Planning

A plan is a course of action to be taken in future. It is a

predefined course of action. Planning is the process of
determining the organization’s goals and the means for
achieving them. A primary functional managerial activity that
involves:

• Defining the organization’s goals;

• Establishing an overall strategy for achieving those goals;
and
• Developing a comprehensive set of plans to integrate and
coordinate organizational work.

Planning is the process and plan is the outcome of this process.

Action plan: Action plan is a plan that helps in the operation of

a plan.

How to make a plan that works:

Making an Effective Plan

1. SETTING GOALS AND OBJECTIVES

Plans are formulated to achieve certain objectives.
Therefore the first step in planning process is to identify
the goals of the organisation. Objectives must be clear
 and in measurable terms. Objectives must be laid down
after an analysis of the external and internal environment
of the organisation . For setting effective goals and
objectives managers use a technique known as SMART
which is as follows:
S Specific
M Measurable
A Attainable
R Realistic
T Timely

2. DEVELOP COMMITMENT
To develop commitment means to create willingness to
work among workers. We need to develop commitment
intellectually, physically and mentally. Mental engagement of a
person is voluntary which is possible only when there is
commitment. We need to make workers realise that they are
special and important for organisation. When this impression is
created they work at their best.
The determination to achieve a goal/objective is increased by
• Setting goals participative.
It means to what extent the lower and middle
management participate in top decision making. The
persons who are responsible for attaining the goals should
be asked to participate in setting goals. In Japanese set up
the participation of lower management is 100%.
• Making goals reasonable.
The goals should be set according to the competence and
time. Reasonable is one which looks challenging but
manageable. It eradicates laziness of the workers. This
policy helps in motivating the workers and if it becomes a
loose target, workers will lose their interest.
• Making goals public
When board decides about the goals these should be
communicated to the every person in the organisation and
they should be educated about its attainment.
• Obtaining top management support.
 We need the support of the top management for arranging
the necessary resources and developing them.
There is an absolute commitment from each and every person
in the organisation when all the above mentioned points are
gone through.
3. DEVELOP EFFECTIVE ACTION PLAN
Plan is a blueprint specifying the actions, resources
allocation and schedules necessary for attaining goals.
Action plan is anything which we need to bridge the gap
between the present and the desired status. Action plan
must reflect the following three components:
• Specific Steps: These include the actions or activities that
we need in order to ensure the status desired.
• Resources: Theses are of 2 types’ i.e. Human resources
and physical resources. An action plan must be such that
will desire the allocation of both humans and raw material
and their effective use.
• Time period: Action plan must also state the period of
each and every activity to be carried in the organisation
during the production process
3. TRACK PROGRESS TOWARD GOAL ACHIEVEMENT:
`In order to make sure that nothing goes waste, evaluation
of actions must be done simultaneously. This process
includes measuring of performance with standards to feed
correctness if required.
4. MAINTAIN FLEXIBILITY:
Maintaining flexibility means to keep a scope for changes.
As business system/environment is dynamic, there must
be provision for the necessary changes. Each and every
system in business should be kept flexible and not rigid.
Modifications should be tune with the changes in
environment. Two types of planning can be performed to
maintain flexibility:
Option-based planning
– keep options open by making
simultaneous investments
• invest more in promising options
 • maintains slack resources
Learning-based planning
– plans need to be continuously adjusted

Types of Plans

1. Strategic Plans: Strategic plans refer to action steps used

to attain strategic goals. It is referred to as blueprint that
defines the organizational movement and growth. A
strategic plan is an output of strategic planning. A
strategic planning is a process by which an organization
makes decisions and takes actions to enhance its long
term performance. Strategy is a complex plan for bringing
the organization from a given posture to a desired position
in future period of time.
The components of strategy plans are:
a. Vision: Vision is the dream that top management thinks
about the future. It is broad category of long term
intentions that the organization wishes to pursue. In
other words, it is an image of how the organization sees
itself in future.
b. Mission: Mission is a broad term reflecting idealism. It
represents the overall philosophy of an organization. It
indicates the end which is to be achieved over the
whole life of an organization or at least over a long
period. It serves as a reason for existence of an
organization. It must include the following: Institutions
name (Who are we?), Institutions Primary activities or
functions (What do we do?), Target market (For whom
do we do it?), Institutions primary purpose (Why do we
do it?).
1. Tactical Plans: Plans designed to help execute strategic
plans are called tactical plans. These have shorter time
frame than strategic plans. These are formulated at
middle level management. Tactics can be of 2 types:
 • Time tactical plans: It decides that when a particular
plan is to be executed.
• Market place tactics: These are the plans that decide
about where to do i.e. the place of implementation of a
particular plan.

