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UNIT-II
PLANNING
Planning is the management function that involves setting of goals and deciding
the best method to achieve them.
Objectives of planning:
1. To anticipate future conditions and problems in advance.
2. To choose economical alternatives.
3. For making efficient and effective management.
4. To avoid duplication, overlapping, cross purpose working.
5. To check and control the overall performance.
6. To co-ordinate distinct activities to a common goal.
7. To improve productivity.
8. Planning provides the basis for other functional activities.
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Steps in planning:
Being aware of opportunity:
In height of:
The market competition what
customers want our strengths
and our weakness.
Setting objectives or goals:
Where? We want to be what?
when?
Considering planning premises:
In what environment
-in internal or external
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Identifying alternatives:
Most positioning alternative to
accomplishing our objectives.
Numbering plans by making budgets:
Develop budget as:
1. Volume and price of sale
2. Operating expenses
3. Necessary for plans
4. Expenditure for capital
equipment.
Comparing alternatives:
In hight of goals sought
Choosing alternatives.
Formulating supporting plans:
Plans to: buy equipment, buy
material. Hire and train workers.
Develop a new product.
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Nature of planning:
1. Contribution to mission and goal.
2. Foundation of management
3. Range of planning
I. Strategic planning – top management
II. Tactical planning _ middle management
III. Operational planning _ first level management
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Objectives or goal
It is a future target or end result that an organization wishes
Process of setting objectives:
Board of directors
Middle level
Management
Lower level
Management
Solio – economic
purpose
Mission
Overall objectives of the organization
More specific overall objectives
Division objectives
Department and unit objectives
Individual objectives:
Performance
Personal development of
objective
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The process of managing by objectives:
Organizational objectives
Superior’s objectives
Subordinates objectives
Subordinates agreed objectives
Make action plan
Planning premises
Identify key result areas
Available
resources Superiors recommendation on
subordinates objectives
Review progress
Take corrective action
Appraise performance
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Importance of MBO to industry:
MBO is employed in almost all large companies in India.
It is one of the best tool in minimizing friction between employee and
management.
MBO reduces the conflict between personal goals and organizational goals,
also IT PROVIDES JOB SATISFACTION TO THE SUB-ORDINATES.
Since sub-ordinates are also taking part in MBO, such participation loads to
commitment towards attainment of objectives.
Benefits of MBO:
1. Performance can be improved because MBO concentrates on objectives.
2. Employees can be motivated because they participate in the goal setting
process
3. Evolution of performance of individual and each division is possible with
MBO.
4. MBO increases the productivity of employee.
5. These will be a change in the organizational climate because of the
improved understanding between supervisors and sub-ordinates.
6. MBO helps managers to exercise better control over their employees.
7. Unnecessary efforts will be minimized because objectives are set clearly.
8. Results obtained are high because all the employees have a sense of
common purpose and common direction.
9. MBO helps each employee to understand his role and his responsibility
10. MBO helps in locating weak and problem areas because of improved
communication and organizational structures.
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Limitations or weakness of MBO:
1. It is very difficult to set verifiable goals.
2. MBO involves too much paper work and holding of many meetings. It is
very difficult for managers to allot time for MBO work.
3. MBO is time consuming processes
4. An environment of poor employer – employee relations reduces MBO
effectiveness.
5. Sometime goals are inflexible to adopt changes in the external
environment. Example: changes in Govn. Policies, market condition.
6. If the participation of subordinates is discouraged, the MBO processes
become weak.
7. Failure to teach the philosophy of MBO weakness the MBO program.
8. When the company activities change rapidly, it is very difficult to
measure the performance and implement the MBO processes.
Features of MBO:
I. MBO is comprehensive planning and control technique.
II. MBO provides co-ordinate efforts in specific direction by all levels of
management hierarchy.
III. MBO is the one of the techniques to stimulate the meaningful action from
the employee which leads for better performance.
IV. Employees of all levels are contributing with their best, the overall
production of the organization increases.
V. MBO reduces the conflicts between the management and employees.
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Types of planning:
Strategic planning (up
to ten years)
Top management
Tactical planning
(1 to 2 years)
Middle management
Functional manager
Operational planning
(1 weak to 1 year)
Lower management
Unit manager
Engineer & supervisor
Strategies
Strategy is defined as the determination of long-term objectives an
organization, making the best choices for the future and allocating the
resources necessary to accomplish the objectives.
