Planning as a function of management

PRINCIPLES OF MANAGEMENT
PLANNING
AS A FUNCTION OF MANAGEMENT
Compiled by Dr.M.Balasubramanian

Chapter 2 Scope of Planning
What is planning
•Deciding in advance what to do, how to do, when to do and
who is to do it. By Koontz & “O” Donell
•Bridges the gap between where we are to where we want to go.
•Thinking before doing.
•Intellectual demanding process.
“If you fail to plan, you plan
to fail.”

Purpose or Importance of planning
• Provides Direction
• Creates a unifying frame work
• Leads to economic utilization of resources
• Reduces the risk of uncertainty
• Facilitates decision making
• Encourages innovation and creativity
Elements of Planning
Purpose - Identifies the basic tasks of an Enterprise. Ex: ITC “ Satisfaction”, GEC / USH “We
are in energy business”
Objective - They represent the end point of planning.
Strategies – Action Plan
Policies - General statements that guide in decision making
Procedures - required method of handling future activities.
Rules - Rules spell out specific required actions or non-actions
Programs - Complex of goals, policies, procedures, rules and steps to be taken to carry task
Budget - A budget is a statement of expected results expressed in numerical terms

Advantages of Planning
• It gives direction to managers and non managers alike.
• Planning can reduce the impact of change.
• It minimize waste and redundancy.
• Planning establishes objectives or standards that
facilitate control.
Disadvantages
• Planning may create rigidity.
• Plans can’t be developed for a dynamic environment.
• Formal plans can’t replace intuition and creativity.
• Planning focuses managers’ attention on today’s
competition, not on tomorrow’s survival.
• Formal planning reinforces success, which may lead to
failure. Compiled by Dr.M.Balasubramanian

The Nature of the Planning Process
To perform the planning task, managers:
1. Establish where an organization is at the
present time
2. Determine its desired future state
3. Decide how to move it forward to reach that
future state
Where we are Where we want to be
Bridge

WHAT IS INTUITION
Experience based Decisions
INTUITIONS
Values or Ethics
based decisions
Data from sub conscious
mind
Decisions through
emotion or feeling
Cognitive based decision
(skill, knowledge)

PLANNING PREMISES
Assumptions, systematic & logical estimates for the
future factors
• 5 Types of Planning Premises
1. Internal & External premises
2. Tangible & Intangible
3. Controllable, Semi controllable & Un Controllable
4. Constant & Variable
5. Foreseeable & Unforeseeable

Planning Premises
EXTERNAL Premises
ECONOMIC ENVIRONMENT : monetary and financial policies of the govt, foreign trade and policies
SOCIAL AND CULTURAL ENVIRONMENT
- Social responsiveness ‘the ability of a corporate firm to relate its operations and policies to social
environment in way that are mutually beneficial to the company and society at large..
POLITICAL AND LEGAL ENVIRONMENT
Political philosophy of the govt yields a great influences over business policies.
TECHNOLOGICAL ENVIRONMENT
The nature of technology used for production of goods and services which rises the productivity of a
firm and reduces unit cost of output.
DEMOGRAPHIC ENVIRONMENT
Includes the size and growth of population, technological skills and educational levels of labour force.
Since new workers are recruited from outside the firm, demographic factors are considered.
NATURAL ENVIRONMENT
Availability of natural resources in a region is a basic factor in determining business activity in it.
It includes factors such as minerals and oil reserves, water and forest resources wealth and climatic
conditions, port facilities are all highly significant for various business activities.
INTERNAL Premises
Internal factors are to a good extent controllable factors because the firm can change or modify these
factors to improve its efficiency. Compiled by Dr.M.Balasubramanian

Example of a Cement Industry
• Internal Premises – Capital Invest., Scope for Expansion, Sales Forecast
• External Premises – Product Market, Location, Availability of Raw Material
• Tangible - Production Capacity, Scope for Expansion
• Intangible - Brand Image
• Controllable - Advertising policy, skill of labour force
• Semi Controllable – Labor Policy, Pricing Policy and Shares
• Uncontrollable - Govt. Policy, Plant Location, Natural calamities

Steps in Planning
• Being aware of opportunities
- SWOT analysis
• Developing premises
– Planning premises are forecasts,
applicable basic policies, and
existing company plans.
– They are assumptions about the
environment in which plan is to
be carried out.
– Forecasting is important for
premising.
– Premises should be practical
about volume of sales? price?

