Unit2 planning

S.Palanivel Associate Prof./Mech. Engg. Kamaraj College of Engg. & Tech. Virudhunagar(near)

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Planning

Planning involvesSelecting Missions and objectives and Deciding on the actions to achieve themChoosing a course of action from among alternatives thro a decision making process.Planning thus provide a rational approach to achieve preselected objectives.Planning bridges the gap from where we are to where we want to go.


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Planning involves tasks that must be performed to attain organizational goals, outlining how the tasks must be performed, and indicating when they should be performed.


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Why Planning ?

Determining organizational goals and means to reach them

Managers plan for three reasons

1. Establish an overall direction for the organization’s future

2. Identify and commit resources to achieving goals

3. Decide which tasks must be done to reach those goals


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Nature of Planning• In designing an environment for the effective performance of

individuals working together in a group, a Manager’s most essential task is to see that everyone understands the group’s mission, objectives and methods for attaining them.

• If group effort is to be effective, people must know what they are expected to accomplish.

• This is the function of planning and it is the basic of all managerial functions.

• Planning and controlling are inseparable. Any attempt to control without plans is meaningless.

• Planning makes everyone to know where they have to go and Controlling will ensure whether they are going to the place where they wanted to go, if there is any deviation control will indicate the same and lead to alter the plans.

• Plans thus provide the standards of control.


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Types of Plans- Planning processPlanning process is consisting ofMission or purposesObjectives or goalsStrategiesPoliciesProceduresRulesProgramsBudgets


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Missions or Purposes• Mission or purpose : The basic purpose or function or tasks of an

organisation or enterprise or agency or any part of it. Purpose of a business is generally production and distribution of

goods and services. Purpose of a Highway department is the design, building and

operation of a system of highways. Purpose of courts is to interpret laws and their application. Purpose of Banks are to maintain accounts of individuals & firms,

receive deposits and lends loans for development of society and regulate money circulation.

Purpose of a University is teaching, research and providing services to community.

In 1960 mission of NASA was to get a person to the moon before the Russians.

Mission of KCET is to achieve 100 % pass and 100% placement.


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Vision - Mission• Often the term Vision is mentioned in connection with mission.• Concepts such as goal setting, team management and

orientation toward future are connected with Vision.• Seven factors identified in the structure and content of Vision

statements are Formulation, Implementation, Innovative realism General Degree of detail Risk propensity Profit orientation


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• Objectives or Goals : Ends towards activity is aimed. They represent not only the end point of planning but also the end toward which organising, staffing, leading and controlling are aimed.

• Strategies : The determination of the basic long term objectives of an enterprise , the adoption of courses of action and allocation of resources necessary to achieve these goals.

• Policies : General statements or understandings that guide or channel thinking in decision making. Policies define an area within which a decision is to be made and ensure that the decision will be consistent with and contribute to an objective. Examples of polices are ;

Hiring only trained Engineers Promoting from within Encouraging employee suggestion to get improved cooperation Setting Competitive prices Promoting people only on fitness cum seniority Promoting people only performance basis Sharing a portion of profit among employees


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• Procedures : Plans that establish a required method of handling future activities

• They are chronological sequences of required actions.• They are guides to action and they detail the exact manner in

which certain activities must be accomplished.• In a manufacturing company, procedure for handling orders

involve different departments in sequences Sales dept. – for receiving original order Finance dept. – for acknowledging receipt of funds and for

customer credit approval Accounting dept. – for recording the transaction Production dept.- to produce products or to release from stock Shipping dept. – to determine the mode and route of shipping


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• Relationship – Policies & Procedures : • Company policy may grant employees vacation.• Procedures established to implement this policy by Scheduling vacations to avoid disruption of work, Setting rates of vacation pay Methods of calculating vacation pay Maintaining records to ensure each employee vacation Spelling out the means of applying leave.RULES : It spell out specific required actions or non actions allowing no

discretion . They are usually the simplest form of plan. The essence of a rule is that it reflects a managerial decision that a certain action must or must not be taken. Rules are different from Policies. Policies are meant to guide decision making by marking off areas in which Managers can use their discretion, while rules does not allow any discretion in their application.


