MANAGEMENT
&
ENTREPRENEURSHIP
VI Semester
Management & Entrepreneurship Unit 2 TJIT, B'lore 1
UNIT – 2
PLANNING
Management & Entrepreneurship Unit 2 TJIT, B'lore 2
Nature of Planning
• Most basic function of management
• It is the beginning of management
• No planning Chaos
• Intellectual process
• Thinking in advance
• What,when,how,who Decision making
• Decision Making : Choosing among
alternatinves
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Nature of Planning
• Planning is a continuous process
• Principle of Navigational Change
– Navigator Analogy
– Watch progress of plans
– Constantly monitor the conditions with and
outside the org
– Wiser to be right than consistent
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Nature of Planning
• Plans must be flexible
– Ability to change direction to adapt to
changing situations without undue cost
– Plans must provide for as many contingencies
as possible
– Areas of Flexibility
• Technology-Chane & vary product mix according to
customer needs
• Market – Ability to quickly market in unserved
areas
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Nature of Planning
• Finance- Ability to obtain additional funds on
favourable terms
• Personnel-Ability to shift individuals from one job to
another
• Organisation – Ability to change organisational
structure
– Flexibility is possible only within limits
• Cost
• Resistance to change
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Nature of Planning
• Planning is all-pervasive
– i.e. important to all managers
– Top managers
• long term planning
• More time planning
– Lower level managers
• Day to day planning
• Less time planning
• More time executing
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Importance of Planning
• Minimizes Risk and Uncertainity
– Provides a rational fact based procedure for
making decision
– Helps to cope with changing environment
– Futurity of present decisions
• Machinery example
– Feeling of control because problems have
been anticipated while planning
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Importance of Planning
• Leads to Success
– Companies that plan outperform companies
that don’t
– Planning is proactive not reactive
• Focuses Attention on Organisations Goals
– Easier to coordinate results
– Focus towards identical goals
– Chalk out a sequence of steps to achieve
goals
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Importance of Planning
• Facilitates Control
– Control Conformance to plans
– Plan is the benchmark against which
performance is measured
• Trains Executives
– A means for training executives
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Objectives
• Goals or aims which the management
wishes to achieve
• The end point for all business activities
• Only after objectives are defined a
manager can determine the resources
required
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Objectives
• Vision
– Dream of the entrepreneur
– The root of all objectives
• Purpose
– Primary role defined by society
– A broad aim that applies to all organisations of
that category
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Objectives
• Mission
– Unique aim that sets the organisation apart
from other organisations
– An organisation’s specialisation
– Decides the scope of the business
• Objectives
– Specific targets to be reached by an
organisation
– Translation of an organisations mission into
concrete
Management terms Unit 2
& Entrepreneurship TJIT, B'lore 1
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Objectives
• Whose Objectives are organisational
objectives?
– Organisations are a coalition of stake holders
– Objectives take all stakes into account then
specify a common viewpoint
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Characteristics of Objectives
• Objectives are multiple in numbers
• Objectives are either tangible or intangible
• Objectives have priority
• Objectives are arranged hierarchically
• Objectives clash with each other
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Requirements of Sound
Objectives
• Objectives must be clear and acceptable
• Objectives must support one another
• Objectives must be precise and
measurable
• Objectives should always be valid
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Advantages of Objectives
• Provide a basis for planning
• Act a motivators – provide a sense of
purpose
• Eliminate haphazard action
• Basis for managerial control
• Facilitate better management
• Lessen misunderstanding and confilct
• Provide legitimacy for organisations
activities
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Purpose of Planning
• To select from various alternatives to
achieve objectives
• To direct functions of management
• To set up the goals of an enterprise
• To form basis for budgeting
• To forecast the future
• To provide effective control
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Types Of Plans
• Forms of Planning
Strategic Planning Tactical Planning
Long term Short Tem
Top management Lower Management
Major goals of organisation Use of facilities and
resources
Less detailed – Focuses Detailed – Day to day
only on long term goals operations
Long term goals – so more Based on past
uncertain performance – so less
uncertain
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Types of Plans
• Standing Plans:
– Policies
– Procedures
– Rules
– Methods
• Single Use Plans
– Programmes
– Budgets
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Policy
• Terry – “A verbal written or implied overall
guide, setting up boundaries that supply
the general limits and direction in which
managerial action will take place.
