HNCC- BBA I Sem I

Class: BBA I Sem I

Subject: Principles of Management- I

Chapter 2 : Planning
Introduction:
Planning is a primary function of management. A manager must plan the
actions before moving to further functions. This is the basic function of
management. Planning decides the further way to proceed for management.
Planning involves determination of future course of action in advance to
achieve the best results. Planning is an intellectual and continuous process.
Definitions:
1) Planning can be defined as, “It is determination of course of action in
advance to achieve better performance.”
2) “Planning is deciding in advance what to do, how to do, when to do and who
is to do. Planning bridges the gap between where we are and where we want
to go.” –Koontz and O‟ Donnell
Planning and Plan differ from each other. Planning is a process of
formulating plans. Plan is the result of planning process. Plans are prepared during
planning process. Plans should be clear, understandable and achievable for
everyone in organsation. Therefore it is said,- “We never Plan to fail but we fail to
Plan”
Plan can be defined as, “It is a commitment of resources to a particular
course of action necessary to achieve specific results.”
Importance/Significance of Planning

1. Planning provides Direction:

Planning is concerned with predetermined course of action. It provides the

directions to the efforts of employees. Planning makes clear what employees have
to do, how to do, etc. By stating in advance how work has to be done, planning
provides direction for action. Employees know in advance in which direction they
have to work. This leads to Unity of Direction also. If there were no planning,

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employees would be working in different directions and organisation would not be

able to achieve its desired goal.

2. Planning Reduces the risk of uncertainties:

Organisations have to face many uncertainties and unexpected situations every

day. Planning helps the manager to face the uncertainty because planners try to
foresee the future by making some assumptions regarding future keeping in mind
their past experiences and scanning of business environments. The plans are made
to overcome such uncertainties. The plans also include unexpected risks such as
fire or some other calamities in the organisation. The resources are kept aside in
the plan to meet such uncertainties.

3. Planning reduces over lapping and wasteful activities:

The organisational plans are made keeping in mind the requirements of all the
departments. The departmental plans are derived from main organisational plan.
As a result there will be co-ordination in different departments. On the other hand,
if the managers, non-managers and all the employees are following course of
action according to plan then there will be integration in the activities. Plans ensure
clarity of thoughts and action and work can be carried out smoothly.

4. Planning Promotes innovative ideas:

Planning requires high thinking and it is an intellectual process. So, there is a great
scope of finding better ideas, better methods and procedures to perform a particular
job. Planning process forces managers to think differently and assume the future
conditions. So, it makes the managers innovative and creative.

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5. Planning Facilitates Decision Making:

Planning helps the managers to take various decisions. As in planning goals are set
in advance and predictions are made for future. These predictions and goals help
the manager to take fast decisions.

6. Planning establishes standard for controlling:

Controlling means comparison between planned and actual output and if there is
variation between both then find out the reasons for such deviations and taking
measures to match the actual output with the planned. But in case there is no
planned output then controlling manager will have no base to compare whether the
actual output is adequate or not.

For example, if the planned output for a week is 100 units and actual output
produced by employee is 80 units then the controlling manager must take measures
to bring the 80 unit production upto 100 units; but if the planned output, i.e., 100
units is not given by the planners then finding out whether 80 unit production is
sufficient or not will be difficult to know. So, the base for comparison in
controlling is given by planning function only.

7. Focuses attention on objectives of the company:

Planning function begins with the setting up of the objectives, policies, procedures,
methods and rules, etc. which are made in planning to achieve these objectives
only. When employees follow the plan they are leading towards the achievement of
objectives. Through planning, efforts of all the employees are directed towards the
achievement of organisational goals and objectives.

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Types of Plans:
As defined earlier, Plan is a commitment of resources to a particular course
of action necessary to achieve specific results. From management point of view,
there can be several types of Plans both Major and Minor.
Plan may be building a new factory or even purchasing machinery. Plan is
the part of planning process. Such plans may be classified as:
1) Standing or Single-use plans
2) Strategic and Operational (Action ) Plans

It can be viewed in following way:

Organisational
Plans

Standing / Operational /
Strategic/ Single use /
Long term Plans Short Term Plans

1) Strategic / Standing / Long Term:

These plans are major ones which define the long term course of action for
an organization. These include determination of organizational objectives for long
term period, major policies and strategies.
They provide guidelines for further course of action and are used over a
period of time. Once formulated, these plans are in operation for longer period
unless there is a change in these plans. Examples of such plans are organizational
mission and long term Objectives, Strategies, Policies, Procedures and Rules.
2) Operational / Single-Use/ Short Term:
These plans are relevant for a specified or limited period of time, after that
these plans are formulated again for the next period. Examples of such plans are
Projects, Budgets, Quotas, Targets, etc. Generally these plans are derived from
Standing Plans.