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• Programs : They are a complex of goals, policies, procedures, rules , task assignments, steps to be taken , resources to be employed and other elements necessary to carry out a given course of action mostly supported by budgets.

• Programs may be a major one – linking rivers, laying double line railway tracks whole of India. Or may be minor one as formulated by a single supervisor to improve the morale of workers in the manufacturing division by offering anew incentive scheme.


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Budgets• Budget is a statement of expected results expressed in numerical

terms. It may be called as a Quantified Plan, financial operating budget is called as Profit Plan.

• Budget may be expressed in terms of labor hours, units of products, machine running hours, selling cost expenses, amount realised by selling products or in any other numerically measurable terms.

• Operational budget deals with the expected no of units produced and the cost of inputs such as material, labor and machine running and consumables.

• Cash flow budget deals with expenditures to be met in a week/month/ quarter/year.

• Expected profit can be budgeted by forecasting expected expenditures involved in carrying out operations and the expected income out of operations.

• Budget is necessary for control , but it can not serve as an effective tool unless budget reflects plans.


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Steps in Planning• Steps listed below are of general application. However

feasibility of possible course of actions at each stage is to be studied.

1. Being aware of Opportunities2. Establishing Objectives3. Developing Premises4. Determining alternate courses5. Evaluating alternate courses6. Selecting a course7. Formulating derivative Plans8. Quantifying Plans by Budgeting


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Being aware of Opportunities

• An awareness of opportunities in the external environment as well as within the organization is the real starting point of planning.

• Managers should aware of the market, competition, customers demand , company’s strengths & weaknesses.

• They should look at possible future opportunities clearly & completely, where their company stand on their strengths and weaknesses, understand what problems it has to solve and why, know what it can expect to gain.

• Setting realistic objectives depends on awareness.• Planning requires a realistic diagnosis of the

opportunities available


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Establishing Objectives

• Second step in planning is to establish objectives for the entire enterprise and then to each sub divisions.

• This is to be done for long term as well as for short term• Objectives specify the expected results and indicate end points of

what is to be done by network of strategies, policies, procedures, rules, budgets and programs.

• Enterprise objectives give direction to the major plans and define objective of every major department.

• Major departmental objectives in turn control the objectives of sub division and so on down the line, in other words Objectives forms hierarchy .

• Objectives of departments will be more accurate of sub division managers understand the overall enterprise objectives and derivative goals to be achieved by them to accomplish the objectives.

• It deals about Where we want to be and what we want to accomplish and when.


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Developing Premises

• This is to establish, circulate and obtain agreement to use critical planning premises such as forecasts, applicable basic policies and existing company plans.

• Premises are assumptions about the environment (Internal or external) in which the plan is to be carried out.

• Principle of planning premises- more thoroughly individuals understand and agree to use consistent planning premises

• Forecasting is important in premising• What kind of markets will there be ?, what volume of sales?

what prices?, what products?, what technical methods?, what costs?, what wage rates?, what tax rates?, what new plans?, what is the policy to dividend?, what political or social environment?, How finance be met? , what are the long term trends in this business.


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Determining alternate courses

• Fourth step is to search for and examine alternative courses of action especially those not immediately apparent.

• More common problem is not finding alternatives but reducing the number of alternatives so that the most promising may be analyzed.

• With mathematical techniques and computer alternatives can be thoroughly examined.

• Planner must usually make a preliminary examination to discover the fruitful possibilities.

• What are the most promising alternatives to accomplishing our objectives


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Evaluating alternate courses

• After seeking out alternative courses and examining their strong and weak points, the next step is to evaluate the alternatives by weighing them in light of premises and goals.

• Course has to be evaluated on all fronts like, cash flow required, margin of return possible, pay back is slow or fast. Course whether it is suitable for short range or it will yield its results in long range.

• As there are so many alternative courses are available and each is varying with so many variables, evaluating of alternative courses is difficult. Factual findings on evaluation of alternative courses will help us to take effective decision.


