UnitII: Planning: Nature and Purpose, Steps in Planning, Types of Plans,

Setting objectives, MBO, Decision Making - Process and Techniques.

Planning Function of Management
Planning means looking ahead and chalking out future courses of action to be followed. It is a
preparatory step. It is a systematic activity which determines when, how and who is going to
perform a specific job. Planning is a detailed programme regarding future courses of action. It is
rightly said Well plan is half done. Therefore planning takes into consideration available &
prospective human and physical resources of the organization so as to get effective co-ordination,
contribution & perfect adjustment. It is the basic management function which includes
formulation of one or more detailed plans to achieve optimum balance of needs or demands with
the available resources.
According to Urwick, Planning is a mental predisposition to do things in orderly way, to think
before acting and to act in the light of facts rather than guesses. Planning is deciding best
alternative among others to perform different managerial functions in order to achieve
predetermined goals.
According to Koontz & ODonell, Planning is deciding in advance what to do, how to do and
who is to do it. Planning bridges the gap between where we are to, where we want to go. It
makes possible things to occur which would not otherwise occur.
Steps in Planning Function
Planning function of management involves following steps:1. Establishment of objectives
a. Planning requires a systematic approach.
b. Planning starts with the setting of goals and objectives to be achieved.
c. Objectives provide a rationale for undertaking various activities as well as
indicate direction of efforts.

d. Moreover objectives focus the attention of managers on the end results to be

achieved.
e. As a matter of fact, objectives provide nucleus to the planning process. Therefore,
objectives should be stated in a clear, precise and unambiguous language.
Otherwise the activities undertaken are bound to be ineffective.
f. As far as possible, objectives should be stated in quantitative terms. For example,
Number of men working, wages given, units produced, etc. But such an objective
cannot be stated in quantitative terms like performance of quality control
manager, effectiveness of personnel manager.
g. Such goals should be specified in qualitative terms.
h. Hence objectives should be practical, acceptable, workable and achievable.
2. Establishment of Planning Premises
a. Planning premises are the assumptions about the lively shape of events in future.
b. They serve as a basis of planning.
c. Establishment of planning premises is concerned with determining where one
tends to deviate from the actual plans and causes of such deviations.
d. It is to find out what obstacles are there in the way of business during the course
of operations.
e. Establishment of planning premises is concerned to take such steps that avoids
these obstacles to a great extent.
f. Planning premises may be internal or external. Internal includes capital
investment policy, management labour relations, philosophy of management, etc.
Whereas external includes socio- economic, political and economical changes.
g. Internal premises are controllable whereas external are non- controllable.
3. Choice of alternative course of action
a. When forecast are available and premises are established, a number of alternative
course of actions have to be considered.
b. For this purpose, each and every alternative will be evaluated by weighing its pros
and cons in the light of resources available and requirements of the organization.
c. The merits, demerits as well as the consequences of each alternative must be
examined before the choice is being made.

d. After objective and scientific evaluation, the best alternative is chosen.

e. The planners should take help of various quantitative techniques to judge the
stability of an alternative.
4. Formulation of derivative plans
a. Derivative plans are the sub plans or secondary plans which help in the
achievement of main plan.
b. Secondary plans will flow from the basic plan. These are meant to support and
expediate the achievement of basic plans.
c. These detail plans include policies, procedures, rules, programmes, budgets,
schedules, etc. For example, if profit maximization is the main aim of the
enterprise, derivative plans will include sales maximization, production
maximization, and cost minimization.
d. Derivative plans indicate time schedule and sequence of accomplishing various
tasks.
5. Securing Co-operation
a. After the plans have been determined, it is necessary rather advisable to take
subordinates or those who have to implement these plans into confidence.
b. The purposes behind taking them into confidence are :i.

Subordinates may feel motivated since they are involved in decision

making process.

ii.

The organization may be able to get valuable suggestions and

improvement in formulation as well as implementation of plans.

iii.

Also the employees will be more interested in the execution of these plans.