It is made by Top management.
Type of strategies
A correct strategy makes organization successful in achieving goals
and beats competition. Usually a mixed strategy which acts on
many fronts is the right strategy. If a strategy acts on a single front
it is a pure strategy.
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The strategy can be pure or mixed; it can be classified into four
major types.
1. Overall Company Strategy.
2. Growth Strategy.
3. Product Strategy.
4. Market Strategy.
1. Overall Company Strategy
Overall company strategy is designed for long term business
perspective and deals with overall strength of the company. If the
strategy is correct it is the most productive strategy. Examples of
this strategy is - a two wheeler manufacturing company will have
strategy of mass production and aggressive marketing.
2. Growth strategy
Growth means increase in turnover, expansion or diversion of
business. Growth strategy means selecting product having fast
growth, acquisition of business of other firms and opening new
markets. Growth strategy has direct positive impact on the
profitability.
3. Product Strategy
Product strategy means choice of product which can result in family
of product. For new markets product strategy must be innovated.
Examples of product strategy are – a home appliances company
may produce – TV., refrigerator, mixer, cooker, oven etc.
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Market Strategy
Market Strategy deals with product distribution, services, pricing
policy, advertising, packing etc. Examples are – Loan facility to
promote sales, same product in different sizes, offering free after
sales service.
The choice of Strategy affects the working and success of
organization. The corporate management formulates the Strategies
and implements them.
Planning premises
According to Koontz and O’Donnell, planning premises are defined the
anticipated environment in which plans are expected to operate. Premises are the
assumptions on which plans are formulated.
Types of planning premises
Planning premises
External premises
1. Industry&firm demand
2. Business location
3. Labour market 4. Capital
availability
General business premises
1. Political stability 2. Economic stability 3. Governments policy 4. Technological
environment
Specific business
premises
Internal premises
1. Sales forecast 2. Capital investment 3. Basic policies 4. Supply factors
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Specific business premises
External specific premises
The premises of external nature are:
Industry and firm demand premises
Business location premises
Labour market premises
Capital market premises
1. Industry and firm demand premises:
To make any plan for starting a new business, it is essential to forecast
demand for both industry and enterprise. Demand forecasting can be done
by analyzing the data such as time series, economic indicators, and
statistics regarding prices and costs published by government or the
economic studies made by professional institutions.
2. Business location premises:
The choice of a place for physical location of an industry is affected by a
numbers of factors. The important premises are as follows:
I. Transportation
II. Power
III. Means of communication
IV. Raw material and other stores
V. Labour supply
VI. Capital availability
VII. Others
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Forecasting:
Forecasting is a vital function that spread throughout every planning effort. Most
managerial decisions at all levels of an organization are based directly or indirectly
on some form of forecasting.
Need for forecasting
There are many good reasons for the need of forecasting. i.e.
I. The demand for an organization’s product/services is variable and
uncertain.
II. The response time of organizations (time needed by organizations to
respond to changes in the demand for their product/services) is finite.
III. Co-ordination of parallel and associated activities resulting from changed
conditions of an organization requires adequate lead time.
IV. Orderly changes in organization are possible only when advance estimates
allow time phasing of activities.
V. The establishment of financial and budgetary control requires an estimate
of the future activity levels.
Objectives of forecasting
The main objectives of forecasting are to make use of the best available
present information to guide future activities towards the achievement of
system objectives, keeping in view the total costs incurred.
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For estimating uncertain demands for end products/services of an
organization
To facilitate the budgetary planning and control of activities through
estimating of future activity levels.
Types of forecasting
Considering wide dimension of forecasting, forecasting can be classified on
the basis of various key issues. Few of them are listed below.
a) Based on purpose
b) Based on time horizon
c) Based on value
d) Based on areas
Classification based on time and values are important and are discussed here.
a) Based on purpose
Based on purpose behind forecasting it can be classified as demand
forecasting, environmental forecasting, technology forecasting.
b) Based on time horizon
Based on the period of forecasting it can be classified as long-range
forecasting, medium-range forecasting and short- range forecasting.
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Comparison of planning and forecasting
planning forecasting
1 Planning is more comprehensive, it involves
many sub processes and elements in order to
arrive at decision.