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• Selecting a course : After evaluation, electing the suitable course is to be done. This is the point at which plan is adopted. Occasionally an evaluation will give two or more courses will be found suitable. Managers are advised to follow several courses rather than one best course.

• Formulating derivative Plans : When a decision is made, planning is not completed and the seventh step of formulating derivative plans that are required to execute the selected decision is to be done necessarily. Derivative plans are supposed to support the basic plan.


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Quantifying plans by Budgeting• After decisions are made and plans are set, the final step

in Planning is to quantify them by converting all actions into budgets.

• The overall budget of an enterprise represents the sum total of income and expenditure, indicating profit or surplus.

• Each department or program of a business can have their own budgets all indicated in numericals. Budgets can be made as material , machineries, labour, spares, consumables, production, sales. When all these combined it will result in overall Budget of an enterprise, which can be used as better tool to control the activities of enterprise.


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Coordination of short and long range plans• If short range plans are made without reference to long range

plans, it is a serious error in planning.• No short plans should be made unless it contributes to the

achievement of the relevant long range plan.• Managers should continually review and revise immediate

decisions to determine whether they contribute to long range plans and sub ordinate managers regularly briefed on long range plans so that they will make decisions consistent with company’s long range goals.

• Doing this is far easier than to correct inconsistencies later especially since short term commitments tend to lead to further commitments along the same line.


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Nature of Objectives• An objective is verifiable when at the end of the

period of the programme, one can determine whether or not it has been achieved.

• Objective state end results. Over all objectives need to be supported by sub objectives. Thus objectives form a hierarchy as well as network.

• Organisations and Managers have multiple goals that are sometimes incompatible and may lead to conflicts within organisation, within the group and even within individuals.

• Manager has to choose between short term and long term performance and personal interests may have to be in line with organisational objectives.


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Hierarchy of objectives1. Socio Economic purpose Board of

Directors2. Mission Top level

Management3. Overall objective of organisation (Long range)4. More specific overall objective (Key result areas)

Middle level Management

5. Division Objectives6. Department and Unit Objectives Lower level

management7. Individual Objectives

1 to 7 : Top down approach : 7 to 1 : Bottom Up Approach


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Non verifiable Objective Verifiable objective1 To make a reasonable profit 1 To achieve a return on

investment of 12 % at the end of current fiscal year

2 To improve Communication 2 To issue two page news letter beginning Jul1, quarterly not involving more than 40 working hours for preparation

3 To improve productivity of production department

3 To increase production out put by 5 5 by the end off year ie. 31.12.17 without additional costs while maintaining the current quality level


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Guidelines to set Objectives• Objectives should be verifiable one ( Specific, observable,

measurable and time bound) and state what is to be achieved and when

• Quality desired and cost of achieving are also are to be indicated.• Objectives to indicate priorities, promote personal , professional

and orgainsational growth and development.• List should be too long and yet it should cover the main features

of job.• After ensuring the above points, Set objectives are to be checked

with the following check list to set objectives.• If the set objectives meet the criterion, write (+) in the box

provided in the right hand and if they do not mark (-)


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Check list for setting objectives

No Description + / -

1 Do the objectives cover main features of my job

2 Is the list is too long ? If so can I combine some objectives

3 Are the objectives are verifiable – Can I know at the end of period whether they have been achieved ?

4 Do the objectives indicatea) Quantity (how much)b) Quality ( how well or specific characteristics)c) Time (when)d) Cost (at what cost)

5 Are the objectives are challenging and yet reasonable

6 Are priorities assigned to objectives (ranking, order)

7. Does the Objectives also includea) Improvement of objectivesb) Personal development objectives

8. a)Are the objectives coordinated with other managers and unitsb) Are they consistent with objectives of my Superior, department and the company


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Check list for setting objectivesNo Description + / -

9 Have I communicated objectives to all who need to be informed10 Are the short term objectives consistent with long term

objectives11 Are the assumptions underlying objectives clearly identified12 Are objectives expressed clearly and in writing13 Do the objective provide for timely feedback so that I can take

any necessary corrective steps14 Are my resources and authority sufficient for achieving the

objectives15 Have I given the individuals who are expected to accomplish

objectives a chance to suggest their objectives16 Do my sub ordinates have control over aspects for which they are

assigned responsibility


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Management by Objectives• Management by Objectives : a comprehensive managerial system that

integrates many key managerial activities in a systematic manner and consciously directed toward the effective and efficient achievement of organisational and individual objectives.