6. Follow up/Appraisal of plans

a. After choosing a particular course of action, it is put into action.
b. After the selected plan is implemented, it is important to appraise its
effectiveness.
c. This is done on the basis of feedback or information received from departments or
persons concerned.
d. This enables the management to correct deviations or modify the plan.

e. This step establishes a link between planning and controlling function.

f. The follow up must go side by side the implementation of plans so that in the light
of observations made, future plans can be made more realistic.

(NATURE)Characteristics of Planning
1. Planning is goal-oriented.
a. Planning is made to achieve desired objective of business.
b. The goals established should general acceptance otherwise individual efforts &
energies will go misguided and misdirected.
c. Planning identifies the action that would lead to desired goals quickly &
economically.
d. It provides sense of direction to various activities. E.g. Maruti Udhyog is trying to
capture once again Indian Car Market by launching diesel models.
2. Planning is looking ahead.
a. Planning is done for future.
b. It requires peeping in future, analyzing it and predicting it.
c. Thus planning is based on forecasting.
d. A plan is a synthesis of forecast.
e. It is a mental predisposition for things to happen in future.
3. Planning is an intellectual process.
a. Planning is a mental exercise involving creative thinking, sound judgement and
imagination.
b. It is not a mere guesswork but a rotational thinking.
c. A manager can prepare sound plans only if he has sound judgement, foresight and
imagination.
d. Planning is always based on goals, facts and considered estimates.
4. Planning involves choice & decision making.

a. Planning essentially involves choice among various alternatives.

b. Therefore, if there is only one possible course of action, there is no need planning
because there is no choice.
c. Thus, decision making is an integral part of planning.
d. A manager is surrounded by no. of alternatives. He has to pick the best depending
upon requirements & resources of the enterprises.
5. Planning is the primary function of management / Primacy of Planning.
a. Planning lays foundation for other functions of management.
b. It serves as a guide for organizing, staffing, directing and controlling.
c. All the functions of management are performed within the framework of plans
laid out.
d. Therefore planning is the basic or fundamental function of management.
6. Planning is a Continuous Process.
a. Planning is a never ending function due to the dynamic business environment.
b. Plans are also prepared for specific period f time and at the end of that period,
plans are subjected to revaluation and review in the light of new requirements and
changing conditions.
c. Planning never comes into end till the enterprise exists issues, problems may keep
cropping up and they have to be tackled by planning effectively.
7. Planning is all Pervasive.
a. It is required at all levels of management and in all departments of enterprise.
b. Of course, the scope of planning may differ from one level to another.
c. The top level may be more concerned about planning the organization as a whole
whereas the middle level may be more specific in departmental plans and the
lower level plans implementation of the same.
8. Planning is designed for efficiency.
a. Planning leads to accompishment of objectives at the minimum possible cost.
b. It avoids wastage of resources and ensures adequate and optimum utilization of
resources.
c. A plan is worthless or useless if it does not value the cost incurred on it.

d. Therefore planning must lead to saving of time, effort and money.

e. Planning leads to proper utilization of men, money, materials, methods and
machines.
9. Planning is Flexible.
a. Planning is done for the future.
b. Since future is unpredictable, planning must provide enough room to cope with
the changes in customers demand, competition, govt. policies etc.
c. Under changed circumstances, the original plan of action must be revised and
updated to male it more practical.

WHY DO MANAGERS PLAN?

Purposes of Planning. Planning is important and serves many significant purposes.
1.Planning gives direction to the organization.
2.Planning reduces the impact of change.
3.Planning establishes a coordinated effort.

4.Planning reduces uncertainty.

5.Planning reduces overlapping and wasteful activities.
6.Planning establishes objectives or standards that are used in controlling.
Advantages of Planning

1. Planning facilitates management by objectives.

a. Planning begins with determination of objectives.
b. It highlights the purposes for which various activities are to be undertaken.
c. In fact, it makes objectives more clear and specific.
d. Planning helps in focusing the attention of employees on the objectives or goals
of enterprise.
e. Without planning an organization has no guide.
f. Planning compels manager to prepare a Blue-print of the courses of action to be
followed for accomplishment of objectives.
g. Therefore, planning brings order and rationality into the organization.
2. Planning minimizes uncertainties.
a. Business is full of uncertainties.
b. There are risks of various types due to uncertainties.
c. Planning helps in reducing uncertainties of future as it involves anticipation of
future events.
d. Although future cannot be predicted with cent percent accuracy but planning
helps management to anticipate future and prepare for risks by necessary
provisions to meet unexpected turn of events.
e. Therefore with the help of planning, uncertainties can be forecasted which helps
in preparing standbys as a result, uncertainties are minimized to a great extent.
3. Planning facilitates co-ordination.
a. Planning revolves around organizational goals.
b. All activities are directed towards common goals.