TYPES OF PLANS
Breadth Time frame Specificity
Frequency
of use
Strategic Long term Directional Single use
Tactical
Short term Specific Standing
Operational
A plan is a commitment to a particular course of action for
achieving specific results. This commits the individuals and
departments to specific actions for the future

Strategic and Tactical Plans
• Strategic plans : Decides the major goals of the
organization. Forecasting the business, an organization
should focus in the years to come, considering the market
study and technological developments.
Who are we? Where are we? Where do we want to go? How do we get
there? When do we want to be there?
• Tactical plans: Specify the details of how the overall
objectives are to be achieved, which includes day to day
usage of resources.
What needs to happen in each department, each day, to support
the strategic plan?
What does each team member need to do, each day, to support the
strategic plan ?

Specific and Directional Plans
• Specific plans have clearly defined objectives and leave no room
for misinterpretation.
• Directional plans are flexible plans that set out general
guidelines.
Single-use and Standing Plans
• Single-use plans are used to meet the needs of particular or
unique situation. Budget, Programme
• Standing plans are ongoing, and provide guidance for
repeatedly performed actions in an organization. Policy, Rules
Operational plans are about how things need to happen
or guidelines of how to accomplish the mission
How (generally) we will do it, How (generally) we will not do it, How
(generally) to handle exceptions and How (generally) to handle
unexpected situations.

Specific and Directional Plans
• Specific plans have clearly defined objectives
and leave no room for misinterpretation.
• Directional plans are flexible plans that set out
general guidelines.
Single-use and Standing Plans
• Single-use plans are used to meet the needs of
particular or unique situation.
• Standing plans are ongoing, and provide
guidance for repeatedly performed actions in an
organization.

Short-term and Long-term Plans
• Short-term plans are plans that cover less than
one year.
• Long-term plans are plans that extend beyond
five years.
• Their differences lie in the length of future
commitments and the degree of variability
organizations face.

What is MBO?
• MBO is a system in which specific performance
objectives are jointly determined by subordinates and
their supervisors, progress toward objectives is
periodically reviewed, and rewards are allocated on
the basis of that progress.
The MBO strategy:
1. All individuals are assigned a specialized set of objectives
2. Performance reviews are conducted periodically
3. Rewards are given to individuals

Process of
Management by Objectives (MBO)

Benefits of MBO
• Improvement of managing
• Clarification of Organisation
• Encouragement of Personal commitment
• Development of Effective control
Weakness of MBO
• Failure to teach the philosophy of MBO
• Failure to give guidelines to goal setters
• Difficulty of setting goals
• Emphasis on short run goals
• Danger of Inflexibility

Types of Policies
On the basis of Broadness
• Organizational and functional policies.
On the Basis of Origin
• Originated, Appealed and Imposed policies
On the basis of Freedom
• General and Specific policies.
On the basis of Clarity
• Written and Implied policies.

Organizational and functional policies.
Organizational policy is the policy adopted for the entire organization.
Ex: Promotion policy. Functional policy of depts. Ex: Prodn., Marketing
Originated, Appealed and Imposed policies
Originated policy is laid by top level people to manage subordinates.
Imposed policy is the stand taken by the govt. or trade union.
Appealed policy are framed based on the appeals made by the
subordinates. Ex: A customer buys for Rs. 2 Lakh and he is asking the salesman for
some discount. Salesman is appealing to manager that customer is asking for a
discount. If the manager agrees, this will be the guideline for the salesman in future.
General and Specific policies.
In general policy, subordinates have freedom. Ex: Under sales policy, if the
goods can be sold in credit, the salesman does it with freedom. If there is restriction
that credit can be given only up to Rs.25000, this is specific policy
Written and Implied policies.
Policies which are clarified in writing are called writing policy.
Drawback is inflexibility. Implied policy are policies which are neither
written nor oral, but still present in the organization. Ex: Age limit not
prescribed by the organization. But Top management has passed information that
people above 40 years should not be recruited

The Strategic Management Process

SWOT Analysis
• Opportunities are positive external environmental
factors, and threats are negative ones.
• Strengths are internal resources that are available
or things that the organization does well.
• Weaknesses are those resources that an
organization lacks or activities that it does not do
well.
• Core competency refers to any of the strengths that
represent unique skills or resources that can
determine the organization’s competitive edge.

