpose or mission of the organization. This exercise is undertaken at the top level.
These goals are set by taking into account the company‟s strength and weakness
and opportunities available.

Management Process
 Clarifying Organizational Roles: Sometimes organizational roles are not properly
clarified and specific responsibility attaining the objectives is not fixed. There
should be clear cut assignment of tasks and fixation of responsibilities. For
example, the development of new product may be the responsibility of research,
production and marketing managers.
 Setting Subordinates Objectives: The subordinate managers should be informed of
general objectives, planning premises and strategies of the company. The superior
should then discuss with the subordinate about the objectives which can be
accomplished within the time frame and resources available. Unrealistic or
unachievable objectives may weaken the whole program of objective setting.
Hence, there should be a proper discussion between superior and subordinate.
 Recycling Objectives: Recycling of objectives denotes a joint and interactive
process. Objectives cannot be set in isolation. Neither they can set at the top and
communicate to the lower levels nor they can be set at the bottom and
communicate upwards. There should be a proper consultations and interactions at
various levels before deciding objectives. For example, should reconcile with those
of manufacturing and finance departments. So, recycling of objectives helps in
their easy achievement.
Benefits of Management by Objectives
o Better Managing at different levels of management
o Clarifying Organization Roles and Structure
o Encouraging Personal Commitment
o Developing Controls over Performance
Weaknesses of Management by Objectives
 Failure to Teach MBO Philosophy
 Failure to give Guidelines to Goal Setters
 Difficulty in Setting Goals
 Emphasis on Short-term Objectives
 Danger of Inflexibility
Management by Exception (MBE)
MBE is an important principle of management. Here actual performance is compared
with standard performance and deviations which are not significant should be avoided.
Management concentrates only the critical and major problems and minor problems
handed over to their subordinates. It reduces unnecessary burden of the top
executives.
Management by Exception means that management should not concentrate on things
of minor nature it should involve when there are exceptions. If the things are
happening as per the decided standards, there is no need to inform the management,
rather if there are minor deviations even it should be adjusted at lower levels. The
management must be informed if there are significant deviations between standard
and actual performance.

Management Process
For example, if quality control standards are set by a manager where variation of three
percent is permissible in the standards than any deviation up to three percent should be
looked into by the lower level management only. Thus, the management by exception
is an important principle of organizational control.
Difference between MBO and MBE
 Management by exception is a control technique which helps in deciding what‟s to
be reported to the top management.
 Management by objectives on the other hand, is the philosophy of decentralization
and participative management.
 MBO helps subordinates in setting their goals and then making effects to achieve
them.
 MBE report the exceptions to the top executives so that they are able to devote
their time and energy for important tasks.
 MBO evaluate the performance of subordinates and take corrective measures
whenever needed.
POLICIES
A policy is a general statement which is formulated by an organization for the
guidance of the personnel. The objectives are first formulated and then policies are
planned to achieve them. Policies are a mode of thought and the principles underlying
the activities of an organization.
According to Koontz & O Donnel, “Policies were identified as guides to thinking in
decision-making. They assume that when decisions are made, these will fall within
certain boundaries”.
In the words of George Terry, “Policy is a verbal, written or implied overall guide
setting up boundaries that supply the general limits and direction in which managerial
action will take place”.
Thus, policies provide a framework within which a person has freedom to act. The
clear formulation of policies helps the executives to plan every operational aspect of
the enterprise. This considerably helps them in their decision making.
Though objectives and policies are used to achieve organizational goals but both are
different in essence. The objectives are the goals and the policies are the ways to
achieve them. The objectives are the end points of planning and policies prescribe the
broad ways for achieving them. A policy gives guidelines and leaves scope for
interpretation for the person implementing them. This means that a policy has the
flexibility for interpretation. A rigid policy becomes a rule.

