CHAPTER TWO

PLANNING AND DECISION

MAKING

Mulugeta K. (PhD)
YPGC & DMU
December, 2020
1. Planning Defined
• Planning is the process of determining how the
organization can get where it wants to go; outlining the
activities necessary to achieve organization’s goals.
• It involves:
– determination of objectives/ goals;
– establishment of overall strategy;
– formulation of programs;
– maps the courses of action for their attainment;
– development of schedules,
– timing of action & assignment of responsibilities for
their implementation.
 Cont…
• According to Koontz and O’Donnel, planning is deciding in
advance what to do, how to do it, when to do it and who
is to do it.
– It bridges the gap from where we are and to where
we want to go.
– It is in essence the exercise of foresight.
• Planning is the primary management function—the one
that precedes and is the basis for other managerial
functions.
• Planning is the process of preparing for change & the
dynamics of the environment.
Six Basic Questions Planning Answers

1. The ‘what’ or what to do - the goal that we want to

achieve.
2. The ‘when’ or when to do - is the question of timing.
3. The ‘where’ or where to do - the place at which the plan is
put into practice.
4. The ‘who’ or who does it - the individual/ unit supposed
to undertake specific tasks.
5. The ‘how’ or how it is done or by whom it is done - the
strategy/ method for achieving the goal.
6. The ‘how much’:- concerns with the expenditure of
resources required to reach goals
Importance of Planning

 To minimize risk & uncertainty: It provides more

rational & fact-based procedures for making decision.
 For better co-ordination: Planning provides a
foundation for the co-ordination of activities.
 To focus attention on organizational goals: It helps
managers to be profoundly occupied with the common
goals.
 Helps anticipate problems and cope with change: It
helps to forecast future problems and make any
necessary changes.
 Cont…

 To facilitate control: managers set goals & develop

plans to accomplish these goals.
 To promote forward thinking: It forces managers to
think ahead; consider resource needs; potential
opportunities and threats.
 To establish a basis for teamwork: Diverse groups
cannot effectively cooperate in joint projects without
an integrated plan.
Features of Planning

• Planning is the primary function of management: It is

the starting point of management.
• It is goal-oriented: It helps to attain the goal in the
most effective and efficient manner.
• It is all-pervasive: Planning is done by everyone at
every level of management.
• It is an intellectual activity: Planning is a mental
activity.
– It involves application of mind and intelligence to
attain the organizational objective.
 Cont…

• It is future –oriented: It is required to attain the future

goals of an organization.
• It requires an integrated approach: There must be a
link between the plans of different departments.
• It is a continuous process: Planning is needed as long
as there are business activities.
• It involves decision making: It involves making choice
out of certain alternative courses i.e., decision-making.
• Planning is antithesis of status quo: It is a process and
the exact opposite of status quo.
Where does planning start?

• There are two basic approaches to planning, namely:

1. The top - down approach and
2. The bottom - up approach.
1. The top - down approach
– It is the planning efforts that begin at the top level
managers.
– Top management determines the direction of the
organization and establish a master plan to achieve
goals.
– The master plan provides direction within which
departments & work groups develop their plans.
 Cont…
2. The bottom - up approach
– It is the planning that is initiated at the lowest level of
the organizational hierarchy.
– The managers and employees at the operational level
began the planning process.
– Finally the top levels bring together all the plans
forwarded and develop a cohesive & well integrated
master plan that shows the direction of the organization.
• These planning approaches are not mutually exclusive.
• The current trend is on integrating the aspects of both
approaches
Types of Plans

• Plans can be classified based on different dimensions.

• The most important ones are:
I. Repetitiveness (frequency of use)
II. Time dimension/ horizon (duration) &
III. Scope/ breadth dimension.
I. Classification of plan based on repetitiveness
• Based on repetitiveness, plans are classified into two:
A. Standing plans and
B. Single use plans
 Cont…
A. Standing plans
• are plans that are used again & again and designed to
deal with problems that recur frequently.
• They can limit employees' flexibility & make it difficult
to respond to the needs of the customers.
• By using standing plans management handles
repetitive problems.
• Standing plans include mission or purpose; goals/
objectives, strategy; policy; procedure; method and
rule.
 Cont…
Purpose or mission: Purpose or mission indicates the
basic function or task of an enterprise.
– It indicates the reason for the existence of the
organization
– E.g. the purpose of a university is teaching & research.
Goals or objectives: Objectives (specific) or goals
(broader) are the end points towards which all
management functions aimed.
Strategies: Strategies are ways or means to achieve the
established objectives.
– They are major courses of action used to achieve strategic
objectives.
 Cont…