• General guideline for decision making
• Policy provides a framework within which
decisions must be made by management
• Policies channelise decisions
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Policy
• Classification of Policies
Based On Basis of Basis of
Source Functions organisation
Original Policies Personnel policy Top level policy
Appealed Policies Promotion Policy Departmental
Policy
Implied Policies Pricing Policy Shop level policy
Externally Implied Distribution Policy
Policies
Investment Policy
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Procedures
• Detailed guideline for carrying out policies
are called procedures
• It provides a detailed set of instructions
for performing a sequence of actions
involved in doing a piece of work
• The same steps / procedure is followed
each time the activity is performed
• Raw material procurement example ,
personnel recruitment policy example
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Policy vs. Procedure
Policy Procedure
General guides for both thinking and General guideline to action for people
action for people at higher levels at lower levels
Help to fulfill the objectives of Procedures show the way to
enterprise implement policies
Allow some latitude in decision making Procedures are specific and allow no
latitude
Established without study or analysis Established through study or analysis
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Methods
• A prescribed way in which one step of a
procedure is to be performed
• E.g. procedure : steps in recruiting
method: screening applications, written test
• Methods increase the effectiveness and
usefulness of procedures
• Advantage
– Reduce fatigue, better productivity, lower cost
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Rules
• Detailed and recorded instructions that a
particular action must or must not be
performed in a given situation
• E.g. sanctioning overtime, regulating
travelling allowances, in sanctioning bills
• To avoid repeated reference to higher
levels for authorisation for routine matters
• Rules make sure that a job is done the
same manner every time
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Programmes
• Precise plans or definite steps in proper
sequence which need to be taken to
discharge a given task
• Programmes are drawn in conformity with
objectives and are made up of policies,
procedures,budgets, etc.
• Essential ingredients of every programme
» Time phasing
» Budgeting
• Example of opening five branches
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Programmes
• A single step in the programme is set up
as a project
• Schedule specifies the time when each of
a series of action should take place
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Budgets
• “A financial and/or quantittative statement
prepared prior to a definite period of time,
of the policy to be pursued during that
period for the purpose of obtaining a given
objective”
• Plans for future period of time containing
expected results in numerical terms.
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Budgets
• Budgets
– Sales budget
– Production budget
– Cash budget
– Revenue budget
– Expense budget
• Since they are numerical budgets facilitate
comparison of actual results with planned
ones
• Eliminating unnecessary expenditure
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Planning Premises
• Internal & External Premises
– Internal premises
• Within the company
» Sales forecast
» Policies
» Capital Investment in plant & equipment
» Skill of labour force
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Planning Premises
– External premises
• Outside the company
• Three main categories
– Business environments
– Factors which influence demand for products
– Factors which affect the resources available to the
enterprise
• External Premises Include
– General business & economic environment
– Technological changes
– Population growth
– Political stability
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Planning Premises
• Tangible & Intangible premises
– Tangible premises
– Can be measured quantitatively
– e.g Population growth, Industry demand, capital
– Intangible premises
– They are qualitative in nature
– Cannot be measured
– E.g political stability, sociological factors, business &
economic environment
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Planning Premises
• Controllable & Non-Controllable premises
• Non-controllable premises
» There are uncontrollable factors due to which some
premises need to be revised periodically. These are
called non-controllable premises
» Uncontrollable factors e.g. strikes wars natural
calamities
• Controllable premises
» Controllable factors cannot upset well though out
calculations of the organisation regarding the plan
» E.g. company’s advertising policies,capital
resources,
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Steps in Planning
• Establishing Verifiable Goals or Set Goals
to be Achieved:
• Determine the objectives of the enterprise
• Set by upper level or top managers
• Type of goal depends on
» Mission of the organisation
» Values of its managers
» Potential abilities of the organisation
• E.g. Walchand Hirachand , Jamshedji Tata
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Steps in Planning
• Establishing Planning Premises
– Planning premises = Assumptions about the
future
– Why premises? They are important because
they reveal facts about the future like
population growth, economic conditions
government policies etc
– Since managers at different levels differ about
these premises the chief executive should
arrive at the premises acceptable to all.