c. There is an integrated effort throughout the enterprise in various departments and

groups.
d. It avoids duplication of efforts. In other words, it leads to better co-ordination.
e. It helps in finding out problems of work performance and aims at rectifying the
same.
4. Planning improves employees moral.
a. Planning creates an atmosphere of order and discipline in organization.
b. Employees know in advance what is expected of them and therefore conformity
can be achieved easily.
c. This encourages employees to show their best and also earn reward for the same.
d. Planning creates a healthy attitude towards work environment which helps in
boosting employees moral and efficiency.
5. Planning helps in achieving economies.
a. Effective planning secures economy since it leads to orderly allocation
ofresources to various operations.
b. It also facilitates optimum utilization of resources which brings economy in
operations.
c. It also avoids wastage of resources by selecting most appropriate use that will
contribute to the objective of enterprise. For example, raw materials can be
purchased in bulk and transportation cost can be minimized. At the same time it
ensures regular supply for the production department, that is, overall efficiency.
6. Planning facilitates controlling.
a. Planning facilitates existence of certain planned goals and standard of
performance.
b. It provides basis of controlling.
c. We cannot think of an effective system of controlling without existence of well
thought out plans.
d. Planning provides pre-determined goals against which actual performance is
compared.

e. In fact, planning and controlling are the two sides of a same coin. If planning is
root, controlling is the fruit.
7. Planning provides competitive edge.
a. Planning provides competitive edge to the enterprise over the others which do not
have effective planning. This is because of the fact that planning may involve
changing in work methods, quality, quantity designs, extension of work,
redefining of goals, etc.
b. With the help of forecasting not only the enterprise secures its future but at the
same time it is able to estimate the future motives of its competitor which helps
in facing future challenges.
c. Therefore, planning leads to best utilization of possible resources, improves
quality of production and thus the competitive strength of the enterprise is
improved.
8. Planning encourages innovations.
a. In the process of planning, managers have the opportunities of suggesting ways
and means of improving performance.
b. Planning is basically a decision making function which involves creative thinking
and imagination that ultimately leads to innovation of methods and operations for
growth and prosperity of the enterprise.

Disadvantages of Planning

Internal Limitations
There are several limitations of planning. Some of them are inherit in the process of planning
like rigidity and other arise due to shortcoming of the techniques of planning and in the planners
themselves.
1. Rigidity
a. Planning has tendency to make administration inflexible.
b. Planning implies prior determination of policies, procedures and programmes and
a strict adherence to them in all circumstances.
c. There is no scope for individual freedom.
d. The development of employees is highly doubted because of which management
might have faced lot of difficulties in future.
e. Planning therefore introduces inelasticity and discourages individual initiative and
experimentation.
2. Misdirected Planning
a. Planning may be used to serve individual interests rather than the interest of the
enterprise.
b. Attempts can be made to influence setting of objectives, formulation of plans and
programmes to suit ones own requirement rather than that of whole organization.
c. Machinery of planning can never be freed of bias. Every planner has his own
likes, dislikes, preferences, attitudes and interests which is reflected in planning.
3. Time consuming
a. Planning is a time consuming process because it involves collection of
information, its analysis and interpretation thereof. This entire process takes a lot
of time specially where there are a number of alternatives available.
b. Therefore planning is not suitable during emergency or crisis when quick
decisions are required.
4. Probability in planning
a. Planning is based on forecasts which are mere estimates about future.
b. These estimates may prove to be inexact due to the uncertainty of future.

c. Any change in the anticipated situation may render plans ineffective.