Internal
Factors
External Factors
Internal Strengths (S)
Eg. Strength in mgt,
operation, Finance,
Marketing, R&D Engineering
Internal Weaknesses(W)
Eg. Weaknesses in areas
shown in the box of strength.
External Opportunities (O)
Consider risk also.
Eg Current and future
Economic condition, political
and social changes, New
product services and
Technology
SO strategy Maxi – Maxi.
Potentially the most successful
strategy, utilizing the
Organisation strength to take
advantage of opportunities
WO Strategy Mini – Maxi Eg.
Developmental strategy to
overcome weakness in order to
take advantage of opportunities
External Threats (T)
Eg Lack of energy,
competition and areas similar
to those shown in box
ST Strategy Maxi –Mini Eg.
Use of strengths to cope with
threats to avoid threats
WT strategy Mini Mini Eg.
Retrenchment, Liquidation ,
Joint venture.
SWOT ANALYSIS or TOWS MATRIX

TYPES OF STRATEGYThe growth strategy
– Bigger is better, An organization attempts to increase the level of the organization's
operations.
– Growth through more sales revenues, more employees, or more market share.
– Through direct expansion, new product development, quality improvement.
– Growth through direct expansion involves increasing company size, revenues,
operations, or workforce.
– This effort is internally focused and does not involve other firms.
– Growth from creating businesses within the organization.
– By diversifying--merging with or acquiring other firms.
–A merger occurs when two companies--usually of similar size--combine their resources
to form a new company.
»Example, Air Deccan with King Fisher and Sahara with Jet Airways
– An acquisition, which is similar to a merger, usually happens when a larger company
"buys" a smaller one--for a set amount of money or stocks, or both--and incorporates
the acquired company's operations into its own.
» Example, Tata Steel took over Corus (london), Hindalco took over Novelis (canadian)
•The stability strategy
Best known for what it is not.
It is characterized by an absence of significant changes.
It is most appropriate when several conditions exist: a stable and unchanging environment,
satisfactory organizational performance, absence of valuable strengths and critical weaknesses, and
only insignificant opportunities and threats.
There are organizations that are successfully employing a stability strategy.
– Kellogg's does use the stability strategy very well.

• The retrenchment strategy
– Technological advancements, global competition, other environmental
changes, mergers, and acquisitions may make growth and stability
strategies no longer viable.
– This strategy is characteristic of an organization that is reducing its size
or selling off less profitable product lines.
• Example, Black & Decker.
• The combination strategy
– The simultaneous pursuit of two or more strategies described above.
– One part of the organization may be pursuing a growth strategy while
another is retrenching.
• Example, Pennzoil has sold off its Purolator oil-filter business;
simultaneously, it expanded (growth) its oil marketing efforts into
foreign markets.
• Determining a competitive strategy
– The selection of a grand strategy sets the stage for the entire
organization.
– Each unit within the organization has to translate this strategy into a set
of strategies that will give the organization a competitive advantage.
– To fulfill the grand strategy, managers will seek to position their units so
that they can gain a relative advantage.
– Low cost, strategy to be unique and attack narrow market

Michael E. Porter Wheel of
Competitive strategy

Decisions in the Management Functions

The Decision-Making Process
Problem
Identification
“My salespeople
need new computers”
Identification of
Decision Criteria
Price
Weight
Warranty
Screen type
Reliability
Screen size
Allocation of
Weights to
Criteria
Reliability 10
Screen size 8
Warranty 5
Weight 5
Price 4
Screen type 3
Development of
Alternatives
Acer
Compaq
Gateway
HP
Micromedia
NEC
Sony
Toshiba
Implementation
of an Alternative
Gateway
Evaluation
of Decision
Effectiveness
Analysis of
Alternatives
R S W W P S
Acer 4 3 4 3 2 6
Compaq 3 4 5 2 6 7
Gateway 9 6 7 7 8 2
HP 3 5 6 7 6 5
Micromedia 2 2 3 4 5 4
NEC 3 4 5 6 7 2
Sony 7 5 6 4 8 10
Toshiba 3 4 5 6 7 3
Selection of an
Alternative
Acer 125
Compaq 142
Gateway 246
HP 174
Micromedia 103
NEC 151
Sony 222
Toshiba 154