Management Process
Features of a Policy
 A policy is a standing plan which provides answers to recurring problems of a
similar nature. It avoids repeated analysis of situations.
 It provides guidelines to the members of an organization for deciding the future
course of action.
 A policy explains what a member should do rather than what he is doing.
 A policy limits an area within which a decision is to be taken to achieve the
goals.
 Policies are framed by all managers in the organization.
 Higher level management frame important policies while minor policies are
framed at lower level.
Purpose of Policies
 To ensure that there is no deviation from the planned course of action.
 To work within the framework set by the policy.
 To ensure the broad guides for action are adhered to.
 To serve the purpose of delegating adequate authority downwards.
 To allow the scope for interpretation among managers.
 To influence the appropriate future planning.
 To ensure consistency in the course of action.
Characteristics of a Sound Policy
1. It should be comprehensive in scope and flexible for its implementation.
2. It should ensure good understanding and harmony among different levels.
3. It should be based on facts and sound judgments.
4. It should be uniform for its application.
5. It must reflect its intended objectives.
6. It should be clear, definite and positive.
7. It should be properly communicated and clearly understood.
8. It must be in writing so as to avoid misinterpretation.
9. It must be reasonable, permanent and stable.
10.It should be periodically reviewed to check up its effectiveness.
Process of Policy Formulation
Policy formulation is an important aspect of planning. The smooth working of an
organization requires the formulation of policies.
Following process should be followed for formulating policy:
1. Defining Policy Area: The area for which a policy is to be framed should be
defined. So first thing in policy framing is to decide the area which it will
cover.
2. Identifying Policy Alternatives: The second step in policy formulation is the
identification of policy alternatives. The alternatives should be decided on the
basis of an analysis of external and internal environment.
3. Evaluating Alternatives: All the alternatives are evolved in the light of
organizational objectives.

Management Process
4. Selection of a Policy: After proper evaluation, most appropriate alternative is
selected. The selection of policy is a long term commitment.
5. Trial Run of a Policy: The policy should be implemented on trial basis. It should
be assessed if the policy is achieving the desired objectives.
6. Implementing Policy: If the policy is finally alright it should be implemented.
The policy should be explained to those who are to implement it.
Types of Policies
a) Major Policies: Major policies are those which give a unified direction to an
enterprise and imply a commitment of resources.
b) Supportive Polices: Supportive policies are meant to help in implementation of
major policies.
c) Minor Policies: The policies which do not influence main objectives of the
enterprise may be called minor policies. These policies may relate to some routine
matters of less importance.
d) Composite Policies: Some companies have a number of policies or group of
policies. To achieve one objective a number of policies may be used, these are
composite policies.
Differences between Objectives and Polices
Basis Objectives Policies
1. Meaning Objectives are the goals to be
achieved by an organization
Policies are the broadways of
achieving business objectives
2. Need A business without objectives is
like a directionless passenger
who does not know where to go.
Policies provide only the
means of reaching goals.
3. Scope Objectives decide the purpose of
an organization. They are path
setters for other actions.
Policies are not of primary
importance. These only
provide guidelines for reaching
the objectives.
4. Determination Objectives are set at top level of
management.
Policies are determined at all
levels of management.
DECISION MAKING
Decision-making is an important job of a manager. Every day he has to decide about
doing or not doing a particular thing. A decision is the selection from among
alternatives. It is a course of action consciously chosen from two or more alternatives
for achieving a desired result. It is the end-result of deliberations and reasoning.
Decision-making is the process of choosing a course of action from available
alternatives. This process involves understanding the problem, collecting information,
developing and evaluating alternatives, choice of a solution and its evaluation.
Allen defines decision-making as “the work a manager performs to arrive at
conclusions and judgment.

Management Process
According to Haynes and Massie, “Decision-making is a process of selection from a
set of alternative course of action which is thought to fulfill the objective of the
decision-problem more satisfactorily than others”.
Characteristics of Decision-making
1) Decision-making is a goal oriented activity. It can be considered as good or bad
in relation to specific goal.
2) Decision-making is a process of selection from amongst alternative courses of
action. If there is only one alternative no decision is required.
3) Decision-making is a conscious and human process. The choice implies
freedom to choose among alternatives.
4) Decision-making involves commitment in the face of uncertainty. The final
result of each possible course of action is uncertain.
5) Decision-making is a complex mental exercise involving use of careful
thinking and deliberation, analysis and verification.
6) Decision-making is both art and science. It contains both conscious and
unconscious aspects.
7) Decision-making can be both positive and negative. It may just be a decision
not to decide.
8) Decision-making involves a time dimension and a time lag.
9) Decision-making is a situational. A manager can decision under different
situations.
10)Decision-making is an on-going activity. A manager has to continuously make
decision of one type or the other.
PROCESS / STEPS OF DECISION MAKING
There is no standardized procedure for making decisions. However, the typical steps
involved in decision-making process are given below:
Figure: Decision-making Process
Defining the Problem
Analyzing the Problem
Developing Alternative Solutions
Evaluating the Alternatives
Selecting the Best Alternative
Implementing the Decision
Feedback and Control