Policies: are general statements or understandings

that guide thinking and action in decision making.
Procedures: outline chronological sequences of
required actions/ activities.
– Procedures are guides to action rather than to
thinking
– Procedures are more specific & action oriented than
policies.
– They are designed to give explicit instructions on
how to complete a recurring task.
 Cont…
Methods: are more detailed than procedures.
– A method is only concerned with a single operation,
with one particular step, and tells exactly how this
particular step is to be performed.
Rules: Rules are the simplest and strictest types of
standing plans.
– They provide detail & specific regulations for action
– They reflect managerial decisions that certain actions
must or must not be done.
• e.g. “No smoking”
– Employees don't have right to modify or change rules
by themselves.
 Cont…

2. Single – use plans

• Single-use plans are developed to address a specific
organizational situation.
• They are used up only once but not over & over again
as the standing plans.
• Single – use plans are commonly three types:
a) Programs
b) Projects
c) Budgets
 Cont…

a) Programs: are a relatively broad set of activities

designed to accomplish a particular set of goals.
– they are supported by budgets.
b) Projects: Projects are a part of a general program and
direct the efforts of individuals towards the
achievement of well defined goals.
– They are typically less comprehensive & narrower
in focus than programs;
– They usually have predetermined target dates for
completion.
– Project is a subset of a specific program.
 Cont…

c) Budgets: Budget is the plan required in numerical

terms. It is referred as a numerated/ numberized
program.
– Budget is useful for the allocation and utilization of
various resources to different activities over a given
time period.
– Budget can be expressed in financial terms; labor
units; products/ unit of product; machine hours or
in any other numerically measured term.
– Budget is necessary for control;
– It serves as a benchmark for controlling.
II. Classification of plans based on time

1) Long-range planning: it has longer time horizon; and

usually concerned with the distant future direction of
the organization.
– The time usually ranges from 5-10 years though it
depends on the size & the nature of the organization.
2) Intermediate-range planning: It ranges between long &
short range planning;
– They are usually developed for 1-5 years,
3) Short-range planning: They are also taken as operational
plans.
– The time length is taken as less than one year.
III. Classification based on scope/ breadth

• Planning is performed at three levels.

1. Strategic planning
• It is the process of determining how to pursue the
organization’s long-term goals.
• It is the process by which the organization's strategies are
determined.
• It specifies how the organization will achieve a competitive
advantage.
• Strategic plan is a general plan outlining decisions of
resources allocation, priorities, and action necessary to
reach strategic goals.
 Cont…
• In the process, three basic questions are answered:
– Where are we now?
– Where do we want to be?
– How do we get there?
• The "where are we now?" question is answered through
the first three steps of the strategy formulation process:
– Perform internal and external environmental analyses,
– Review vision, mission and objectives, and
– Determine SWOT: Strengths, Weaknesses, Opportunities
and Threats.
SWOT Analysis

• Strengths and weaknesses come from the internal

environment of the firm.
– Strengths reflect past accomplishments in production,
financial, marketing and HRM.
– Weaknesses are internal characteristics that have the
potential to limit accomplishment of objectives.
• Opportunities and threats are uncontrollable by
management because they are external to the firm.
– Opportunities provide the firm the possibility of a major
improvement.
– Threats are harmful forces for the firm on the way reaching
objectives.
 Cont…
2. Tactical planning
• It refers to the process of developing action plans
through which strategies are executed.
• Tactical plan is a plan aimed at implementing specific
parts of strategic plan.
• It is concerned with shorter time frame & narrower
scopes than strategic planning.
• Departmental managers in organizations are often
involved in tactical planning.
• The strategic & tactical plans are highly interrelated.
 Cont…
3. Operational planning
• Operational plans focuses on carrying out technical
plans to achieve operational goals.
• Operational planning is mainly short range; more
specific & detailed.
• It is made at operational level & concerned with day-
to day; week – to - week activities of the organizations.
• determining how to accomplish specific tasks with
available resources
 Cont…
4. Contingency planning
• It is the determination of alternative courses of action to
be taken
– if the original plans are disrupted or become
inappropriate due to the changing circumstances.
– It is proactive in nature & the management tries to
anticipate changes in the environment and prepares to
cope with the future events.
– It is necessary at each level of management.
• It is necessary in today's rapidly changing business
environment.
The Planning Process
• Step 1: Understanding the existing situation
– Assessing the internal and external environment to
identify opportunities (O) & threats (T) and identify
strength (S) & weaknesses (W) of an organization.
• Step 2: Forecasting
– Forecasting is an assumption of what the future looks
like.
– It gives us information about what the future looks like.
• Step 3: Establishing objectives
– Objectives specify the expected results and indicate the
end points what is to be done.
 Cont…