Elements of
Decision-Making
Process
Types of Problems and Decisions
• Well-structured
- programmed
• Poorly structured
- nonprogrammed
Decision-Making Conditions
• Certainty
• Risk
• Uncertainty
Decision Maker Style
• Directive
• Analytic
• Conceptual
• Behavioral
Decision-Making Approach
• Rationality
• Bounded Rationality
• Intuition
Decision
• Choose best
alternative
- maximizing
- satisficing
• Implementing
• Evaluating

Types of Problems
• Well-structured problems are problems that are
straightforward, familiar to the decision maker,
and the goal is clear, complete info available.
• Ill-structured or Poorly structured problems
are new, or unusual, and information about such
problems is ambiguous or incomplete.

Types of Managerial Decisions
• Organizational and Personal Decisions
• Routine and Strategic Decisions
• Programmed and Non programmed Decision
• Policy and Operating Decision
• Individual and Group decision

Organizational and Personal Decisions
Individual vs. Organizational Decision Making
• The driving motivation in decision making at the individual level is the self satisfaction of
psychological needs, wants, and desires Individuals tend towards a minimization of
strain and effort when making decisions.
• Due to cognitive and process capacity limitations, individuals are biased towards making
decisions on a simplified sequential elimination process.
Individuals also forgo making a change in course once a decision has been made even
when new information arises which would, in an organizational setting, cause a
corrective action to be implemented.
• Organizations and managers in particular, have immense amounts of information and
statistical software to track variances, trends and make future projections of
organizational growth.
• In the organizational setting managers are the key decision makers. Managers being
individuals have the same qualities as individual decision makers. They however will
modify these characteristics in light of the organization in which they exercise their
decisions.
• Perhaps the key distinction between individual and organizational decision making is
that whereas individuals are focused on self-actualization, managers in organizations
must eschew self-satisfaction for the attainment of organizational objectives.
• Organizations have the ability to incorporate a wide array of decision rules in the search
process. These can run from simple rule-of-thumb applications for simpler decisions to
complex analytical frameworks.

Routine and Strategic Decisions
• Routine : As the nature of the decision is taken
regularly, no need to consider an alternative.
Ex: which hands you write with which way you
go home
• Strategic : taken by top management
future oriented
non repetitive
Long time horizon
Ex: 30 minute delivery by Pizza Corner
Amazon started using Drones for reaching
customers

Types of Decisions
• Programmed Decisions: routine, almost
automatic process.
– Managers have made decision many times before.
– There are rules or guidelines to follow.
– Example: Deciding to reorder office supplies.
Starting your car in the morning
• Non-programmed Decisions: unusual situations
that have not been often addressed.
– No rules to follow since the decision is new.
– These decisions are made based on information, and
a manger’s intuition, and judgment.
– Example: Should the firm invest in a new technology?
– Choosing a vacation destination

What are the types of operational
decisions?
1. Quality.
Decision making regarding product and service quality is a vital operations
responsibility necessitating comprehensive organizational support. Quality
decisions are made in the design stage of the product or service plan and
require the creation and maintenance of standards.
2. Process.
Operational decisions are made regarding the design of the process used in
the manufacturing or servicing of a final product.
3. Capacity.
Capacity decisions are concerned with the long-term capability of an
organization to produce the required amount of output over time. Capacity
planning determines not only the size of an organization`s physical
productive capability, but also its human resource needs.
4. Inventory.
The challenge for operations management is to create a balance in
inventory between product demand, cost, and supply needs.
5. Human Resources.
Organizations pay a major portion of their revenues to employees.
Therefore, selection, hiring, training, termination, and general management
of human resources are critical for the future of the organization.Compiled by Dr.M.Balasubramanian

Several Effective Ways or forms of
Group Decision-Making
• Brainstorming
This is an idea-generating process that encourages alternatives
while withholding criticism.
• Nominal group technique
This is a decision-making technique in which group members are
physically present but operate independently.
• Delphi technique ( Expert Opinion)
Participants are specialist in some field, they are not necessary to
assemble together, and required to write solution alternatives
anonymously. Individual contribution through a moderator.
• Electronic meeting
This is a type of nominal group technique in which participants
are linked by computers.