Management Process
(1) Defining the Problem: The first step in decision-making is that of recognizing and
identifying the problem. Also known as problem finding, this step involves clear
definition and formulation of the problem. Unless the problem is well defined, the
decision instead of solving the problem may complicate. For example, if a business
is losing market share, it is only a symptom. The real problem may be
inappropriate product, unsuitable price policy, faulty distribution or lack of sales
promotion. Clear understanding of the problem is necessary.
(2) Analyzing the Problem: Analysis of the problem involves determining its causes
and scope. The quality of the decision will depend upon the quality of information
used. Therefore, collection of accurate and appropriate data is very important in
decision-making.
(3) Developing Alternative Solutions: After the problem is defined and analyzed with
the help of relevant information, the decision maker has to develop alternative
solutions for the problem. Search for an identification of alternative course of
action is necessary for effective decision-making. Past experience, consultation
with experts and brainstorming are useful techniques for generating alternatives.
(4) Evaluating the Alternatives: The various developed alternatives are compared and
scrutinized to identify the pros and cons of each. Before evaluation, the criteria for
evaluation should be specified. Several types of quantitative and qualitative criteria
may be used.
(5) Selecting the Best Solution: Choosing the best alternative is the most critical part of
the decision-making process. A wrong choice would negative all efforts made in
the previous steps. Koontz and O’Donnell have suggested the bases such as
experience, experimentation, research and analysis, for selection among
alternatives.
(6) Implementing the Decision: Once decision is taken, it needs to be put into practice.
Implementation involves several steps like communicating the decision, assigning
responsibility, to overcome the resistance, framing the procedures to implement
the decision.
(7) Feedback and Control: Once decision has been put into practice, actual results of
action should be compared with the expected results. If there is any deviation the
same should be analyzed to identify the causes. Wherever necessary, the decision
should be modified. The feedback system is necessary for determining the
effectiveness of implementation.
Factors Involved in Decision Making
 Tangible Factors: These factors include things which can be measured. Some of
main tangible factors are:
(a) Fixed costs
(b) Operating costs
(c) Profits
(d) Man-hours
(e) Machine-hours
(f) Quantity of output

Management Process
 Intangible Factors: These are the elements could not be measured. But they are as
important as tangible factors. The main examples are morale, rate of technical
change, quality of labor relations, consumer behavior, etc. Being intangible these
factors cannot be easily recognized or evaluated. In order to evaluate and compare
these factors, a manager must first recognize them, then arrange them in order of
importance, compare their probable influence and then come to a conclusion.
 Personal Factors: These factors include the following:
(a) Intelligence
(b) Experience
(c) Courage
(d) Level of motivation
(e) Self-confidence
(f) Values and beliefs
Techniques of Decision-making
Decision-making has become a complex problem. A number of techniques are
available which help in decision-making. The nature and significance of decision will
determine the type of technique to be used. The selection of appropriate technique
depends upon the judgment of decision maker. The decision making techniques can be
classified into traditional and modern techniques and group decision-making as well.
(1) Traditional Techniques of Decision-making
The decisions can be classified into programmed and non-programmed decisions.
Both the classifications have different decision-making techniques.
(a) Decision-making for Programmed Decisions:
(i) Standard Procedures and Rules: Every organization develops standard
procedures and rules for taking routing and repetitive decisions. Whenever
needed, a manager refers to the standard procedures and rules before taking
simple decisions. All effort is made to have consistency in routine
decisions.
(ii) Organizational Structure: A relationship is established between a superior
and a subordinate. This relationship comes out of organizational structure.
Persons at different organizational structures are assigned work to be done
by them. For taking up this work, managers need authority to take
decisions.
(b) Decision-making for Non-Programmed Decisions: Non-programmed decisions are
strategic in nature and require separate analysis and interpretation. A manager does
not entirely depend upon his knowledge, ability and judgment but these skills are
associated with scientific methods for achieving good results.
(i) Linear Programming: It is a technique for determining the optimum
combination of limited resources to minimize costs or to maximize profits.
Linear programming has been extensively used in managerial decision-
making for production planning, warehouse location, allocating machine
capacities, determining transport routes, etc.