• It is a comprehensive goal driven success oriented management system. Besides being used for performance appraisal, it is an instrument for motivating individuals and in strategic planning.

• Examples : Power Plant construction involves 1000 of activities, it can be identified as 20 Mile stones such a way completion of one ensures the starting of another one like start up of Civil work, foundation, erection main steel structures, Boiler drum lifting……….. Synchronisation, load test, provisional take over, PG test and final take over.

• Project runs over years being monitored based on Budget allotted for the period & up to the period and actual amount spent on project activities for the period and up to the period.

• This will be an effective tool for the Top level Managers


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Benefits of MBO• Improvement of managing through results

oriented planning.• Clarification of organisational roles and

structures as well as delegation of authority according to the results expected of people holding the roles.

• Encouragement of commitment to personal and organisational goals.

• Development of effective controls that measure results and lead to corrective actions.


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Failures of MBO• Failure to give guide lines to goal setter is a problem.

Managers must explain to sub ordinates what it is, how it works, why it is all, how participants can benefit.

• Managers must know their roles and how it fit within corporate goals.

• Emphasis on short term goals can be done at the expense of long range healthiness of organisation.

• Danger of inflexibility can make managers hesitate to change objectives even if a changed environment require such adjustments.

• Over use of quantitative goals and attempt to use numbers in areas they are not applicable or they may be difficult to state in terms of end results.


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Strategic planning

Analyzing the current and expected situation, determining the direction of firm and develop means for achieving the mission or purpose.This is an extremely a complex process that demands a systematic approach for identifying and analyzing factors external to the organisation and matching them with the firm’s capabilities.Planning is done in an environment of uncertainty. No one can be sure whether the external as well as internal environment will be same for next week, periods ahead.People make assumptions or forecasts about the anticipated environment


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Nature and purpose of Strategies & Policies• Both strategies and policies are closely related. Both

give direction, both are frame work for plans, both are basics of operational plans and both affect all areas of planning.

• Strategy focus on both end points (mission/ objectives /goals) and means of achieving them (policies and plans.

• Strategy refers to the determination of the mission and the basic long term objective of an enterprise followed by the adoption of courses of action and allocation of resources necessary to achieve these aims.


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Policies• Policies are general statements or understandings that

guide managers thinking in decision making. They ensure that decisions fall within certain boundaries.

• Essence of policy is discretion. Strategy concerns the direction in which human and material resources will be applied in order to increase the chance of achieving selected objectives.

• To be effective, strategies and policies must be put into practice by means of plans with increasing details until they get down to the nuts and bolts of operation. The action plans through which strategies are executed are known as tactics. Strategies must be supported by effective tactics.


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Strategic Planning process Although specific steps in the formulation of a

strategy may vary, the process can be built at least conceptually around the key elements

• Inputs to organisation• Industry analysis• Enterprise profile• Development of alternative strategies• Evaluation and strategic choice• Implementation• Leadership• Control


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Strategic Planning process• Inputs to organisation : People, Capital, Management

skills, Technical skills, others are inputs. Goals of stakeholders ; Employees, Consumers, suppliers, stakeholders, Governments, community & others.

• Industry Analysis : Formulation of a strategy requires the evaluation of the attractiveness of an industry by analysing the external environment. The focus should be on the kind of competition within an industry, the possibility of new firms entering the market the availability of substitute products or services and the bargaining positions of the suppliers as well as the buyers or customers


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Strategic Planning process•Enterprise Profile : Starting point for determining where the company is and where it should go. Top managers determine the enterprise’s mission and clarify its geographic orientation, such as whether it should operate in selected regions, throughout the home country or even in different countries.•Strategic Intent : It is the commitment to win in the competitive environment. Companies achieved global leadership had an obsession (mania/passion) with winning not only at the top level but throught out the organisation. This obsession is called strategic intent and are illustrated by Komatsu’s intent to “encircle Caterpillar”, Canon’s idea to “beat Xerox”, Honda’s intent to become an automobile pioneer “a second Ford”. Strategic intent requires personal effort and commitment. The intent statement is stable over time and focuses on the essence of winning.