Forecasting is the
estimate of future event
and provides parameters
to the planning
2 Planning requires several decisions making. Forecasting does not
involve decision making
3 For planning top management level is involved. Forecasting is usually
carried by middle or
lower level management.
4 Commitment of action is the basic motive of
planning
Forecasting does not
require any commitment
but helps planning for
future actions.
Decision making: Decision is a choice whereby a decision maker comes
to a conclusion about a decision. It represents a course of behavior, action about
what must or must not be done.
Defining decision making:
Decision making is the process through which managers identify organizational
problems and attempt to resolve them.
Decision making is the process of selecting and implementing alternatives
consistent with a goal
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Steps in Decision Making
Types of Decisions
1. Programmed Decision
2. Non-programmed Decision
Modern Approach to Problem Solution/Decision
Making
I. Brain StormingBrainstorming is a group creativity technique designed to generate a
large number of ideas for the solution to a problem. The method was first popularized in the
late 1930s by Alex Faickney Osborn in a book called Applied Imagination. Osborn proposed that
groups could double their creative output by using the method of brainstorming.
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1) Set the problem
One of the most important things to do before a session is to define the problem. The problem
must be clear, not too big, and captured in a definite question such as "What service for mobile
phones is not available now, but needed?". If the problem is too big, the chairman should divide
it into smaller components, each with its own question. Some problems are multi-dimensional
and non-quantified, for example "What are the aspects involved in being a successful
entrepreneur?". Finding solutions for this kind of problem can be done with morphological
analysis (problem-solving).
2) Create a background memo
The background memo is the invitation and informational letter for the participants, containing
the session name, problem, time, date, and place. The problem is described in the form of a
question, and some example ideas are given. The ideas are solutions to the problem, and used
when the session slows down or goes off-track. The memo is sent to the participants at least two
days in advance, so that they can think about the problem beforehand.
3) Select participants
The chairman composes the brainstorming panel, consisting of the participants and an idea
collector. Ten or fewer group members are generally more productive than larger groups. Many
variations are possible but the following composition is suggested.
Several core members of the project who have proved themselves.
Several guests from outside the project, with affinity to the problem.
One idea collector who records the suggested ideas.
4) Create a list of lead questions
During the brainstorm session the creativity may decrease. At this moment, the chairman should
stimulate creativity by suggesting a lead question to answer, such as Can we combine these
ideas? or How about a look from another perspective?. It is advised to prepare a list of such
leads before the session begins.
5) Session conduct
The chairperson leads the brainstorming session and ensures that the basic rules are followed.
The activities of a typical session are:
1. A warm-up session, to expose novice participants to the criticism-free environment. A
simple problem is brainstormed, for example What should be the next corporate
Christmas present? or What can be improved in Microsoft Windows?.
2. The chairman presents the problem and gives a further explanation if needed.
3. The chairman asks the brainstorming panel for their ideas.
4. If no ideas are coming out, the chairman suggests a lead to encourage creativity.
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5. Every participant presents his or her idea, and the idea collector records them.
6. If more than one participant has ideas, the chairman lets the most associated idea be
presented first. This selection can be done by looking at the body language of the
participants, or just by asking for the most associated idea.
7. The participants try to elaborate on the idea, to improve the quality.
8. When time is up, the chairman organizes the ideas based on the topic goal and
encourages discussion. Additional ideas may be generated.
9. Ideas are categorized.
10. The whole list is reviewed to ensure that everyone understands the ideas. Duplicate ideas
and obviously infeasible solutions are removed.
11. The chairman thanks all participants and gives each a token of appreciation.
II. Nominal group technique
The nominal group technique is a type of brainstorming that encourages all participants to have
an equal say in the process. It is also used to generate a ranked list of ideas.
Participants are asked to write down their ideas anonymously. Then the moderator collects the
ideas and each is voted on by the group. The vote can be as simple as a show of hands in favor of
a given idea. This process is called distillation.
After distillation, the top ranked ideas may be sent back to the group or to subgroups for further
brainstorming. For example, one group may work on the color required in a product. Another
group may work on the size, and so forth. Each group will come back to the whole group for
ranking the listed ideas. Sometimes ideas that were previously dropped may be brought forward
again once the group has re-evaluated the ideas.