Management Process
(ii) Probability Theory: This statistical tool is based on the assumption that
certain things are likely to happen in future in a manner which can be
predicted to some extent by assigning various probabilities. In this
technique pay-off matrices and decision trees are constructed to represent
variables.
(iii) Game Theory: Game theory helps in making decisions under competitive
situations. It was basically developed for use in wars so that actions of the
army can be decided in the light of actions taken by opposite army. The
term „game‟ represents a conflict between two or more parties. It is
described by set of rules.
(iv) Queuing Theory: It is also known as „waiting line theory‟ to be applied for
maintaining a balance between the cost of waiting line and cost of
preventing the waiting line in respect of utilization of personnel, equipment
and services. This theory helps in arriving at a decision about the provision
of optimum facilities.
(v) Network Techniques: Network technique is used for preparing and
controlling the project activities. PERT and CPM are used for planning,
monitoring and implementing time bound projects. These techniques help
managers in deciding the logical sequence in which various activities will
be performed.
(2) Modern Techniques of Decision-making
Modern business is facing drastic changes in working environment. The decision-
making is becoming more and more complex these days. The changing and
challenging business environment requires special attention for decision-making
process.
(i) Heuristic Techniques: This technique is based on the assumption that in a complex
and changing business situation strategic problems cannot be solved by applying
rational and scientific techniques. In an uncertain environment and conflicting
interest the problem will have to be fragmented into small components for taking a
realistic view. By splitting the problem into small parts and analyzing each part
separately, a decision can be reached. It is a trial and error method based on rules
of thumb.
Heuristic techniques are developed by managers to deal with various components
at different stages. Computers can easily be used for solving complex and strategic
problems. This technique is more refined way of trial and error method because it
is developed by applying analytical and creative approach.
(ii) Participative Decision-Making: It is method of applying democratic means for
decision making process. In traditional managerial techniques, decisions are taken
at top levels of management and these are intimated to lower levels for
implementation. In participative decision-making, employees at various levels are
involved in making various decisions. When subordinates are made a part of
decision-making, it not only helps in getting the advantage of their practical

Management Process
experience but also helps in implementing decisions properly. The subordinate
staff feels motivated and encouraged and takes active interest in the working.
(3) Techniques of Group Decision-making
Some techniques of group decisions making are as follows:
(i) Brainstorming: The technique of brainstorming was developed by Alex F Osborn to
help bring creative ideas in the field of advertising. Under this technique a small
group of persons are stimulated to creative thinking. Maximum group participation
and minimum criticism are employed to reduce inhibiting forces for generating
ideas. A problem is posed and ideas are invited. Later these ideas are critically
examined and the best ideas are selected. No evaluation of ideas is done during
discussion to encourage freewheeling. Such free association and unrestricted
thinking generates some novel ideas from which unique solution can be found.
(ii) Delphi Technique: In this technique, a panel of experts is appointed who are
physically separated and unknown to each other. Suggestions are invited
anonymously. These suggestions are compiled and composite feedback is provided
to panel members for inviting further suggestions. This process of giving
suggestions is repeated till a convergence of opinion begins to emerge. Decisions
are taken when this convergence takes place. This helps to improve the quality of
decisions.
(iii) Nominal Group Technique: This technique follows a highly structured process
and tries to integrate create thinking through group interaction for solving
organizational problems. The group members are not allowed verbal exchange
between them. It has been found that interacting groups inhibit creativity and
nominal groups have been found more useful. The ideas are silently developed in
writing. The recorded ideas can be discussed for clarification and evaluation. The
group decision is mathematically derived after ranking and rating the ideas.
The difference of NGT and Delphi technique is that in the latter case the members
do not come together and do not interact directly with each other. NGT holds a
great deal of promise for improving basic and creative management decisions.
(iv) Synectics: This technique of decision-making was developed by Willian J J
Gordon in 1944. He termed the technique synectics, a Greek derivation which
means fitting together different and distinct, novel and irrelevant ideas. Its purpose
is to increase the creative output of individuals and groups. The synectic process
involves: (a) making the strange familiar and (b) making the familiar strange. The
group leader encourages members to bring out creative solutions after analyzing
the problem.