Example for Nominal Group Technique
A five-man shift quality group at a coal mine was trying to improve a slow transport system
for moving coal from the face to the main belt. The foreman asked the site quality
manager to facilitate a session that would help to identify a way to improve the system,
but which would allow all shift members to contribute equally.

The Advantages and Disadvantages of Group
Decision Making
More complete information
More alternatives
Increasing acceptance of a solution
Increasing legitimacy and democracy
Advantages
Time-consuming
Minority domination
Pressures to conform (groupthink)
Ambiguous responsibility
Disadvantages

Decision-Making Styles
Directive
• Prefer simple,
clear solutions
• Make decisions
rapidly
• Do not consider
many alternatives
• Rely on existing
rules
Conceptual
• Socially oriented
• Humanistic and
artistic approach
• Solve problems
creatively
• Enjoy new ideas
Behavioral
• Concern for their
organization
• Interest in helping
others
• Open to
suggestions
• Rely on meetings
• Prefer complex
problems
• Carefully analyze
alternatives
• Enjoy solving
problems
• Willing to use
innovative
methods
Analytical

Behavioral Aspects in Decision Making
• Rationality (decision not subjected to criticism)
Decision-making is a mental process. The Human brain has the ability to
learn, grasp, think, analyze, synthesize, evaluate and relate complex
facts and variables which leads to rationality in decision-making
• Satisficing – Tendency to search for alternatives until one is found which
satisfies the requirement
• Coalition - Alliance of individuals or groups to achieve an objective
• Intuition - Experience, belief
• Escalation of Commitment – A decision maker stays with his decision
even when it appears to be wrong
• Risk - Extent to which a decision maker is ready to
gamble with his decision
• Ethics (Individual’s beliefs about what constitutes good and bad or right
and wrong behaviour. Ethical behaviour is that which conforms to
generally accept social norms.)

Decision Making Conditions
Certainty : A situation in which a manager can make an accurate decision
because the outcome of every alternative choice is known.
Risk : A situation in which the manager is able to estimate the likelihood
probability) of outcomes that result from the choice of
particular alternatives.
Uncertainty: limited information prevents estimation of outcome
probabilities for Alternatives associated with the problem and may force
managers or rely on intuition, hunches, and “gut feelings”.
Maximax: The optimistic manager’s choice to maximize the maximum payoff.
Maximin: The pessimistic manager’s choice to maximize the minimum payoff.
Minimax: The manager’s choice to minimize maximum regret.

Problems of Decision Making
• Indecisiveness
• Time pressure
• Lack of Information
• confusing symptoms with causes
• Failure to evaluate correctly
• Lack of follow through

Characteristics of an Effective Decision-Making
It focuses on what is important
It is logical and consistent.
It acknowledges both subjective and objective thinking
and blends analytical with intuitive thinking.
It requires only as much information and analysis as is
necessary to resolve a particular dilemma.
It encourages and guides the gathering of relevant
information and informed opinion.
It is straight forward, reliable, easy to use, and flexible.

EXAMPLES
EXAMPLE 1.12
The franchise management of a fast-food retail chain makes a determination
concerning quality standards in terms of the content and temperature of the food
when it is served to the customer. It implements a program to ensure the individual
franchises meet the quality standards.
EXAMPLE 1.13
The management of a car-washing company makes a process decision to utilize a
brushless car-washing facility that requires fewer workers, results in less damage to the
car finish, and is more productive.
EXAMPLE 1.14
A seasonal manufacturer of lawn equipment makes a capacity operational decision to
hire and train a second shift of employees during peak demand periods rather than
increase overall plant capacity. This will make more productive use of existing capacity
without increasing long-term overhead costs including plant maintenance and capital
financing costs.
EXAMPLE 1.9
A manufacturer makes a human resource strategy decision to give more responsibility
to its employees by creating work teams to assemble entire products rather than
components in the belief that it will obtain greater productivity because of job
enrichment.
EXAMPLE 1.16
A franchise manager makes a human resource operational decision to allow individual
franchisees to hire, train, and supervise their own employees. Thus, the individual
franchisee has the entire human resource operational responsibility.