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Steps in Planning
• Deciding the plannning period
– Decide the period of the plan
– They can range from a year to decades
– Planning period is based upon a period in
future that can be reasonable anticipated
– Factors influencing choice of a period
• Lead time in development and commercialisation
• Time required to recover capital investment
• Length of commitments made
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Steps in Planning
• Finding alternatives courses of action
• To search and examine alternative course of action
• Reasonable alternatives exist for all plans
• An alternative that is not quite obvious is usually
the best
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Steps in Planning
• Evaluating and selecting a course of
action
– Evaluate the alternatives in light of premises
and goals
– Select the best course of action
– Done with quantitative techniques and
operations research
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Steps in Planning
• Developing derivative plans
– Plans drawn up by middle level and lower
level managers for day-to-day operations
– Lower level managers also create derivative
plans the same way
– Select realistic goals
– Assess their sub-units’ strengths
– Analyse part of the environment that can affect them
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Steps in Planning
• Measuring and controlling the progress
– Progress should be measured to
» Take remedial action to make the plan work
» Change original plan if it is unrealistic
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Hierarchy of Plans
• Plans are arranged in a hierachy
• Objectives stand at the top of the
hierarchy
• Diagram
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Limitations of Planning
• Planning is expensive and time-consuming
process
• Planning restricts the organisation to the most
rational and risk-free opportunities.
• The scope of planning is said to be limited in the
case of organisations with rapidly changing
situations
• Establishment of advance plans can make
administration inflexible
• Difficulty of formulating accurate premises limits
efficacy of planning
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Decision
• Decision making can refer to a specific act
and/or a general process. It is the act of
choosing one alternative from a set of
alternatives.
• It can be explained at a process which
includes recognizing and defining nature
of a decision situation , identifying
alternatives, choosing the best alternative
and putting it into practice
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Decision
• Decision : When decisions are made the
manager is choosing
• Deciding what to do on the basis of some
conscious judgement or delibrate logic
• Managers have alternatives when they are
making a decision, It requires wisdom and
experience to evaluate these alternatives
and select the best
• Managers have a purpose/goal. Decision
is made to come closer to goal
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Types of Decisions
Programmed & Non-Programmed
• Programmed decisions;
• Made in accordance with some policy, rule or
procedure
• Repetitive, routine and easy for managers to make
• E.g pricing customer orders, determining salary
payments for employees who have been sick
• All managers will make same decision in the same
situation
• Gresham’s law of decision making: The general
tendency for programmed decisions to
overshadow non programmed decisions.
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Types of Decisions
• Non-programmed decisions
• These are novel and non-repetitive
• They are made under unstructured conditions
• These are meant for problems that
» Have not arisen before
» That have no cut-and-dry solution
» Deserve custom-tailored treatment
• Made by people higher up in the hierarchy
• Will be influenced by personal values and attitudes
of the person making the decision.
• Ability to make good non-programmed decisions
makes effective managers
• E.g. resource allocation,f ailing product line
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Types of Decisions
Major & Minor Decisions
• Minor decisions: These are routine in
nature and are taken by line managers at
departmental level
– Futurity of a decision: Have no long range
impact. Eg Decision to store raw material
– Impact of decision on other functional
areas: If a decision impacts only one function
it is a minor decision. E.g. ledger change
– Qualitative factors that Enter the decision:
-Recurrence of decisions: Decisions which
recur often are minor decisions
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Types of Decisions
• Major Decisions : have long range impact
and are taken by high level management
– Futurity of a decision: Have long-range impact.