d. Plans do not always reflect real situations inspite of the sophisticated techniques
of forecasting because future is unpredictable.
e. Thus, excessive reliance on plans may prove to be fatal.
5. False sense of security
a. Elaborate planning may create a false sense of security to the effect that
everything is taken for granted.
b. Managers assume that as long as they work as per plans, it is satisfactory.
c. Therefore they fail to take up timely actions and an opportunity is lost.
d. Employees are more concerned about fulfillment of plan performance rather than
any kind of change.
6. Expensive
a. Collection, analysis and evaluation of different information, facts and alternatives
involves a lot of expense in terms of time, effort and money
b. According to Koontz and ODonell, Expenses on planning should never exceed
the estimated benefits from planning.
External Limitations of Planning
1. Political Climate- Change of government from Congress to some other political party,
etc.
2. Labour Union- Strikes, lockouts, agitations.
3. Technological changes- Modern techniques and equipments, computerization.
4. Policies of competitors- Eg. Policies of Coca Cola and Pepsi.
5. Natural Calamities- Earthquakes and floods.
6. Changes in demand and prices- Change in fashion, change in tastes, change in income
level, demand falls, price falls, etc.

Types of Plans
Plans can be described by their breadth, time frame, specificity, and frequency of use.

A: Breadth: strategic versus operational plans.

Strategic plans are those that are organization wide,establish overall objectives, and position an
organization in terms of its environment.

Operational plans are plans that specify details on how overall objectives are to be achieved.

B :Time frame: short-term versus long-term plans.

Short-term plans are plans that cover one year or less.
Long-term plans are those that extend beyond three years.

B:Specificity: specific versus directional plans. Specific plans are those that are clearly defined
and leave no room for interpretation. Directional plans are flexible plans that set out general

There are three main types of plans that a manager will use in his or her pursuit of company
goals, which include operational, tactical and strategic. If you think about these three types
of plans as stepping stones, you can see how their relationship to one another aids in the
achievement of organizational goals. Operational plans are necessary to attain tactical plans
and tactical plans lead to the achievement of strategic plans. Then, in true planning fashion,
there are also plans to backup plans that fail. These are known as contingency plans. To better
understand how each type of plan is used by managers, let's take a look at an example from
Nino's Pizzeria and how Tommy, Martha and Frank carry out their planning responsibilities.

Strategic Plans
To best understand the relationship between the different types of plans, let's start at the
top. Strategic plans are designed with the entire organization in mind and begin with an
organization's mission. Top-level managers, such as CEOs or presidents, will design and
execute strategic plans to paint a picture of the desired future and long-term goals of the
organization. Essentially, strategic plans look ahead to where the organization wants to be in
three, five, even ten years. Strategic plans, provided by top-level managers, serve as the
framework for lower-level planning.
Tommy is a top-level manager for Nino's Pizzeria. As a top-level manager, Tommy must use
strategic planning to ensure the long-term goals of the organization are reached. For Tommy,
that means developing long-term strategies for achieving growth, improving productivity and
profitability, boostingreturn on investments, improving customer service and finding ways to
give back to the community in which it operates.
For example, Tommy's strategic plans for achieving growth, improving productivity and
profitability and boosting return on investments are all part of the desired future of the pizzeria.
Strategic plans also tend to require multilevel involvement so that each level of the
organization plays a significant role in achieving the goals being strategically planned for.
Top-level managers, such as Tommy, develop the organizational objectives so that middle- and
lower-level managers can create compatible plans aligned with those objectives.
Tactical Plans
Now that you have a general idea for how organizational planning evolves, let's look at the
next level of planning, known as tactical planning. Tactical plans support strategic plans by
translating them into specific plans relevant to a distinct area of the organization. Tactical plans
are concerned with the responsibility and functionality of lower-level departments to fulfill
their parts of the strategic plan.
For example, when Martha, the middle-level manager at Nino's, learns about Tommy's
strategic plan for increasing productivity, Martha immediately begins to think about possible
tactical plans to ensure that happens. Tactical planning for Martha might include things like
testing a new process in making pizzas that has been proven to shorten the amount of time it
takes for prepping the pizza to be cooked or perhaps looking into purchasing a better oven that
can speed up the amount of time it takes to cook a pizza or even considering ways to better
map out delivery routes and drivers. As a tactical planner, Martha needs to create a set of

