Unit 2 (P 23) Planning and Decision Making: Decision making

Managerial decision making:

• According to Peter Drucker, "Whatever a manager does, he does through decision-making".
• Decision making is cornerstone of planning which is an act of making choices.
• Decision making can be regarded as the mental processes (cognitive process) resulting in the selection of a course of action among several alternative scenarios. 
• Every decision making process produces a final choice. The output can be an action or an opinion of choice.
• It helps managers respond to opportunities and threats.
• The main purpose is to choose such strategy which directs the resource conversion process in such a way, as to optimize the attainment of the objective.

Nature of decision making:

• Decision making process:
• Identifying and diagnosing the problem:
• Generating alternative solutions:
• Evaluating alternatives:
• Making the choice:
• Implementing the decision:
• Evaluating the decisions:

Types of decision:

• Type by frequency: On the basis of frequency of occurrence, they are:
• Programmed: Is Decision making on the issues related to the day to day running of organization. It is structured and repetitive type, and more common to lower level.
• Non-programmed: Is decision making on the issues which are non-routine and new to the organization.  It is more common to higher level.
• Type by nature: on the basis of different aspect of focus.
• Operating: decision for day to day issues
• Strategic: decision on new issues
• Administrative: decision on issues arising for the balance between operating and strategic decisions.

Styles of Decision making:

• Autocratic decision making style: 
• Style 1: manger makes decision on the basis of the information available about the current environmental situation.
• Style 2: manager makes decision on the basis of the information collected from the subordinates.
• Consultative: 
• Style 3: Managers consults about the problem with the individual subordinate and get information, idea and suggestion.
• Style 4: Manager consults about the problem with the group of subordinates collectively for information, ideas, and suggestion.
• (Note:  Manager Decision in both the style of consultative may or may not reflect subordinates influences)
• Group process:
• Style 5: Manager shares problem with the subordinates in groups. Collects information, ideas and suggestion with the joint effort from all the group members. The alternative with more number of votes and which is more likely to solve the problem is selected.
• (Note: which style to choose depends upon the decision maker, the group and the situation)

Condition of decision making:

• The decision making condition can be viewed in three categories:
• Condition of certainty: when manager has all the information of the environment, and can precisely predict the consequences of actions, it is called condition of certainty.
• Condition of uncertainty: When manager don’t have enough information about the environment, and cannot predict the consequences of actions, it is called condition of uncertainty.
• Condition of risk: When the manager has difficult in predicting the outcomes of the alternatives with certainty, it is called condition of risk.

Group decision making:

• Advantage:
• Builds team feeling.
• More information, ideas, and concrete solutions.
• Better communication, and share responsibility.
• Builds interpersonal and leadership skill.
• Disadvantage:
• Making decision takes time.
• Group think occurs.
• Create conflict.
• Techniques of group decision making:
• Brainstorming:  It’s a method of idea generation to solve problem which are new to the organization. 
• Nominal group technique: it consist of two stages, firstly the individual work separately, and secondly, they work as an interacting group to evaluate and choose alternatives.

Planning and Decision making tools:

• Non-Quantitative technique:
• Factual information: Information is basis for rational decision making. The decision are more scientific an unbiased.
• Intuition and experience: The decisions are made on hunches, instinct, inner feelings, or previous experience.
• Expert opinion: Also called Delphi technique, where the decision is made from the opinion of the experts and experienced persons.
• Quantitative techniques:
• Probabilities and pay-offs: It is statistical measure of the chance a certain event will occur. The two types of probabilities are: Objective probabilities are derived mathematically form reliable historical data and subjective probabilities are estimated form past experience or judgment. Payoffs are the outcomes of each alternative. The alternative with highest payoff is selected. 
• Linear programming: It is a mathematical technique for deciding among competing demands of limited resources. It is use to find the exact solution which minimize cost and maximize gains. A series of linear equation evaluates each factor in the problem in relation to other factors.
• Queuing theory: It is used to manage the waiting lines by use of calculated probability, of flow in the line. It tries to balance costs and customer waiting line.
• Simulation: It is descriptive model, which is concerned with modeling terms of the business problem rather than the solution to problem. It reduces the risk and expense of decision making by using hypothetical and historical data instead of the live data.
• Game theory: It is the study of people making independent choices. It focuses on formulation of a strategy against the competition, which will provide maximum countering action. The outcome of the game is preparedness of manger to respond to the action of the competitors. It helps in determining the competitive behavior or the every possible move that a competitor can make.
• Decision tree: it is based in probability factors, which will graphically represent form of numbers of possible future events or actions that may affect decision. The outcome that has highest desirable end value is the course to be followed. It helps the decision maker to evaluate alternative in terms of best estimates of future results.