Quantitative (planning)Decision-Making
Techniques and Tools
Planning Techniques
• Payoff Matrices
• Decision Trees
• Break-Even Analysis
• Brainstorming
Planning Tools
• PERT/CPM
• GANTT CHART
• Cause and Effect diagram

Payoff Matrices
• Maximax choice
Optimistic decision, maximizing the maximum
possible payoff
• Maximin choice
Pessimistic decision , maximizing the minimum
possible payoff
• Regret choice
Minimizing the maximum regret

Payoff Matrix for Discover
Discover Marketing strategy Visa’s Response(in millions of $)
CA1 CA2 CA3
S1 13 14 11
S2 9 15 18
S3 24 21 15
S4 18 14 28
Maximax Choice
CA1 CA2 CA3
S1 13 14 11 14
S2 9 15 18 18
S3 24 21 15 24
S4 18 14 28 28
Max
S4 28

Maximin Choice
CA1 CA2 CA3
S1 13 14 11 11
S2 9 15 18 9
S3 24 21 15 15
S4 18 14 28 14
Min
S3 15
Regret Choice (MiniMax)
CA1 CA2 CA3
S1 13(11) 14(7) 11(17) 17
S2 9(15) 15(6) 18(10) 15
S3 24(0) 21(0) 15(13) 13
S4 18(6) 14(7) 28 (0) 7
Max
S4 7

Decision Trees
=Decision point
=Alternatives branch
=Probability branch
=Possible value
=Outcome point

Decision Tree and Expected Values for choosing
between 2 business
$240,000
Profit
$320,000
$50,000
$130,000
Expected value(in 000s)
.70[320]+.30[50]=239
Expected value(in 000s)
.70[240]+.30[130]=207

Break Even Analysis
This is a technique for identifying the point at which total revenue is
just sufficient to cover total costs.
F(Total fixed cost)
Revenues/cost
Output
S(Total revenue)
O
A
C(Total cost)
Variable cost
Fixed cost
E
Break-even point
B
VCP
TFC
BE



GANTT CHART
What the various activities, When each activity begins and ends
How long each activity is scheduled to last, Where activities overlap with other activities,
and by how much The start and end date of the whole project
Use of GANTT Chart

56
PERT/CPM Chart
Task. A project has been defined to contain the following list of activities along
with their required times for completion:
Activity
No
Activity Expected
completion time
Dependency
1. Requirements collection 5 -
2. Screen design 6 1
3. Report design 7 1
4. Database design 2 2,3
5. User documentation 6 4
6. Programming 5 4
7. Testing 3 6
8. Installation 1 5,7

57
PERT/CPM Chart
3
4
7
4
5
6
8
7
1
2
3
5
6
2
6
5 3
1
TE = 5
TE = 11
TE = 12
TE = 14
TE = 20
TE = 19 TE = 22
TE = 23
7
3

58
PERT/CPM Chart (cont’d)
a. Draw a PERT chart for the activities.
Using information from the table, show the sequence of activities.
1
2
3
4
5
6
8
7

59
PERT/CPM Chart (cont’d)
1
2
3
4
5
6
8
7
b. Calculate the earliest expected completion time.
1. Using information from the table, indicate expected completion time for each activity.
5
6
7
2
6
5 3
1
2. Calculate earliest expected completion time for each activity (TE) and the entire project.
Hint: the earliest expected completion time for a given activity is determined by summing the
expected completion time of this activity and the earliest expected completion time of the
immediate predecessor.
Rule: if two or more activities precede an activity, the one with the largest TE is used in
calculation (e.g., for activity 4, we will use TE of activity 3 but not 2 since 12 > 11).
TE = 5
TE = 11
TE = 12
TE = 14
TE = 20
TE = 19 TE = 22
TE = 23

60
PERT/CPM Chart (the end)
1
2
3
4
5
6
8
7
5
6
2
6
5 3
1
TE = 5
TE = 11
TE = 12
TE = 14
TE = 20
TE = 19 TE = 22
TE = 23
c. Show the critical path.
The critical path represents the shortest time, in which a project can be completed. Any activity
on the critical path that is delayed in completion, delays the entire project. Activities not on the
critical path contain slack time and allow the project manager some flexibility in scheduling.

END….

Planning as a function of management

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