• Step 4: Determining the alternative courses of action

– Searching for/ seeking out/ & examining alternative
course of action (strategies).
• Step 5: Evaluating alternative courses of action
– Assessing the alternatives by weighing them in light of
premises and goals.
• Step 6: Selecting a course of action
– It is the point at which the plan is adopted.
– It is the real point of decision making.
 Cont…
• Step 7: Formulating derivative plans
– Derivative plans are those that support the basic or main
plan.
• Step 8: Numberizing plans by budgeting
– The stage at which management gives plans meaning.
– Numberize plans by converting them into budgets.
• Step 9: Implementing the plan
– Developing an action plan to implement the plans
– Assigning people and other resources for action
• Step 10: Controlling & evaluating the results
– Monitoring the progress, and make modifications.
Principles of Planning
1. Principle of contribution to objectives.
– they should contribute to the efficient & effective
achievement of corporate objectives.
2. Principle of sound & consistent premising
– Premises are assumptions regarding the environment that
would prevail during the implementation period.
3. Principle of limiting factors
– The limiting factors are elements in a company’s internal or
external situation which should be revoked or modified.
4. Principle of commitment
– Logical planning should cover a period of time in the future
necessary to foresee as well as possible
 Cont…
5. Principle of coordinate effort
– all the plans of the company should be coordinated with
one another so as to produce an integrated plan.
6. Principle of timing
– plans should be arranged in the time of hierarchy.
7. Principle of efficiency
– Plans should aim at minimizing the cost & thereby
achieve the most efficient utilization of scarce resources
8. Principle of flexibility
– Plans should have an inbuilt flexibility when actual
environment becomes different from predications.
 Cont…
9. Principle of navigational change
– Plans should be reviewed periodically as to their
premises in relation to actually operating
environment and the future expectation.
10. principle of acceptance
– Successful implementation of plans requires the
willing and cooperative effort of all employees.
– It is essential that plans should be understood and
accepted by them.
2. Decision Making
• Decision making is defined as a rational choice
among alternatives.
• “If there is no option, there is no choice & no
decision.”
• In decision making, manager is making judgments –
reaching conclusion- from a list of known activities.
• Decision making is universal.
• Decision making is not a separate, isolated function
of management, but the common core to other
functions.
Characteristics of Decision Making

• It is a goal-oriented activity
• Existence of alternative courses of action
• It may be positive or negative
• It may also be a decision not to decide
• Decision-making is both a science and an art
• It is situational
• It may be voluntary or induced
• It is a complex mental exercise
• It is an ongoing activity
Types Of Decisions
• There are two types of decisions:
1. Programmed decisions
– Programmed decisions are decision managers
make in response to repetitive & routine
problems.
– If a particular situation occurs often, managers will
develop a routine procedure for handling it.
– In most organizations, programmed decisions are
handled through policies.
 Cont…
2. Non – programmed decisions
– These are decisions made for novel and
unstructured problems.
– Non programmed decisions are more complicated.
– They require the expenditure of lots of money,
worth of resources every year.
– They are usually handled by general problem
solving processes, judgments, intuitions and
creativity.
Types of decisions and Levels of management

In what level of management the decision should be taken is

dictated by:
– The nature of the problem how frequently it occurs
– The degree of certainty surrounding it
 Problems that arise infrequently & having a great deal of
uncertainty surrounding them are often strategic in nature
and should be the concern of top management.
 Problems that arise frequently & have fairly certain outcomes
should be the concern of lower level management.
 Middle managers in most organizations concentrate on
programmed decisions.
The Decision Making Process
• Decision making process has seven (7) steps.
Step 1: Define the problem
Step 2: Identify the limiting or critical factors
Step 3: Develop potential alternatives
Step 4: Analyze the alternatives
Step5: Select the best alternative
Step 6: Implement the solution
Step 7: Establish a control & evaluation system
The Decision Making Environment
• There are different conditions in which decisions are made.
• Decisions are made under the conditions of:
1. Certainty
2. Risk
3. Uncertainty.
1. Decision making under conditions of certainty
• In this case the manager has perfect knowledge
– The alternatives are known; and the consequences of
each alternative are fully understood.
• It can mean a manager can rely on standing plans; the
decisions will be made routinely.
 Cont…
2. Decision making under conditions of risk
• This situation provides more difficult decision making
environment.
– In this case the manager knows what the problem
is; what the alternative are; but doesn’t know how
each alternative will work out even though s/he
knows the odds (probabilities) of possible
outcomes.
• The manager is faced with dilemma of choosing the
best alternative available.
 Cont…
3. Decision making under conditions of uncertainty
• This is the most difficult situation for managers.
• It is like being a pioneer/ breaking new ground.
– The manager is not able to determine the exact odds
of the potential alternatives available.
– Deals with too many variables or many unknown
facts.
• The management is unable to accurately predict the
probable results of choosing anyone of the alternatives.
• Reliance on experience, judgment & other people’s
experience can assist the manager
Cont…
THE END!