Unit 2 (P 22): Planning and Decision Making: Strategic planning

 Strategic planning:

• Strategic planning is comprehensive plan to identify the best approach or strategy for achieving organizational goals.
•  It addresses three main areas: distinctive competence (something in which organization does exceptionally well), scope (range of market in which organization will compete), and resource deployment (how will it distribute resources across areas in which it competes).
• It involves review of external and internal forces that lead to specific opportunity and threat facing the organization to define the strategy, or direction, and making decisions on allocation its resources to pursue the developed strategy.
• Strategic management: a comprehensive and ongoing management process aimed at formulating and implementing effective strategies; it defines way of approaching the business opportunities and challenges.
• There are five phases in strategic planning:
• Situation analysis:
• Formulation of mission, goals , and objectives:
• Strategy formulation:
• Strategy implementation:
• Strategic control:

Situation analysis:  

• Helps to study past events, understand current trends, and attempts to forecast future trends.
• The two methods are:

Environmental scanning: 

• It is the method of acquiring information and analyzing trends emerging in the environment. OR monitoring and evaluation of information from the organization internal and external environment which are used for defining future courses of action. 
• Steps in environmental scanning are:
• Identify potentially relevant environmental changes:
• Monitoring the nature and direction of change.
• Forecasting the probability of impact:
• Developing and implementing strategic response

SWOT analysis: 

• It was developed by Albert Humphrey. This analysis help to make optimal match between the external opportunities and threats, with the organizational strength and weakness. The matching of the internal and external environment is essential for developing appropriate strategy.
•  It involves specifying the objective of the business venture or project and identifies the internal and external factors that are favorable and unfavorable to achieve that objective.
• It focuses on:
• Strengths: characteristics of the business, or project team that give it an advantage over others
• Weaknesses (or Limitations): are characteristics that place the team at a disadvantage relative to others
• Opportunities: external chances to improve performance (e.g. make greater profits) in the environment
• Threats: external elements in the environment that could cause trouble for the business or project
• S-O strategies pursue opportunities that match the company’s strengths. These are the best strategies to employ, but many firms are not in a position to do so. Companies will generally pursue one or several of the other three strategies first to be able to apply Strengths-Opportunities strategies.
•   W-O strategies overcome weaknesses to pursue opportunities. Your job is to match internal weaknesses with external opportunities and list the resulting Weaknesses-Opportunities strategies 
•   S-T strategies identify ways that the firm can use its strengths to reduce its vulnerability to external threats. Your job is to match internal strengths with external threats and list the resulting Strengths-Threats Strategies
•   W-T strategies establish a defensive plan to prevent the firm’s weaknesses from making it susceptible to external threats. Your job is to match the internal weaknesses with external threats and record the resulting Weaknesses-Threats Strategies

Tools to aid planning:

• They are the planning tool for forecasting the future in order reduces the uncertainty. Planning uses two types of tools:
• Qualitative techniques: 
• Informed judgment: Planner makes field visit, collects information, analyzes the information, and make judgment about the future.
• Scenario Analysis: Expert develops the future scenario. Stating: best case, worst case, and most likely case. Planner anticipates future changes on the basis of these scenarios.
• Delphi Method: Panels of expert are asked to submit a report, which is later discussed and carefully studied, to determine the change in future.

• Quantitative techniques:
• Single projection method: current years forecast is determined by adding the last year’s forecast.
• Extrapolation method: The technique require information from past to explore the future.
• Moving average method: helps to forecast by eliminating the effects of seasonality and other irregular trend.
• Time series method: A time series is a collection of observations of well-defined data items obtained through repeated measurements over time

Unit 2 (P 21) Planning and Decision Making: Goals

Goals?

• Organizational goals are the ultimate end point towards which all the activities are focused. It is the reason for the existence of the organization. Achievements of goals are critical to organizational success and effectiveness.