calculated actions that take a shorter amount of time and are narrower in scope than the
strategic plan is but still help to bring the organization closer to the long-term goal.
Operational Plans
Operational plans sit at the bottom of the totem pole; they are the plans that are made by
frontline, or low-level, managers. All operational plans are focused on the specific procedures
and processes that occur within the lowest levels of the organization. Managers must plan the
routine tasks of the department using a high level of detail.
Frank, the frontline manager at Nino's Pizzeria, is responsible for operational planning.
Operational planning activities for Frank would include things like scheduling employees each
week; assessing, ordering and stocking inventory; creating a monthly budget; developing a
promotional advertisement for the quarter to increase the sales of a certain product (such as the
Hawaiian pizza) or outlining an employee's performance goals for the year.
Operational plans can be either single-use or ongoing plans. Single-use plans are those plans
that are intended to be used only once. They include activities that would not be repeated and
often have an expiration. Creating a monthly budget and developing a promotional
advertisement for the quarter to increase the sales of a certain product are examples of how
Frank would utilize single-use planning.
Ongoing plans are those plans that are built to withstand the test of time. They are created
with the intent to be used several times and undergo changes when necessary. Outlining an
employee's performance goals for the year would be considered an ongoing plan that Frank
must

develop,

assess

and

update,

if

necessary.

Ongoing

plans

are

typically

a policy, procedure or rule. Policies are general statements, or guidelines, that aid a manager
in understanding routine responsibilities of his or her role as a manager. Examples of policies
include things such as hiring, training, outlining and assessing performance appraisals and
disciplining and terminating subordinates. A procedure details the step-by-step process of
carrying out a certain task, such as assessing, ordering and stocking inventory. A rule provides
managers and employees with specific and explicit guidelines of behavior that is what they
should and should not do as a member of the organization

Management by objectives (MBO), also known as management by results (MBR), is a

process of defining objectives within an organization so that management and employees agree
to the objectives and understand what they need to do in the organization in order to achieve
them. The term "management by objectives" was first popularized by Peter Drucker in his 1954
book The Practice of Management.
The essence of MBO is participative goal setting, choosing course of actions and decision
making. An important part of the MBO is the measurement and the comparison of the
employees actual performance with the standards set. Ideally, when employees themselves have
been involved with the goal setting and choosing the course of action to be followed by them,
they are more likely to fulfill their responsibilities.
According to George S. Odiorne, the system of management by objectives can be described as a
process whereby the superior and subordinate jointly identify its common goals, define each
individual's major areas of responsibility in terms of the results expected of him, and use these
measures as guides for operating the unit and assessing the contribution of each of its members
Five steps of MBO process
The MBO process consists of five steps:
1. Review organizational objectives: The manager gains a clear understanding of
organizational's overall objectives.
2. Set worker objectives: The manager and worker meet to agree on worker objectives to
be reached by the end of normal operating period.
3. Monitor progress: At periodic intervals during the normal operating period, the manager
and worker check to see if the objectives are being reached.
4. Evaluating performance: At the end of normal operating period, the worker's
performance is judged by the extent to which the worker reached the objective.
5. Give reward: Rewards given to the worker are based on the extent to which the
objectives were reached.

Features and advantages

Behind the principle of MBO is for employees to have a clear understanding of the roles and
responsibilities expected of them. Then they can understand how their activities relate to the
achievement of the organization's goal. Also places importance on fulfilling the personal goals of
each employee.
Some of the important features and advantages of MBO are:
1. Motivation Involving employees in the whole process of goal setting and increasing
employee empowerment. This increases employee job satisfaction and commitment.
2. Better communication and coordination Frequent reviews and interactions between
superiors and subordinates help to maintain harmonious relationships within the
organization and also to solve problems.
3. Clarity of goals
4. Subordinates tend to have a higher commitment to objectives they set for themselves than
those imposed on them by another person.
5. Managers can ensure that objectives of the subordinates are linked to the organization's
objectives.
6. Common goal for whole organization means it is a directive principle of management.