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Strategic Planning process• Present and future external environment: It must be

assessed in terms of threats and opportunities.• The evaluation focuses on the competitive situation

as well as on economic, social, political, legal , demographic and geographic factors.

• In addition the environment is scanned for technological developments for products and services on the market and for other perintent in determining the competitive situation of the enterprise.


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Strategic Planning process• Internal environment : Firm’s internal environment

should be audited and evaluated with respect to its resources and its weaknesses and strengths in research development, production, operation, procurement, marketing, products and services.

• Other internal factors that are important for formulating a strategy should be assessed including human, financial resources, company image, organisation structure, climate, planning , control system and relation with customers.


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Strategic Planning process• Development of alternate strategies : Strategic alternatives

are developed on the basis of an analysis of external and internal environments.

• It may specialize or concentrate as Hyundai did by producing lower priced cars.

• Alternatively a firm may diversify, extending the operation into new and profitable markets.

• Possible strategies are joint ventures and strategic alliances• Company may have to adopt a liquidation strategy by

terminating an unprofitable product line or even dissolving the firm.

• Retrenchment strategy may be sufficient in some cases, by closing the non feasible units and retrenching the employees.


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TOWS matrixINTERNAL FACTORS Internal strengths (S)

Strengths in management, operations, finance, marketing, research and development engineering

Internal weakness (W)Weaknesses in areas shown in the strengths boxEXTERNAL FACTORS

External opportunities (O)Current and future economic conditions, political and social changes, new products, services and technology

SO strategy – Maxi- MaxiPotentially the most successful strategy, utilizing the organisations strengths to take advantage of opportunities

WO Strategy Mini- MaxiDevelopment strategy to overcome weaknesses in order to take advantage of opportunities

External threats (T)Energy shortage, competition and areas similar to those shown in the opportunities box above

ST strategy : Maxi- MiniUse of strengths to cope with threats or to avoid threats

WT strategy : Mini- MiniRetrenchment, liquidation or joint venture to minimize both weaknesses and threats


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Four Alternative Strategies• Four alternative strategies based on TOWS matrix are based

on External environment (threats & opportunities) and Internal environment (Weaknesses and Strengths)

• WT strategy : Aims to minimize both weaknesses and threats and known as Mini- Mini strategy. Examples are Joint venture, retrenchment or even liquidation

• WO strategy : Attempts to minimize weaknesses and maximize opportunities. A firm with weakness in certain areas may either develop these areas within the enterprise or acquire the needed competencies (such as technology, know –how , persons , skills) from outside to enable it to take advantage of the opportunities in the external environment


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Four Alternative Strategies• ST strategy : Based on using organisation’s strengths to deal

with threats in the environment. Aim is to maximize strengths and minimizing threats. Thus a company may use its technological, financial, managerial to cope with the threats of a new product introduced by its competitor.

• SO strategy : It is the most desirable one since it capitalizes on a company’s strengths to take advantage of opportunities.

• It is the aim of enterprises move from other positions in the matrix to this “SO” matrix


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Time Dimensions and TOWS matrix• External and Internal environments are

dynamic, some factors change over time, while other factors change very little.

• Hence strategy designers prepare several matrices at different points of time, like TOWS past, TOWS present, TOWS present+ T1, TOWS present + T2


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Portfolio MatrixBusiness Growth rate

High Stars Question marks

Low Cash cows Dogs

Strong Weak

Relative competitive position (market share)

This matrix shows the linkage between the growth rate of business and relative competitive position of the firm identified by market share.


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Portfolio Matrix• Businesses in the “question marks” indicates a weak market

share and a high growth rate, usually require a cash investments so that they can become “stars” the business in the high growth rate , strongly competitive position. These businesses have opportunity for growth and profit.