Purpose of organizational goals:

• Provides guidance and unified direction:
• supports other aspects of planning:
• Serve as source of motivation to employees:
• Provide effective mechanism for evaluation and control:

Function of goals:

• Gives direction to managers:
• Gives support in perfect organizing:
• Serve as a standards:
• To motivate staff:
• Assisting to acquire right type of human resources:
• Provide job direction and security to employee:

Types of organizational Goals:

• Organization establish many different type of goals by level (top, middle, and lower), area (marketing, finance, operation etc.), and time (short, middle, long term) frame. They are:
• Mission: a statement of organization fundamental purpose.
• Strategic goals: A goal set by and for top management of the organization, focuses of board and general issues. (Like profit making, product development, resource allocation, etc.)(5- 10 years)
• Tactical goals: a goal set by and for middle level managers of the organization. Focus to operationalize actions necessary to achieve the strategic goals.(1-3 years)
• Operational goals: a goal set by and for lower level managers of the organization. To focus to meet the tactical goals.

Unit 2 (P 20)Planning and Decision Making:Planning methods , types and process

Hierarchy of plans:

• Vision: They are the non specific but emotional motivational statement for entire organization.
• Mission: It is the purpose or the philosophy that will drive it over a long period of time.
• Goals: Are developed to achieve mission. It is the specific target where management wants to reach.
• Objectives: It is a specific statement to achieve the goals on the next few months or a year at the most. It must be smart, measurable, attainable, rewarding, and timed.
• Strategy: it is action the organization intends to use to achieve the objectives. It defines the activities and the allocation of resources for those activities.
• Programmes, budgets, and priorities: programmes are ranked according to their importance. And budgets give the fair idea about the amount of money to be invested in implementing the plan.

Methods of planning:

• Top –down planning: When all the goals and plans are formulated by the higher level management with very little involvement of the lower level staff.
• Bottom-up planning: Also called decentralize planning, active participation of the lower level mangers in defining the goals and plans.
• Composite planning: It is the combine approach both top- down and bottom-up planning methods. 
• Team planning:  a cross functional team of mangers having experience in various functional areas is selected by management to prepare a plan, the developed plan is submitted to top management for approval.
• Management by objectives (MBO): It is concerned with goal setting and planning for individual managers and their units or work groups. It communicates the mission, goals, and objectives to the organization to the lower level. The lower level work out their plans and targets in combine effort of its subordinates and finally sent to higher levels for consideration. MBO thus, focus employee participation in planning and control their work. It ultimately leads to increase in self-motivation and self-control to their work.
• The MBO process:
• Starting MBO Program: superior and subordinate meet together.
• Establishment of organizational goals and plans: realistic, challenging, comprehensive, clear.
• Standard for measuring and evaluating the goals and objective are set.
• Communicating organizational goals and plans while implementing them: meeting, coaching, counseling and supportive roe is required.
• Periodic review: 
• Evaluation:

Levels and types of plans:

On basis of level:

• Strategic plans: It focuses on reaching strategic goals, so it is also called grand plan.  It is developed at the corporate level and view total organization. The plan involves developing long-term strategies and goals. Their basic motive is to match internal strength and weakness with the change in the external environment.
• Tactical plans: It translates broad strategic goals and plans to specific goals and plans. These plan focus at the functional area, so middle level manger are responsible for developing tactical plan. It aim to achieve the important actions that a unit must take to fulfill is parts of the broad strategic plan.
• Operational plan: It focuses on specific process and procedures at the lower level of the organization, usually having short term motive. It is developed to translate the tactical objective to specific operational activities. They are routine task to carry out day to day activities.

On basis of time frame:

• Long Range plan: a plan with a planning horizon of five years or more. 
• Intermediate plan: a plan with a planning horizon for one to five years.
• Short Range plan: a plan with a planning horizon for not more than one year.
• Rolling plan: a plan which runs for a period of time and is updated regularly for the same period

On the basis of use:

• Standing plans: STANDING PLANS are used over and over again because they focus on organizational situations that occur repeatedly. Standing plans are often policies, procedures and programs developed to ensure the internal operations of a given business are operating smoothly. Standing plans are developed once and then modified to suit the business' needs as required.
• STANDING PLANS focus on:
• Policies, Procedures and Rules:
• A POLICY is a standing plan that furnishes broad guidelines for taking action consistent with reaching organizational objectives.
• A PROCEDURE is a standing plan that outlines a series of related actions that must be taken to accomplish a particular task. Procedures outline more specific actions than policies do. Organizations usually have many different sets of procedures covering the various tasks to be accomplished. Managers must be careful to apply the appropriate organizational procedures for the situations they face and apply them properly.
• A RULE is a standing plan that designates specific required action. A rule indicates what an organization member should or should not do and allows no room for interpretation
• Single use plan: SINGLE USER PLANS are used only once, or at most, couple of times, because they focus on unique or rare situations within the organization. A single-use plan in a business environment focuses to one-time project or event that has one specific goal or objective. The length of a single-use plan differs greatly depending on the project in question, as a single event plan may only last one day while a single project may last weeks or months. Single-use plans consist of budgets, programs and a description of the employees who will be contributing to the single-use plan in question.
• SINGLE USE PLANS focus on:
• Programs & Budgets:
• A PROGRAM is a single use plan to carry out a special project within an organization. The Project itself is not intended to remain in existence over the entire life of the organization. Rather, it exists to achieve some purpose, which if accomplished, will contribute to the organization’s long term success.
• A BUDGET is a single user financial plan that covers a specified length of time. It details how funds will be spent on labour, raw materials, capital goods, information systems, marketing and so on, as well as how the funds will be obtained.