Domains and levels

Objectives can be set in all domains of activities (production, marketing, services, sales, R&D,
human resources, finance, information systems etc.).
Some objectives are collective, for a whole department or the whole company, others can be
individualized. Managers must determine the mission and the strategic goals of the enterprise.
The goals set by top-level managers are based on an analysis of what can and should be
accomplished by the organization within a specific period of time. The functions of these
managers can be centralized by appointing a project manager who can monitor and control
activities of the various departments. If this cannot be done or is not desirable, each managers
contributions to the organizational goal should be clearly spelled out.

Practice
Objectives need quantifying and monitoring. Reliable management information systems are
needed to establish relevant objectives and monitor their "reach ratio" in an objective way.
Pay incentives (bonuses) are often linked to results in reaching the objectives.

ADVANTAGES OF MANAGEMENT BY OBJECTIVES MBO :Develops result-oriented philosophy: MBO is a result-oriented philosophy. It does not favor
management by crisis. Managers are expected to develop specific individual and group goals,
develop appropriate action plans, properly allocate resources and establish control standards. It
provides opportunities and motivation to staff to develop and make positive contribution in
achieving the goals of an Organisation.
Formulation of dearer goals: Goal-setting is typically an annual feature. MBO produces goals
that identify desired/expected results. Goals are made verifiable and measurable which
encourage high level of performance. They highlight problem areas and are limited in number.
The meeting is of minds between the superior and the subordinates. Participation encourages
commitment. This facilitates rapid progress of an Organisation. In brief, formulation of realistic
objectives is me benefit of M[BO.
Facilitates objective appraisal: NIBO provides a basis for evaluating a person's performance
since goals are jointly set by superior and subordinates. The individual is given adequate freedom
to appraise his own activities. Individuals are trained to exercise discipline and self control.
Management by self-control replaces management by domination in the MBO process. Appraisal
becomes more objective and impartial.
Raises employee morale: Participative decision-making and two-way communication encourage
the subordinate to communicate freely and honestly. Participation, clearer goals and improved
communication will go a long way in improving morale of employees.
Facilitates effective planning: MBO programmes sharpen the planning process in an
Organisation. It compels managers to think of planning by results. Developing action plans,

providing resources for goal attainment and discussing and removing obstacles demand careful
planning. In brief, MBO provides better management and better results.
Acts as motivational force: MBO gives an individual or group, opportunity to use imagination
and creativity to accomplish the mission. Managers devote time for planning results. Both
appraiser and appraise are committed to the same objective. Since MBO aims at providing clear
targets and their order of priority, employees are motivated.
Facilitates effective control: Continuous monitoring is an essential feature of MBO. This is
useful for achieving better results. Actual performance can be measured against the standards
laid down for measurement of performance and deviations are corrected in time. A clear set of
verifiable goals provides an outstanding guarantee for exercising better control.
Facilitates personal leadership: MBO helps individual manager to develop personal leadership
and skills useful for efficient management of activities of a business unit. Such a manager enjoys
better chances to climb promotional ladder than a non-MBO type.

LIMITATIONS OF MANAGEMENT BY OBJECTIVES MBO :Time-consuming: MBO is time-consuming process. Objectives, at all levels of the Organisation,
are set carefully after considering pros and cons which consumes lot of time. The superiors are
required to hold frequent meetings in order to acquaint subordinates with the new system. The
formal, periodic progress and final review sessions also consume time.
Reward-punishment approach: MBO is pressure-oriented programme. It is based on rewardpunishment psychology. It tries to indiscriminately force improvement on all employees. At
times, it may penalize the people whose performance remains below the goal. This puts mental
pressure on staff. Reward is provided only for superior performance.
Increases paper-work: MBO programmes introduce ocean of paper-work such as training
manuals, newsletters, instruction booklets, questionnaires, performance data and report into the
Organisation. Managers need information feedback, in order to know what is exactly going on
in the Organisation. The employees are expected to fill in a number of forms thus increasing
paper-work. In the words of Howell, "MBO effectiveness is inversely related to the number of
MBO forms.