• The “Cash Cows” with a strong competitive position and a low growth rate are usually well established in the market and such companies can make their products at low costs. Hence their products provide cash for operation.

• “Dogs” are businesses with a low growth rate and a weak market share. These businesses are usually not profitable and generally should be disposed of.


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Major kinds of Strategies and policies For a business enterprise, the major strategies and policies that given an overall

direction to operation are likely to be in the areas of growth, finance, organisation, personnel, public relations, products or services and marketing.

Key questions can be summarised on two factors as follows : Products or Services• What is our business?• Who are our customers?• What do our customers want?• How much will our customers buy and at what price?• Do we wish to be a product leader?• What is our competitive advantage?• Do we wish to develop our own new products?• What advantages do we have in serving customer needs?• How should we respond to existing and potential competition?• How far can we go in serving customer needs?• What profits can we expect?• What basic form should our strategy take?


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Major kinds of Strategies and policies• Marketing: Marketing strategies are designed to guide managers in

getting products or services to customers to buy. Marketing strategies are closely related to product strategies they must be interrelated and mutually supportive.

Key questions that serve as guides for establishing a marketing strategy are listed below :

• Where are our customers and why do they buy?• How do our customers buy?• How is it best for us to tell?• Do we have something to offer that competitors do not?• Do we wish to take legal steps to discourage competition?• Do we need and can we supply supporting services?• What are the best pricing strategy and policy for our operation?• How can we best serve our customers?


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Hierarchy of Company Strategies• Corporate level strategy : Executives craft the overall

strategy for a diversified company. Decisions are made as to the industries in which company wants to compete. A portfolio of business is often selected to achieve synergies among the business units.

• Second level in the hierarchy is business strategies: Which are developed by the general managers of business unit. These strategies are reviewed and approved or rejected by Chief executive. Aim of the business strategy is to gain a competitive advantage in a particular area of product line.

• Third hierarchical level Functional strategies: These strategies are devised for departments or other orgnaisational units such as finance, production, marketing, service and personnel. Aim is to support the business and corporate strategies.


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Industry Analysis• Strategy formulation requires an analysis of the

attractiveness of an industry and the company’s position within that industry.

• Porter identified five forces as Generic Strategies1. Competition among companies2. Threat of new companies entering market3. Possibility of using substitute products or services4.Bargaining power of suppliers5.Bargaining power of buyers or customersThese strategies are generic because they may be

suitable on a broad level for different kinds of organisations.


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Overall Cost leadership strategy• This strategic approach aims at reduction in costs

based to a great extent on experience.• Emphsis may be on keeping a close watch on costs

in areas such as research& development, operation, sales and service.

• Objective is for a company to have allow cost structure compared with its competitors.

• This strategy often requires a large relative market share and cost efficient operation.


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Differentiation Strategy• This strategy attempts to offer something unique in the industry

in terms of products or services• Caterpillar company which is known for its prompt service and

availability of spare parts.• Ford started advertising that the maintenance cost after five

years is Rs.3256/- implying that Ford cars require less maintenance.

• Big Bazar announces special discount during sale period like – offering 50 5 discount, offering one more product for purchase of specified items, offering special rate for specific period. All aims to attract people to purchase items and to increase turnover .

• Places like Ooty and Kodaikanal – Rates will be follwed based on seasons. Such places two types of rates are being follwed as season and offseason rates just to attract people and run and maintain business


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Focused strategy• Focused strategy concentrates on special group of customers

a particular product line, specific geographic regions or other aspects that become focal point of firms’ efforts.

• A low- cost strategy, differentiation or both may accomplish this. Examples : Saravana Stores, Chennai – low cost strategy. Lalitha Jewelry offering lowest wastage. Both firms focusses on more turnover and low margin.

• Indian Railways offering special coaches - Train on Wheels – Luxurious coaches with all amenities – Taking tourists to important places of Historic, pilgrimage .

• Vythri Resorts- Located in Vynad, Kerala attracting packages for Couples and families. Rates are normally high and on special periods very high rates are being charged.


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Premising and Forecasting

• One of the essential and often overlooked steps in effective and coordinated planning is premising.