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These are implemented through operational levels, which include Projects,

Budgets, Quotas, Targets- which are to be achieved in shorter period of time.
The above discussed types of plans are interlinked with each other and may
be arranged in a hierarchy in which a higher order plans divided into lower order
plans. In reverse action, lower order plans contributes to the achievement of a
higher order plans.

Types of Plans

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1) Mission: A mission of an organisation is an indicator of a long term vision

of what it seeks to do and the purpose of business.
2) Objectives: Objectives are the goals which an organisation tries to achieve.
3) Strategies: Strategies are the long term objectives, framed by top level
management
4) Policies: A policy is a guideline for decision making.
5) Procedures: Policies are carried out by means of more detailed guidelines
called as procedures.
6) Rules: A rule is a very specific and detailed guide to do action. Rule acts as
a binding for people in organization.
7) Programmes: A programme is a combination of goals, policies,
procedures, rules, methods, etc. so as to complete the mission.
8) Project: A project is a small programme.
9) Budgets: A budget is a statement prepared prior to a definite period.
10) Quotas: A quota is a target allotted to complete in definite period.

Steps in Planning Process:

Planning is necessary for every organisation, as it is the first step in
management. It is a process of charting out the ways to attain those targets.
Planning process includes certain steps which are as follows:

Steps in Planning Process

Identification of Establishment of Building

Problem/Goal/ Planning
Opportunity Objectives Premises

Selection of Best Evaluating Developing

various
Alternative/s Alternatives Alternatives

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1) Identification of Problem / Goal/ Opportunity:

At the first, manager should clearly identify the problem to be solved or goal
to be achieved or any opportunity to be taken. In this step, the manager has to
study the problem or goal from all the angels and have to study its all positive and
negative effects. This is very important step because it is said, “Problem which is
will defined is half solved.” Manger should know clearly, what have to be achieved
or what have to be solved.
2) Establishment of Objectives:
After identification, the next job is to define specific objectives for the whole
organisation or for the department. Clarity of Objectives assures success of
Planning. If there are multiple objectives then these should be given priority.
Objectives indicate the starting point of planning. E.g.: increasing sales, achieving
maximum profit, launching new product.
3) Building Planning Premises (Study of Conditions/ Situations):
After determination of objectives, the next step is establishing Planning
Premises. It means certain assumptions to be considered. It also means the
conditions under which planning activities will be undertaken- these are
Environmental and internal conditions. So the premises are external and internal
conditions. External premises include factors like political, social, economic etc.
while internal premises include internal organizational policies.
4) Developing various alternatives:
Based on objectives and premises, various alternatives can be developed.
E.g.: If the objective is of business growth, then it can be achieved by different
alternatives like- expanding business, increasing production, taking over another
organisation, merging with other company. Therefore these are the different
alternatives.
5) Evaluation of alternatives:
Various alternatives which are developed are evaluated by cross checking
them against the planning premises and goals. The manager has to evaluate the
alternatives from various angles. E.g.: From the above example, the various
alternatives can have different positive and negative points, like any of alternative
may result in more profit but may require more investment, some other option may
be less profitable but has less risk. This is called as evaluation.
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6) Selection of best alternative:

After evaluation, the last task in the planning process is to select the best
alternative. The fit one alternative is selected. Sometimes, evaluation shows that
more than one alternative is equally good. In such case, more than one alternative
are selected. This is required because, other alternatives are required in future
incase of any changes. These additional alternative plans are called as
“Contingency Plans”.
After this step of planning process, the selected alternative becomes the
PLAN for the organisation.
In this way, planning requires proper setting of goals for smooth functioning.
Planning is flexible and continuous in nature. Proper planning leads to achieving
objectives or solving problems within time and available resources.
Strategic vs Tactical Planning:
Strategy

• A plan that you use in order to achieve something, the action of planning
how to do or achieve something

• Strategy is a general plan to achieve one or more long-term or overall goals

under conditions of uncertainty.