Creates organizational problems: MBO is far from a panacea for all organizational problems.
Often MBO creates more problems than it can solve. An incident of tug-of-war is not
uncommon. The subordinates try to set the lowest possible targets and superior the highest.
When objectives cannot be restricted in number, it leads to obscure priorities and creates a sense
of fear among subordinates. Added to this, the programme is used as a 'whip' to control employee
performance.
Develops conflicting objectives: Sometimes, an individual's goal may come in conflict with
those of another e.g., marketing manager's goal for high sales turnover may find no support from
the production manager's goal for production with least cost. Under such circumstances,
individuals follow paths that are best in their own interest but which are detrimental to the
company.
Problem of co-ordination: Considerable difficulties may be encountered while coordinating
objectives of the Organisation with those of the individual and the department. Managers may
face problems of measuring objectives when the objectives are not clear and realistic.
Lacks durability: The first few go-around of MBO are motivating. Later it tends to become old
hat. The marginal benefits often decrease with each cycle. Moreover, the programme is
deceptively simple. New opportunities are lost because individuals adhere too rigidly to
established goals.
Problems related to goal-setting: MBO can function successfully provided measurable
objectives are jointly set and it is agreed upon by all. Problems arise when: (a) verifiable goals
are difficult to set (b) goals are inflexible and rigid (c) goals tend to take precedence over the
people who use it (d) greater emphasis on quantifiable and easily measurable results instead of
important results and (e) over-emphasis on short-term goals at the cost of long-term goals.
Lack of appreciation: Lack of appreciation of MBO is observed at different levels of the
Organisation. This may be due to the failure of the top management to communicate the
philosophy of MBO to entire staff and all departments. Similarly, managers may not delegate
adequately to their subordinates or managers may not motivate their subordinates properly. This
creates new difficulties in the execution of MBO programme.

DECISION MAKING - PROCESS AND TECHNIQUES

Decision-making can be regarded as the cognitive process resulting in the selection of a belief or
a course of action among several alternative possibilities. Every decision-making process
produces a final choice that may or may not prompt action. Decision-making is the study of
identifying and choosing alternatives based on the values and preferences of the decision maker.
Decision-making is one of the central activities of management and is a huge part of any process
of implementation.
Decision making is a daily activity for any human being. There is no exception about that. When
it comes to business organizations, decision making is a habit and a process as well.
Effective and successful decisions make profit to the company and unsuccessful ones make
losses. Therefore, corporate decision making process is the most critical process in any
organization.
In the decision making process, we choose one course of action from a few possible alternatives.
In the process of decision making, we may use many tools, techniques and perceptions.
In addition, we may make our own private decisions or may prefer a collective decision.
Usually, decision making is hard. Majority of corporate decisions involve some level of
dissatisfaction or conflict with another party.

Decision Making Process:

Following are the important steps of the decision making process. Each step may be supported
by different tools and techniques

STEP 1:

IDENTIFICATION OF THE PURPOSE OF THE DECISION:

In this step, the problem is thoroughly analysed. There are a couple of questions one should ask
when it comes to identifying the purpose of the decision.

 What exactly is the problem?

Why the problem should be solved?
Who are the affected parties of the problem?
Does the problem have a deadline or a specific time-line?
STEP 2: INFORMATION GATHERING:
A problem of an organization will have many stakeholders. In addition, there can be dozens of
factors involved and affected by the problem.
In the process of solving the problem, you will have to gather as much as information related to
the factors and stakeholders involved in the problem. For the process of information gathering,
tools such as 'Check Sheets' can be effectively used.

STEP 3: PRINCIPLES FOR JUDGING THE ALTERNATIVES:

In this step, the baseline criteria for judging the alternatives should be set up. When it comes to
defining the criteria, organizational goals as well as the corporate culture should be taken into
consideration.
As an example, profit is one of the main concerns in every decision making process. Companies
usually do not make decisions that reduce profits, unless it is an exceptional case. Likewise,
baseline principles should be identified related to the problem in hand.

STEP 4: BRAINSTORM AND ANALYSE THE DIFFERENT CHOICES:

For this step, brainstorming to list down all the ideas is the best option. Before the idea
generation step, it is vital to understand the causes of the problem and prioritization of causes.