Steps in planning process

1. Establish goals: What is to be done? What is to be accomplished? 
2. Identify planning premises: They are assumption on which the planning is based. Information form environmental analysis is required to determine the anticipated future environment.
3. Deciding the planning period: In how much time frame the plan should be ready and implemented?
4. Identify alternatives: Every possible course of action is to be carefully studied and analyzed. Only most likely possibilities should be taken into consideration.
5. Test practicability of alternatives:   In this phase the selected alternatives are tested on the basis of its strength and weakness, and which best addressed the coming environmental trends to achieve the organizational objective.
6. Select and announce the final plan: It is the final step to select the best alternative form the test and make is ready for putting into action.
7. Developing derivative plans: lower lever mangers must draw up the appropriate plans for their sub-units.
8. Put plans into action, implement plan: After selecting the alternative put plan into action.
9. Evaluate the action and whole planning process: If any deviation occurs while implementing, planning documents helps in rectifying the errors.  Even whole process might be needed to review sometimes to adjust with large change in the environment.  

Unit 2 (P 19) Planning and Decision Making: Planning

Planning:

• Planning is an intellectual process, of formulating goals, identifying activities to be undertaken to attain these goals, choosing the means to achieve the goals, and finally attain the goals.
• Planning is deciding in advance what to do, when to do, how to do and who is to do it. Planning bridges the gap between where we are to, where we want to go. It makes possible things to occur which would not otherwise occur.
• It is first managerial function that organization must address.
• It is proactive action to figure out future course of action to be followed.
• It is needed to bridge the gap existing between the present state and he desired future state. 
• "planning is the process of determining objectives and assessing they way these objectives can best be achieved." This process determines where the organization should be going, why, and how.
• Planning may be broadly defined as a concept of executive action that embodies the skill of anticipating, influencing, and controlling the nature and direction of change. – McFarland
• It incorporates four elements:
• Evaluating environmental forces and organizational resources
• Establishing a set of organizational goals
• Developing strategies and plan to achieve the stated goals.
• Formulate a decision- making process.

Importance of planning:

• Provides Direction:  
• Integrates management functions:
• Reduces uncertainties:
• Resource allocation:
• Basis for control/ standard for measurement:
• Basis for managing changes/ Adaptive responses:
• Minimizes impulsive and arbitrary decisions:

Characteristics of planning:

• Focus on Goal: planning basic objective is to attain goal. So, it defines all course of action to achieve the organizational goals.
• Primary Function: As it coordinates all other managerial function. It provide base of framework for other function of management.
• Pervasive Activity: All level of mangers carries planning function. However planning depends upon the level of management or on the nature and scope of work.
• Future oriented: it defines future course of action to meet uncertainty form environment. It provides blueprint for future operation.
• Continuous Activity: Planning is continuous never ending process because it is directly dependent upon environment, which is dynamic in nature.
• Intellectual Work: planning require more intelligence ability to analyze the information and derive a best course of action.
• Flexible: Plans should be adjustable to meet the contingencies from the environment. Plans must have capacity to flexible adjustment to meet the goals.
• Efficiency and Economy: planning helps to efficiently use the scarce resource, which bring economic beneficial situation for the organization.
• Actionable: It helps to determine such activities which can be immediately put into action when time form implementation comes and can be adjusted according to the changing environment.

The planning system:

• Since planning is a subsystem of the overall management system of the organization. It too includes the system concept of input, processing, and output. It too takes input for the environment, process the inputs and gives outputs to the organization to achieve its goals.
• Inputs: information, human, capital, financial
• Processing: information collection and analysis of internal and external environment, forecasting,
• Outputs: goals, strategies, policies, procedures, budget sheet.