Management Process
TYPES OF DECISIONS
Different decisions differ in nature and significance. Some decisions are taken in
routine while some may have to be carefully evaluated. Various decisions are as
follows:
 Organizational and Personal Decisions
 Organizational decisions are those which an executive takes in his official
capacity and on behalf of the organization. Authority for such decisions can
be delegated to others.
 Personal decisions are those which an executive takes in his individual
capacity and not as a member of the organization. Such decisions cannot be
delegated to others.
 Routine and Strategic Decisions
 Routine or tactical decisions are of a repetitive or recurring nature. They
cover a short-term period and affect only a small segment of the
organization. There are well-established procedures for taking such
decisions and, therefore, little thought and deliberation is needed for them.
 Strategic or basic decisions involving long-term commitments, large
investment of funds and are of permanent nature. A mistake in such
decisions would seriously jeopardize the welfare of the business. Therefore,
much thinking and deliberation is required for such decisions. They affect
the entire organization. For instance, setting up of a new plant or
development of a new product is a strategic decision.
 Programmed and Non-Programmed Decisions
 Programmed decisions are of a routine and repetitive nature for which
systemic procedure already exist in the organization. Therefore, it need not
be treated as unique case each time. Such decisions deal with well-
structured and familiar problems. For example, if an employee is absent
without leave, he can easily be dealt with under the set procedure. The
supervisor need not refer it to the higher authorities. These decisions are
usually made at lower levels of management.
 Non-Programmed decisions are of one-shot, novel and unstructured nature.
They deal with unexpected and unprecedented situations. For example,
opening of a new branch. Therefore, no standard (set) procedures can be
designed for them. Each such decision has to be treated as unique case and
tailor-made solution is needed. Such decisions are generally made at higher
levels of management.
 Policy and Operating Decisions
 Policy decisions are of fundamental nature as they affect the whole
organization. They set forth the basic goals and direction for the enterprise.
Such decisions have far-reaching consequences and, therefore, they are
generally taken at the top level of management. These decisions relate to
policy matters.
 Operating decisions are made for executing policy decisions. Such
decisions determine the means to be used. They are made by lower level
executives at the point where the work is carried out. They are concerned
with day-to-day operations of business.

Management Process
 Individual and Group Decisions
 Individual decisions are those which decisions are taken by single
individuals. These decisions relate to personal matters of an individual.
 Group decisions are those taken by a group of persons. Group decision-
making is considered better because the knowledge and imagination of a
group is better than that of an individual. Group decision-making also
fosters co-operation and co-ordination in the organization. But group
decision-making is more time consuming and more costly.
Comparison between Programmed and Non-Programmed Decisions
S.No. Programmed Decisions Non-Programmed Decisions
1.
2.
3.
4.
5.
Deal with routine and repetitive
problems.
Highly certain conditions – Unlimited
information and limited options.
Pre-determined decision rules and
procedures.
Little judgment required.
Usually made at lower levels of
management.
Deal with novel and non-repetitive
problems.
Highly uncertain conditions – Limited
information and several options
Each problem unique and needs a
creative solution.
Require considerable judgment.
Generally made at the top level of
management.
Advantages and Disadvantages of Group Decision-making
S.No. Advantages Disadvantages
1.
2.
3.
4.
5.
6.
More information and knowledge.
Generation of various alternatives.
Participation in decision-making.
People understand decision better.
Interaction among group members.
Authority is shared by all members.
Waste of time due delay in decisions.
Groups create pressure on members.
Domination of the group members.
Costlier than individual decision.
Tendency to avoid responsibility.
May lead to conflict and ill-feelings.
Text Books & References
1. R.K.Sharma and Shashi K Gupta, “Management Process”, Kalyani Publishers.,
New Delhi, Edition, 2012.
2. C.B.Gupta, “Business Management”, Sultan Chand & Sons, New Delhi, 10th
Edition, 2014.
3. L.M.Prasad, “Principles of Management”, S.Chand and Company Ltd., New
Delhi, 1st
Edition, 2001.

Management Process

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