To develop and carry out the tactical plans, a comprehensive

managerial system that integrates many key managerial
activities in a systematic manner that is consciously directed
towards the effective and efficient achievement of
organizational and individual objectives is used, which is called
as MBO(Management By Objectives). It is a formal goal-setting
process involving collaboration between managers and
subordinates. The main features of MBO are:

a. MBO focuses on what must be accomplished (goals)

rather than on how it is to be accomplished
(methods).It is goal oriented rather than work
oriented approach.
b. MBO involves participation of subordinate
managers in the goal setting process. It requires all
key personnel to contribute maximum to achieve the
overall objectives.
c. MBO is a dynamic system i.e. it can be modified
according to the change in business environment and
is flexible.
d. MBO has an operational thrust involving linkage
between organizational goals and individual
goals.
e. MBO is a continuous process of goal setting,
periodic appraisals and modification of goals and
performance.
f. MBO stresses measurable and verifiable goals
in key result areas. It attempts to blend and
balance the goals of all key personnel.

The steps involved in MBO:

a. Preliminary Goal-Setting: The first phase of MBO is the
clarification of the objectives which the organisation is to
attain. The long term overall goals of the enterprise are
laid down in key result areas. These goals are laid down
keeping in view the internal and external environments of
the organization. While the strategic objectives may be
verbal, operational goals must be measurable so as to
serve definite yardsticks of goals’ accomplishment.
b. Setting Subordinates’ Objectives: The organizational
objectives are achieved through individuals. Therefore,
each individual must know what he is expected to
achieve. In setting objectives for subordinates, the
organizational goals, Subordinates’ ability and resources
available to him should be duly considered. The allocation
of resources should be made in consultation with
subordinates. There must be proper matching of goals and
resources.
c. Recycling Objectives: Under MBO goals setting is not
direction from the top, rather it is a two way process in
which the superior suggests a goal that is acceptable to
the subordinate. A network of objectives is created so that
every lower level objective contributes effectively to the
achievement of the objectives next to it.
d. Action Planning: Once goals are established at all levels,
action programmes are developed for their
accomplishment. Detailed procedures are set up for the
utilisation of resources and for achievement of
predetermined targets. Action planning may call for
revision if existing organisation structure. The organisation
structure should be suitably amended. The authority and
responsibility of each job & its relationship with other jobs
should be clearly defined.
e. Periodic Performance Reviews: At specified intervals,
progress towards the accomplishment of goals is reviewed
in consultation with subordinates. Such reviews are made
to identify shortcomings and to take timely steps to
improve results.
f. Final Appraisal: A thorough evaluation of performance is
made at the end of the year. Achievements are analysed
in the light of established goals and standards.
Organisational goals and action plans are suitably
modified and rewards are decided on the basis of such
appraisal. The focus is on improving performance and on
development rather than on downgrading poor
performance.

Benefits of MBO:

a. Improves Planning: MBO produces clear and

measurable performance goals. Joint goal-setting
ensures that managers understand their goals. There is
effective matching of goals and resources.MBO forces
mangers to plan for results rather than plan for work. It
ensures that goals of each department are consistent
with the overall objectives of the organisation.
b. Motivation and Morale: MBO leads to better
interpersonal relations through involvement and
recognition of people at all levels. It provides greater
opportunities to make personal contribution and to
accept more responsibility. Participative goal setting
and two-way communication improve the commitment
and morale of employees.
c. Objective Appraisal: MBO permits impartial appraisal
because employee performance is evaluated against
verifiable and mutually agreed criteria. Managers are
measured by what they accomplish rather than how
they spend their time. Under MBO, the superior does
not evaluate the subordinate but his performance. MBO
also allows employees to monitor and control their own
performance. Such self-appraisal facilitates personal
development.
d. Departmental and individual goals are aligned.

Problems to MBO

a. Constant change prevents MBO from taking hold

 b. Poor employer-employee relations reduces MBO
effectiveness
c. Strategic goals may be displaced by operational goals
d. Mechanistic organizations and values that discourage
participation
e. Too much paperwork saps MBO energy

Types of Operational Plans

Operational plans include action steps that aim to attain

operational goals. As the name suggests they are used by
supervisory level/operational level.