It is important for the moderator to have received training in this process before attempting to
take on the moderating task. The group should be primed and encouraged to embrace the
process. Like all team efforts, it may take a few practice sessions to train the team in the method
before tackling the important ideas.
III. Delphi technique
The name "Delphi" derives from the Oracle of Delphi. The authors of the method were not happy
with this name, because it implies "something oracular, something smacking a little of the
occult". The Delphi method is based on the assumption that group judgments are more valid than
individual judgments.
The following key characteristics of the Delphi method help the participants to focus on the
issues at hand and separate Delphi from other methodologies:
1) Structuring of information flow
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The initial contributions from the experts are collected in the form of answers to questionnaires
and their comments to these answers. The panel director controls the interactions among the
participants by processing the information and filtering out irrelevant content. This avoids the
negative effects of face-to-face panel discussions and solves the usual problems of group
dynamics.
2) Regular feedback
Participants comment on their own forecasts, the responses of others and on the progress of the
panel as a whole. At any moment they can revise their earlier statements. While in regular group
meetings participants tend to stick to previously stated opinions and often conform too much to
group leader, the Delphi method prevents it.
3) Anonymity of the participants
Usually all participants maintain anonymity. Their identity is not revealed even after the
completion of the final report. This stops them from dominating others in the process using their
authority or personality, frees them to some extent from their personal biases, minimizes the
"bandwagon effect" or "halo effect", allows them to freely express their opinions, and
encourages open critique and admitting errors by revising earlier judgments.
Factors affecting the Rational Decision Making
1) Inadequate Information 2) Time and cost 3) Perception of Decision Maker 4) Experience of Decision Maker 5) Decision maker’s personality 6) Values of Decision maker 7) Capacity of Decision maker
Strategic planning process(tools)
1. Develop mission and Objective
2. Diagnose internal and external environment
Internal- R&D, Finance, Purchase, Production and Marketing
External – World economics, Political, legal and Geographic factor
3. SWOT analysis. ( Strength Weakness Opportunities and Threats)
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a) WT strategy (mini- mini)
b) WO strategy (mini-maxi)
c) ST strategy (maxi-mini)
d) SO strategy (maxi-maxi)
4. Develop alternative strategies
5. Formulae Strategies
a) Formulating Corporate Level Strategy
b) Formulating business Level Strategy
c) Formulating function level strategy
6. Implementing Strategy
a)Formulating corporate level strategy
BCG Matrix (Boston Consulting Group)
b)Formulating Business level strategy
1. Threat of new entrants
2. Threat of substitute products
3. Bargaining power of buyers
4. Bargaining power of suppliers
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5. Rivalry among current competitors
C) Formulating Function level strategy
1. Research and Development
2. Finance
3. Purchase
4. Production
5. Quality control
6. Marketing or sales
POLICIES
Policy is a statement and predetermined guideline that provides
direction for decision making and taking action.
Characteristics of a Good policy
1. Policies should be clearly expressed and they should be
understandable by all.
2. Policy should help Managers in achieving organizational
objectives. It should be related to objectives.
3. Policy should be stable but it should be sufficiently flexible.
4. Policy should be sound and logical and it should provide guide to
solve numerous problems and making many day-to-day decisions.
5. It should be comprehensive in scope and it should be capable of
being applied to different situations in a given area, so that most
cases can be handled at lower levels of management.
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6. Policies should be precise and it should provide limits within
which managers are allowed to commit the organization to
specific decisions.
7. The number of policies should be fairly high and it should be
consistent with the overall objectives and mission of the
organization.
8. Policies should be based on the facts and sound judgment and it
should not reflect the emotional feelings of top managers.
9. Policies in the written form is preferable than unwritten policy.
Since, oral policy is not clear and not precise. Language off the
written policy must be understandable by all.
10.Policy should reflect all the factors affecting internal and external
environment.
11. Policy should be reviewed periodically and policies can be
reformulated using reviews.
Types of Policies
1. On the basis of Levels
a) Basic policy
b) General Policy
c) Division policy
2. On the basis of functions
a) Production policy
b) Marketing policy
c) Personnel policy
d) Accounting policy
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3. On the basis of sources
a) Original policy
b) Appealed policy
c) External policy