• Planning premising are defined as the anticipated environment in which plans are expected to operate. They include assumptions or forecasts of the future and known conditions that will affect the operation plans.

• A distinction between the forecasts that are planning premises and forecasts that are translated into future expectations. Example : Forecast to determine future business conditions, sales volumes or political environment furnishes premises on which to develop plans. However a forecast of the costs or revenues from a new capital investment translates a planning program into future expectations. In the first case, the forecast is a prerequisite of planning , in the second case the forecast is a result of planning.

• At the same time, plans themselves and forecasts of their future effects often become premises for other plans. The decision to construct a power Plant by a firm creates facilities to get linkage of fuel, ensuring facilities to make ready transmission lines to transfer power, finalising suppliers of power generating equipments are plans or planning premises.


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Environmental forecasting• If the future could be forecast with accuracy, planning would be

relatively simple, Managers need only to take into account their human, material resources, opportunities and threats, compute using optimum method of reaching their objective and proceed with a relatively high degree of certainty toward it.

• Forecasting has values . First – the making of forecasts and their review by Managers compel thinking ahead, looking for the future and providing for it.

• Second- preparation of the forecast may disclose areas where necessary control is lacking.

• Third- forecasting, especially when there is participation throughout organisation , helps unify and coordinate plans.

• By focusing attention on the future, it assists in bringing a singleness of purpose to planning.

• Economic, social, political, legal and technological environments are considered for forecasting environment.


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Delphi techniqueTypical process of Delphi technique is as follows : A panel of Experts on a particular problem area is selected, usually from

both inside and outside of the organisation. The Experts are asked to make (anonymously, so that they will not be

influenced by others) a forecast as what they think will happen and when, in various areas of new discoveries or developments.

The answers are compiled and the composite results are fed back to the panel members.

With this information at hand (but still with individual anonymity) further estimates of the future are made.

This process may be repeated several times. When a convergence of opinion begins to evolve, the results are then used

as an acceptable forecast. Purpose of the successive opinions and feedback is not to force Experts to

compromise but rather, by bringing additional inputs to bear/consider to make opinions more informed. It is thus hoped that an informed consensus among Experts will be arrived at.


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Decision Making• Decision making is defined as the selection of a course

of action from among alternatives: it is a core activity of planning.

• A plan can not be said to exist unless a decision has been made. Managers sometimes see decision making as their central job since they have to continuously choose what is to be done, who is to do it, when , where and occasionally even how it will be done.

• Decision making is a step in planning and it is apart of planning. Alos it is a part of everybody’s life. Virtually every decision must be geared to other plans


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Rationality in Decision making• Effective decision making must be rational.• Mangers must have a clear understanding of alternative courses by

which a gal can be reached under existing circumstances and limitations. They also must have the information and the ability to analyze and evaluate alternatives in the light of goal sought. Finally they must have a desire to select the best solution by choosing the alternative that most effectively satisfies goal achievement.

• In the first place, no one make decisions affecting the past, decisions must operate for the future, future almost filled with uncertainties.

• In the second place, it is difficult to recognize all the alternatives that may be followed to reach a goal, this si particularly true when decision making involves doing something that has not been done before.

• Moreover not all alternatives can be analyzed even with newest analytical techniques and computers available.


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Rationality in decision making

• Manager must settle for limited or bounded rationality. Limitations of information, time and certainty limit rationality even if a manager tries earnestly to be completely rational.

• Managers can not be completely rational in practice, they sometimes allow their dislike of risk to interfere with the desire to reach the best solution under circumstances due to their desire to “play it safe”. Herbert Simon called this Satisficing, that is picking a course of action that is satisfactory or good enough under the circumstances.

• Although many managerial decisions are made with a desire to “get by” as safely as possible, most managers do attempt to make the best decisions they can within the limits of rationality and in the light of the degree and nature of the risks involved


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Steps in decision making• First step in decision making is develop alternatives. There are

almost many alternatives to any course of action are available. If we can think of only one course of action, clearly we have not thought hard enough.

• The ability to develop alternatives is often as important as being able to select correctly from among them. Concept of the limiting or strategic factor will help Managers to choose beat alternative.