Eg replacement of men by machinery,
diversification etc
– Impact of decision on other functional areas:
If a decision impacts all other functional areas it is
a major decision. E.g. change overhead
allocation
– Qualitative factors that Enter the decision:
-Recurrence of decisions: Decisions which don’t
recur often are minor decisions
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Types of Decisions
Routine & Strategic Decisions
• Routine Decisions
• Routine decisions are supportive of the companies
operations
• Relate to the present
• Purpose is to achieve a high degree of efficiency
• Focus on well structured situations
• Occur frequently
• Entail minimum uncertainty
• E.g. Payroll processing
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Types of Decisions
• Strategic decisions
• Deal with unstructured situations
• Involve
– High uncertainty
– Incomplete knowledge
– Use of subjective judgment
• Require lengthy deliberation and large amount of
fund
• Taken by managers at higher levels
• E.g. changing product line, lowering the price of a
product
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Types of Decisions
Individual & Group Decisions
• Individual decisions
– Routine problems
– Definite procedures to deal with the problems
exist
– Not much analysis is required
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Types of Decisions
Individual & Group Decisions
• Group decisions
• Strategic decisions for complex problems &
Interdepartmental decisions are taken by groups
• Group decision methods:
» Dialectic method
» Devil’s advocacy
» Group discussions
» Exchange of notes
» Brain storming
» Delphi Method
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Types of Decisions
Individual & Group Decisions
• Advantages of Group decisions
» More information and knowledge is available
» More alternative solutions are likely to be generated
» Better acceptance of final decisions
» Enhance communication
» Easier to implement
» Easier co-ordination
• Disadvantages of group decisions
– Takes longer time and maybe costlier
– One person may dominate the group
– Groups can compromise
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Types of Decisions
Individual & Group Decisions
• Approaches to Group Decision Making
– Nominal group technique
Write ideas individually present ideas one by
one without discussionIdeas are recorded
Recorded ideas are discussedeach member
gives independent rating
– Delphi technique
Questionnaire is mailedresponses
summarised into feedback second
questionaire-final summary
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Types of Decisions
• Simple and Complex Decisions
• When variables to be considered for
solving a problem are few the decision in
simple.
• When there are many variables to be
considered for solving a problem the
decision is complex.
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Steps in Rational Decision
Making
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Models of Decision Making
• Three models of decision making
• Economic Man Model/Econologic Model
• Administrative Man Model/Bounded rationality
model
• Administrative Man Model/Bounded Rationality
Model
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Economic Man Model/Econologic Model
• Believes man is completely rational and selects
the alternative that gives greatest advantage
• Six steps are followed by economic man
• Shortcomings of this model
• Man will not gather all information
• Cannot store this info
• Cannot recall this info
• Cannot do complex calculations
• Cannot rank all consequences
• Management decision can be made rational only
by computers
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Administrative Man Model/Bounded
rationality model
• Herbert Simon
• Uses only limited rationality
• Administrative man does not have the ability to
maximize but attempts to satisfice. Looks for
alternative that is good enough
• Because he looks to satisfice his search for
alternatives is sequential or incremental
• Administrative man’s search for alternatives is
guided by his experience. He uses heuristics to
narrow down the area of his search
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Administrative Man Model/Bounded
rationality model
• Eight steps
– Set the goal to be pursued or define the
problem to be solved
– Establish appropriate criteria to judge the
acceptability of a solution
– Use heuristics to narrow down field of search
and identify feasilble solution
– If no feasible solution is identified then lower
the criteria to judge acceptability and search
afresh
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Administrative Man Model/Bounded
rationality model
– If feasible solution is identified ,evaluate it to
determine its acceptability
– If solution is found acceptable implement it
– If solution is unacceptable initiate new search
– Following implementation ,evaluate the
degree of difficulty with which the goal was or
was not attained
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Social Man Model
• Freud
• Man is guided by unconscious desires
• Subject to social pressures
• Cannot make rational decisions
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Difficulties in decision making
• Incomplete Information
• Causes uncertainity
• Too many complex variables for one person to
examine fully
• Unsupporting Environment
• Physical and organisational environment will affect
the nature of decision as well as their
implementation
• If there is goodwill and trust the manager is
encouraged to make decisions
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Difficulties in decision making
• Non acceptance by Subordinates
• If subordinates have stake in decision then
acceptance will be necessary
• To encourage subordinates practise democratic
leadership style that encourages them to
suggest,crticise,make recommendations or decide
upon policies
• Ineffective Communication
• Incorrect Timing
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Environment of Decision Making
• Certainity
– Decision maker can specify the
consequences of a particular decision or acr
– Though future is uncertain many managerial
decisions can be made in conditions
approaching certainity
– Shipment example
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Environment of Decision making
• Risk
– If there is risk involved the consequences of a
particular decision can be specified with known
probability values
– The value of probability of an event is a measure
of likelihood of occurrence of an event
– Evaluation is done by calculating the expected
value of payoff associated with each alternative
– Numerical Problem
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Environment of Decision making
• Decision Tree
– Linking a number of “event branches” which
when fully arrayed resemble a tree.
– Example
• Uncertainity
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