For this, you can make use of Cause-and-Effect diagrams and Pareto Chart tool. Cause-andEffect diagram helps you to identify all possible causes of the problem and Pareto chart helps
you to prioritize and identify the causes with highest effect.
Then, you can move on generating all possible solutions (alternatives) for the problem in hand.
STEP 5: EVALUATION OF ALTERNATIVES:
Use your judgement principles and decision-making criteria to evaluate each alternative. In this
step, experience and effectiveness of the judgement principles come into play. You need to
compare each alternative for their positives and negatives.
STEP 6: SELECT THE BEST ALTERNATIVE:
Once you go through from Step 1 to Step 5, this step is easy. In addition, the selection of the best
alternative is an informed decision since you have already followed a methodology to derive and
select the best alternative.
STEP 7: EXECUTE THE DECISION:
Convert your decision into a plan or a sequence of activities. Execute your plan by yourself or
with the help of subordinates.
STEP 8: EVALUATE THE RESULTS:
Evaluate the outcome of your decision. See whether there is anything you should learn and then
correct in future decision making. This is one of the best practices that will improve your
decision-making skills.

DECISION-MAKING TECHNIQUES can be separated into two broad

categories: Group decision-making and individual decision-making techniques.
GROUP DECISION-MAKING TECHNIQUES
Consensus decision-making tries to avoid "winners" and "losers". Consensus requires
that a majority approve a given course of action, but that the minority agree to go along
with the course of action. In other words, if the minority opposes the course of action,

consensus requires that the course of action be modified to remove objectionable

features.
Voting-based methods.
Range voting lets each member score one or more of the available options. The option with the
highest average is chosen. This method has experimentally been shown to produce the lowest
Bayesian regret among common voting methods, even when voters are strategic.
Majority requires support from more than 50% of the members of the group. Thus, the bar for
action is lower than with unanimity and a group of "losers" is implicit to this rule.
Plurality, where the largest block in a group decides, even if it falls short of a majority.
Delphi method is structured communication technique for groups, originally developed
for collaborative forecasting but has also been used for policy making.
Dotmocracy is a facilitation method that relies on the use of special forms called
Dotmocracy Sheets to allow large groups to collectively brainstorm and recognize
agreement on an unlimited number of ideas they have authored.

INDIVIDUAL DECISION-MAKING TECHNIQUES

Pros and cons: listing the advantages and disadvantages of each option, popularized by
Plato and Benjamin Franklin. Contrast the costs and benefits of all alternatives. Also
called "rational decision-making".
Simple prioritization: choosing the alternative with the highest probability-weighted
utility for each alternative).
Satisficing: examining alternatives only until an acceptable one is found. Contrasted with
maximizing, in which many or all alternatives are examined in order to find the best
option.

 Elimination

by

aspects:

choosing

between

alternatives

using

Mathematical

psychologyThe technique was introduced by Amos Tversky in 1972. It is a covert

elimination process that involves comparing all available alternatives by aspects. The
decision-maker chooses an aspect; any alternatives without that aspect are then
eliminated. The decision-maker repeats this process with as many aspects as needed until
there remains only one alternative
Preference trees: In 1979, Tversky and Shmuel Sattach updated the elimination by
aspects technique by presenting a more ordered and structured way of comparing the
available alternatives. This technique compared the alternatives by presenting the aspects
in a decided and sequential order. It became a more hierarchical system in which the
aspects are ordered from general to specific
Acquiesce to a person in authority or an "expert"; "just following orders".
Flipism: flipping a coin, cutting a deck of playing cards, and other random or
coincidence methods
Prayer, tarot cards, astrology, augurs, revelation, or other forms of divination.
Taking the most opposite action compared to the advice of mistrusted authorities (parents,
police officers, partners...)
Opportunity cost: calculating the opportunity cost of each options and decide the
decision.
Bureaucratic: set up criteria for automated decisions.
Political: negotiate choices among interest groups.
Participative decision-making (PDM): a methodology in which a single decisionmaker, in order to take advantage of additional input, opens up the decision-making
process to a group for a collaborative effort.

 Use of a structured decision-making method.

Individual decision-making techniques can often be applied by a group as part of a group
decision-making technique.
A need to use software for a decision-making process is emerging for individuals and businesses.
This is due to increasing decision complexity and an increase in the need to consider additional
stakeholders, categories, elements or other factors that effect decisions.