• A limiting factor is something that stands in the way of accomplishing a desired objective. Recognizing the limiting factors in a given situation makes it possible to narrow the search for alternatives to those that will overcome the limiting factors.

• Principle of the limiting factor states that by recognizing and overcoming those factors that stand critically in the way of goal, the best alternative course of action can be selected.


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Steps in decision making• Evaluation of Alternatives : Once appropriate alternatives have been found,

the next step in planning is to evaluate them and select the one that will best contribute to the goal.

• In comparing alternative plans for achieving the objective, people are likely to think exclusively of Quantitative factors. These can be measured in numerical terms, such as time or various fixed and operating costs. Success of the venture would be endangered if intangible or qualitative factors are ignored.

• Qualitative or intangible factors are factors that are difficult to measure numerically such as the quality labor relations, risk of technological change or the international political climate.

• Illustrations pointing out the importance of giving attention to both quantitative and qualitative factors

Instances in which an excellent quantitative plan was destroyed by an unforeseen war

Fine marketing plan made inoperable by a long transportation strike Rational borrowing plan hampered by an economic recession.


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Steps in decision making

• Marginal Analysis : It is to compare the additional revenue and additional cost arising from increasing output.

• Where the objective is to maximize profit, this goal will be reached as elementary economic teaches when additional revenue and additional cost are equal.

• If the additional revenue of a larger quantity is greater than the additional cost, more profit can be made by producing more. If the additional revenue of the larger quantity is less than its additional cost, a larger profit can be made by producing less.

• Marginal analysis can be used in comparing factors other than cost and revenue.

• For example, to find the best output of a machine, input can be varied against output until the additional input equals the additional output. This would be the max. efficiency of machine.

• No. of sub ordinates reporting to Manager might be increased by which additional cost savings, better communication & morale equal additional losses in the effectiveness of control, leadership and similar factors.


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Three Approaches – selecting alternatives• Managers can use three basic approaches

1.Experience2. Experimentation3. Research and analysis


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Selecting alternatives Experience : Reliance on past experience plays a larger part in

decision making. Experience is the best teacher. The process of thinking problems through, making decisions and seeing programs succeed or fail does make for a degree of good judgment. Many people do not learn from their errors.

Relying on past experiences as a guide for future action can be dangerous. Since most people do not recognize the reasons for failures or mistakes and lessons of experience may be entirely inapplicable to new problems. Good decisions must be evaluated against future events while experience belong to the past.

If a person carefully analyzes experience rather than blindly following it and if anyone filters the fundamental reasons for their failures from the experiences then experiences can be used as a basis for decision analysis.


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Selecting alternatives• Experimentation : It is often used in scientific inquiry. This technique is

likely to be the most expensive of all the techniques since it requires heavy expenditures of capital and personnel. Besides after the experiment has been tried , there may be still be doubt about what is proved since future may not be duplicate the present. Therefore this technique can be used only after considering other alternatives.

• Airplane manufacturer may make extensive studies on stress, vibration, fuel consumption, speed, space allocation etc. But all these studies do not answer every question about flight characteristics and economical success of plane. Therefore experimentation is involved in the process of selecting right course of action.

• A firm may test a new product in a certain market before expanding its sale nation wide. Orgnaisational techniques are often tried in a branch office or a plant before being applied over an entire company. A Candidate for a management job may be tested in the job during the training period or during vacation.


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• Programmed decisions• It is applied to structured or routine problems.• Service manual indicates under trouble shooting, the

symptoms of failures, possible causes and remedial actions to be taken. These are indicated primarily on previously established procedures.

• This kind of decision is used for routine and repetitive work.• Non Programmed decisions : These are used for unstructured ,

novel and ill defined situations of a non recurring nature.• Examples are introduction of macintosh Computer by apple• Development of four wheel drive passenger car by AUDI.• Most non programmed decisions are made by upper level

managers since they have to deal with unstructured issues.• Problems at lower levels are often routine and well structured

requiring less discretion by Low level Maangers

Unit2 planning

Leadership & Management