• “Strategic planning is an organization's process of defining its strategy, or

direction, and making decisions on allocating its resources to pursue this
strategy.”

Tactics

• It means „art of arrangement.‟

• To put simply, tactics refers to the skill of dealing or handling difficult

situations, to achieve a specific goal.

• It is defined as a process that integrates all the resources of the firm like
men, material, machinery, and money, to cope up with the changing
situation immediately.

• It can be a caution that prevents the organization from uncertainties.

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• Strategy describes the destination and how you are going to get there, and

• Tactics describe the specific actions you are going to take along the way.

• Strategy defines your long-term goals and how you‟re planning to achieve
them. In other words, your strategy gives you the path you need toward
achieving your organization‟s mission.

• Tactics are much more concrete and are often oriented toward smaller steps
and a shorter time frame along the way. They involve best practices, specific
plans, resources, etc. They‟re also called “initiatives.”

Difference between Strategic & Tactical Planning:

Strategic Planning Tactical Planning

Long term Short term

Doing right things (effectiveness) Doing things rightly (efficiency)

Done by top level Done by Middle and Lower level

Success depends on Judgment, Success depends on staff work

experience, intuition, well guided
discussions of top management teams.
It is more prone to unanticipated It has greater element of certainty.
factors that may erupt to change the
situation
Planning Skills:

Following are the skills required for planning:

1. Ability to think ahead.

2. Ability to define company objectives.
3. Ability to forecast future environmental trends.
4. Ability to frame correct strategies
5. Ability to monitor the implementation of strategies
6. Ability to provide an appropriately timed, intermeshed network of
derivative & supporting programmes.

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Decision Making:

 A decision is a choice made between two or more alternatives.

 Decision making is an essential part of modern management.
 A manager‟s life is filled with a constant series of decisions.
 Decisions are made by managers & actions are taken by others.
 Decision making is integral part of managerial functions- Planning,
Organising, Staffing, Directing, Controlling. Decision-making is the
heart of management.

“Decision-making can be defined as the process of selecting a right and effective

choice from two or more alternatives for the purpose of achieving a desired
result.”

According to P. F. Drucker:
“Whatever a manager does, he does through making decisions.”

The following are the main types of decisions every organization need to take:
1. Programmed and non-programmed decisions:

Programmed decisions are concerned with the problems of repetitive nature or

routine type matters.

A standard procedure is followed for tackling such problems. These decisions are
taken generally by lower level managers. Decisions of this type may pertain to e.g.
purchase of raw material, granting leave to an employee and supply of goods and
implements to the employees, etc.

Non-programmed decisions relate to difficult situations for which there is no easy

solution. These matters are very important for the organisation. For example,
opening of a new branch of the organisation or a large number of employees
absenting from the organisation or introducing new product in the market, etc., are
the decisions which are normally taken at the higher level.

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2. Routine and strategic decisions:

Routine decisions are related to the general functioning of the organisation. They
do not require much evaluation and analysis and can be taken quickly. Ample
powers are delegated to lower ranks to take these decisions within the broad policy
structure of the organisation.

Strategic decisions are important which affect objectives, organisational goals and
other important policy matters. These decisions usually involve huge investments
or funds. These are non-repetitive in nature and are taken after careful analysis and
evaluation of many alternatives. These decisions are taken at the higher level of
management.

3. Tactical (Policy) and operational decisions:

Decisions pertaining to various policy matters of the organisation are policy

decisions. These are taken by the top management and have long term impact on
the functioning of the concern. For example, decisions regarding location of plant,
volume of production and channels of distribution (Tactical) policies, etc. are
policy decisions.

Operating decisions relate to day-to-day functioning or operations of business.

Middle and lower level managers take these decisions.

An example may be taken to distinguish these decisions. Decisions concerning

payment of bonus to employees are a policy decision. On the other hand if bonus is
to be given to the employees, calculation of bonus in respect of each employee is
an operating decision.

4. Organisational and Personal decisions:

When an individual takes decision as an executive in the official capacity, it is

known as organisational decision. If decision is taken by the executive in the
personal capacity (thereby affecting his personal life), it is known as personal
decision.

Sometimes these decisions may affect functioning of the organisation also. For
example, if an executive leaves the organisation, it may affect the organisation.