1. Multi-use plans: These plans are repeatedly used in

situations of a similar nature; they are long term in nature
and represent standing answers to recurring problems.
They serve as ready guides to action. These plans help in
training of employees and job rotation. These plans help
to save time and effort of executives. They facilitate
delegation, coordination and control. Policies,
procedures and rules are Standing plans or Multi-
use plans.
2. Single-use or ad hoc Plans: These plans are formulated to
meet unique and non repetitive situations. These are
tailored to fit specific situations. A single-use plan is used
up once the objectives are achieved. It is of short duration
and non-recurring in nature. Programmes and methods
are examples of single use plan.
3. Budgets: A budget is a plan which states expected results
of a given future period in numerical terms. It is the
Quantitative planning to decide how to allocate money to
accomplish company goals. It is plan of action or blueprint
designed to achieve a specific goal. They may be prepared
for production, sales, materials, cash, capital expenditure
etc.

PLANING PREMISIS:
Plans are prepared for the future but future is uncertain.
Therefore, management makes certain assumptions about
 the future. There assumptions about future derived from
forecasts and used in planning are known as planning
premises.
Planning premises are the building blocks on which the
super-structure of planning is based. One of the major
purpose of premises is to facilitate the planning process by
guiding, directing, simplifying and reducing the degree of
uncertainty in it.
Planning premises are of 3 types:
a. External and internal premises: External premises are
those which lie outside the firm. These are of many kinds:
• General business environment including economic,
technological, political, and social conditions.
• The product market consisting of the demand and
supply forces for the product or service
• The factor market for land, labour, capital etc.
Internal premises refer to the factors within enterprise.
These include sales forecast, capital investment in plant and
equipment , competence of the management personnel, skills
of labour force etc.
a. Tangible and Intangible premises: tangible premises are
those which can be quantified e.g., money, time, units of
production, etc.. On the contrary 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.
b. Controllable and Uncontrollable premises: These premises
which are entirely within the control and area of the
management are known as controllable premises. These
include the policies programmers and rules of the
enterprise. Premises over which an enterprise has no
control are uncontrollable premises. War, natural
calamities, new inventions etc. There are some premises
over which the company has partial control like union-
management relations, supply positions in the industry
etc. Such premises are called semi-controllable premises.
Problems in context with business
Problem may be defined as any type of business situation
where managers have to decide. Risk factor makes the problem
different. There are mostly 2 types of situations:
1. Certainty: it is a business situation where the outcomes
are known to decision maker.
2. Uncertainty: It is a business situation where the
alternatives are contingent i.e. dependant on certain
factors. In this situation outcome is not known.
But in actual practice these situation doesn’t crop up,
rather we stand between certainty and uncertainty.
Uncertainty and risk are alike Thus mangers believe in
only 2 situations i.e. Certainty and risk.
The problems are of 2 types:
1. Programmed/ Routine/structured problems: These
problems are those that we face on daily basis. The
consequences of these problems are known to us.
2. Non routine/Unstructured problems: These problems
are those we face for the first time. The consequences
of these problems are not known to us.
Programmed problems have less risk factor and un-
programmed problems have more risk factors.
DESION MAKING PROCESS
Decision making is a process of choosing a course of action
from among alternatives to achieve a desired goal. Decision
making may also be defined as a process of deciding in order to
solve a problem. Thus decision making is a problem solving
process. Rational Decision Making is a systematic
process of defining problems, evaluating alternatives,
and choosing optimal solutions.
1. Define the problem: In this step, the decision maker is
determining what’s relevant in making the decision. In this
step he defines the problem clearly.
• Problem exists when there is a gap between a
desired and an existing state of affair
• To make decisions about problems, managers must:
-Be aware of the gap
 -be motivated to reduce the gap
-have the knowledge, skills, abilities, authority,
information, or resources needed to solve the
problem

2. Identifying decision criteria: Once a decision maker

has defined the problem, he or she needs to identify the
decision criteria that will be important in solving the
problem. Identifying criteria is important because what
one person thinks is relevant, another may not. Also keep
in mind that any factors not identified in this step are
considered as irrelevant to the decision maker.
• Decision criteria are factors that are important
(relevant) to resolving the problem.
– Costs that will be incurred (investments required)
– Risks likely to be encountered (chance of failure)
– Outcomes that are desired (growth of the firm)
1. Weight the criteria: The decision-maker weights the
previously identified criteria in order to give them
correct priority in the decision.
• Decision criteria are not of equal importance:
– Assigning a weight to each item places the
items in the correct priority order of their
importance in the decision making process.
• Absolute comparisons
– each criterion is compared to a standard
or ranked on its own merits
• Relative comparisons
– each criterion is compared directly to
every other criterion
1. Generate alternatives: The decision maker generates
possible alternatives that could succeed in resolving the
problem. No attempt is made in this step to appraise
these alternatives, only to list them. The idea is to
generate as many alternatives as possible
2. Rate each alternative on each criterion: The decision
maker must critically analyze and evaluate each
one.The strengths and weakness of each alternative
become evident as they compared with the criteria and
weights established in second and third steps. This step
 can take much longer and be more expensive than
other steps in the process
3. Compute the optimal decision : Evaluating each
alternative against the weighted criteria and selecting
the alternative with the highest total score.
Multiply the rating for each criterion by the weight for
that criterion. And Sum the scores for each alternative
course of action

Assumptions of Model
1. Problem clarity . (The decision maker is assumed to have
complete information regarding the decision situation.)
2. Known options (Identify all the relevant criteria and can list
all
the viable alternatives. The decision maker is aware of all the
possible consequences of each alternative.)
3. Clear preference (The criteria and alternatives can be ranked
and weight to reflect their importance)
4. Constant preferences (The specific decision criteria are
constant
and that weights assigned to them are stable over time)
5. No time or cost constraints
6. Maximum payoff
How Decisions Are Actually Made in Organization
People are usually content to find an acceptable or reasonable
solution to their problem rather than optimal one.
Consequently,decision makers generally make limited use of
their creativity.Choices tend to be confined to the
neighborhood of the problem symptom and to the
neighborhood of the current alternative.“Most significant
decisions are made by judgment, rather than by a defined
prescriptive model.”
Bounded Rationality
When a staff considered which college to attend, they will not
look
every viable alternative nor identify all the criteria that were
important in decision.Instead of optimizing, staff probably
“satisfied”. When faced with a complex problem, most people
respond by reducing the problem to a level at which it can
readily understand. The limited information-processing
capability of human beings makes it impossible to assimilate
and understand all the information necessary to optimize. So
people satisfied; that is, they seek
solutions that are satisfactory and sufficient. Because the
capacity of the human mind for formulating and solving
complex problems is far too small to meet the requirements for
full rationality, individuals operate within the confines of
bounded rationality. They construct simplified models that
extract the essential features from problems without capturing
all of their
complexity. Individuals can then behave rationally within the
limits
of the simple model. Once a problem is identified, the search
for criteria and alternatives begins. But the list of criteria is
likely to be far from exhaustive. The decision maker will identify
a limited list made up of the more
Conspicuous choices. These are the choices that are easy to
find and that tend to be highly visible. In most cases, they will
represent familiar criteria and previously tried-and-true
solutions. Once this limited set of alternatives is identified, the
decision maker will begin reviewing them. But the review will
not be comprehensive – not all of the alternatives will be
carefully evaluated. Instead, the decision maker will begin with
alternatives that differ only in a
relatively small degree from the choice currently in effect.
Following along familiar and will-worn paths, the decision
maker proceeds to review alternatives only until he or she
identifies an alternative that is “good enough” – one that meets
an acceptable level of performance. The first alternative that
meets the “good enough” criterion ends the search. So the final
solution represents a satisfying choice rather than an optimal
one. The order in which alternatives are considered is critical in
determining which alternative is selected. Remember, in the
fully rational optimizing model, all alternatives are eventually
listed in a hierarchy of preferred order. Because all alternatives
are considered, the initial order in which they are evaluated is
irrelevant. Every
potential solution gets a full and complete evaluation. But this
isn’t the case with bounded rationality. If we assume that a
problem has more than one potential solution, the satisfying
choice will be the first acceptable one the decision maker
encounters. Decision makers use simple and limited models, so
they typically begin by identifying alternatives that are obvious,
ones with which they are familiar, and hose not too far from the
status quo. Solutions that depart least from the status quo and
meet the decision criteria are most likely to be selected. A
unique and creative alternative may present an optimizing
solution to the problem, but it’s unlikely to be chosen because
an acceptable solution will be identified well before the decision
maker is required to search very far beyond the status quo.