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The authority of taking organizational decisions may be delegated, whereas

personal decisions cannot be delegated.

5. Major and minor decisions:

Another classification of decisions is major and minor. Decision pertaining to

purchase of new factory premises is a major decision. Major decisions are taken by
top management. Purchase of office stationery is a minor decision which can be
taken by office superintendent.

6. Individual and group decisions:

When the decision is taken by a single individual, it is known as individual

decision. Usually routine type decisions are taken by individuals within the broad
policy framework of the organisation.

Group decisions are taken by group of individuals constituted in the form of a

standing committee. Generally very important and pertinent matters for the
organisation are referred to this committee. The main aim in taking group decisions
is the involvement of maximum number of individuals in the process of decision--
making.

Steps in Decision Making:

Introduction

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.

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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.

Steps of 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: Recognizing/ identifying the problem

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

i. What exactly is the problem?

ii. Why the problem should be solved?
iii. Who are the affected parties of the problem?
iv. 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. This
will help the manager to understand the problem from all sides and find solution.

Step 3: Developing various alternatives/choices/options

For this step, open discussion with all so as 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.

After discussion with all, you can move on generating all possible solutions
(alternatives) for the problem in hand.

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Step 4: Evaluation of alternatives

Use your judgment principles and decision-making criteria to evaluate each

alternative. In this step, experience and effectiveness of the judgment principles
come into play. You need to compare each alternative for their positives and
negatives.

Step 5: Select the best alternative

After analyzing positives and negatives of all alternatives, the selection of the best
alternative is easy. It is an informed decision since you have already followed a
methodology to derive and select the best alternative.

Step 6: Execute/Implement the decision

Convert your decision into a plan or a sequence of activities. Execute/Implement

your plan by yourself or with the help of subordinates.

Step 7: 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.

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Concept of Management by Objectives:

MBO stands for Management by Objectives. MBO is also known as MBR i.e.
Management by Results The term MBO was firstly coined by Peter Drucker in
1954 in his book named „Practice of Management‟

Definition: “MBO is defined as management practice which aims to increase

organisational performance by clearly defining the goals and subordinate
objectives of the organisation that are agreed to both management and
employees.”

In this system of management, individual goals are synchronized with the goals of
the organization.

MBO is a process whereby the superior and subordinate in an organisation jointly

identify its common goals, define each individual major areas of responsibility
(KRA- Key Responsibility Areas) in terms of results expected of him & use these
measures to assess the contribution of each employee after task completion.

MBO refers to the process of setting goals for the employees so that they know
what they are supposed to do at the workplace.

Management by Objectives defines roles and responsibilities for the employees

and help them chalk out their future course of action in the organization.

An important part of MBO is the measurement and comparison of an employee's

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

• Five steps in MBO Process:

1. Review organizational goal
2. Set worker objective
3. Monitor progress

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4. Evaluation
5. Give reward
The process of setting objectives in the organization to give a sense of direction to
the employees is called as Management by Objectives.

Management by objectives guides the employees to deliver their level best and
achieve the targets within the stipulated time frame.

Advantages of Management by Objectives (MBO)

1. The Management by Objectives process helps the employees to understand

their duties at the workplace.
2. KRAs are designed for each employee as per their interest, specialization
and educational qualification.
3. The employees are clear as to what is expected out of them.
4. Management by Objectives process leads to satisfied employees. It avoids
job mismatch and unnecessary confusions later on.
5. Employees in their own way contribute to the achievement of the goals and
objectives of the organization. Every employee has his own role at the
workplace. Each one feels indispensable for the organization and eventually
develops a feeling of loyalty towards the organization. They tend to stick to
the organization for a longer span of time and contribute effectively. They
enjoy at the workplace and do not treat work as a burden.
6. Management by Objectives ensures effective communication amongst the
employees. It leads to a positive ambience at the workplace.
7. Management by Objectives leads to well defined hierarchies at the
workplace. It ensures transparency at all levels. A supervisor of any
organization would never directly interact with the Managing Director in
case of queries. He would first meet his reporting boss who would then pass
on the message to his senior and so on. Every one is clear about his position
in the organization.
8. The MBO Process leads to highly motivated and committed employees.
9. The MBO Process sets a benchmark for every employee. The superiors set
targets for each of the team members. Each employee is given a list of
specific tasks.
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