DECISION MAKING - TYPES OF DECISIONS- Programmed and non- programmed decisions , Strategic and tactical decision

 

DECISION MAKING

The word decision has been derived from the latin word ‘decidere’ which means a cutting away, or cutting off or in a particular sense.

Thus, decision involves a cut of alternatives between those that are desirable and those that are not desirable.

Decision making is a process to arrive at a decision, the process by which an individual/organization selects one position/action from several alternatives.

TYPES OF DECISIONS-

1.      Programmed and non- programmed decisions

Programmed decision-

·         It is of routine and of repetitive nature and is made within the framework of organization policies, procedures and rules. These policies, procedures and rules are established well in advance to solve recurring problems in the organization.

·         Example- the problem related to the promotion of the employees is solved by promoting those employees who meet promotion criteria. These criteria are established by promotion policies and managers have just to decide that which employee meet the criteria.

·         A programmed decision is comparatively easy to make as this relates to the problem which are solved by considering internal organizational factors.

·         These are made by personnel at lower levels where the environment affecting decision making is static and well structured.

Non – programmed decision-

·         It is relevant for solving unique/ unusual problems in which various alternative cannot be decided in advance.

·         Example- if an organization wants to take action for growth, it may have several alternative route like expansion of the same business or diversification in a new business. For further expansion, the managers have to evaluate the likely outcomes of each alternative to arrive at a decision, for which he have to consider various factors may lie outside the organization.

·         They are novel and non- recurring and therefore readymade solutions are not available.

·         These decisions are of high importance because of their long term consequences.

·         These are made by managers at higher level of the organization.

 

2.      Strategic and tactical decision-

 

Strategic decisions-

·         It is based on strategy which is a major plan in an organization.

·         It is a major one which affects the whole organization or its major parts.

·         It contributes directly to the achievement of organizational objectives.

·         A strategic decision has normally 3 elements-

a)      A course of action/plan known as action element

b)      A desired result/objective known as result element

c)      Commitment element.

 

·         A strategic decision is normally a non – programmed decision which is made under the conditions of partial ignorance.

·         These are to be made in context of environmental factors.

 

Tactical decisions-

·         Tactical/ operational decisions is of the nature of programmed decision and is derived from strategic decision.

·         It is related to day to day working of an organization.

·         It is made in the context of well set policies, procedures and rules.

·         These are mostly repetitive and are made very frequently.

·         The outcome of tactical decision is of short term nature and effect a narrow part of the organization.

·         The authority of making decision is delegated to lower level managers.

BARRIERS TO EFFECTIVE PLANNING/LIMITATIONS OF PLANNING AND MAKING PLANNING EFFECTIVE

 

BARRIERS TO EFFECTIVE PLANNING/LIMITATIONS OF 

PLANNING

1.      Difficulty of accurate premises- Planning exercise is undertaken on the basis of planning premises which determine by a large number of factors in the environment which are dynamic, therefore limited factors in planning is the difficulty in establishing accurate premise.

2.      Problem of rapid change – In a rapidly changing environment planning process, particularly for long terms plan, become quite complicated, new problem tend to emerge even before solving the existing problem.

3.      Internal inflexibilities- because of internal flexibility, there are limitation for adopting rational approach of planning. The major internal inflexibility are-

a)      Psychology inflexibility- It is a form of resistance to change. Manager and employees in the organization may develop patterns of though and behavior that are hard to change. They look more in terms of present rather than future.

b)     Policy and procedural inflexibility- once policies and procedures are established, they are difficult to change. Through these policies and procedures are meant to facilitate managerial actions by providing guidelines. They often tend to be too exacting and numerous that they leave very little scope for managerial initiative and flexibility. Example – bureaucratic organization where rules and procedures become more important than results.

c)      Capital investment- once funds are invested in fixed assets, the ability to switch over to future course of action become rather limited, and present investment itself become a planning premise. This inflexibility continues unless the organization can reasonably liquidates its investment or change its course of all action or it can write off the investment. However, these options are quite difficult to adopt.

4.      External inflexibility- managers do not have control over external inflexibilities like - economic, political, technological and social forces (also called PEST). These organizational environmental factors can generate more inflexibility for an organization planning-

a)      Political climate- every organization to a greater/lesser degree, is faced with the inflexibility of political climate, attitudes of government towards business, taxation policy, regulation of business etc, generate constraint on the organizational planning process.

b)     Trade unions- the existence of trade unions, particularly those at the national level, tends to restrict freedom of planning. They set the work rules and productivity apart from the wages and other benefits. To that extent, managers are not free to make decisions of their choice, including formulation of a new type of plan.

c)      Technological change- an organization is engaged in its process with a given technology. When there is a change in the technology, it has to face numerous problems resulting in higher cost of production, and less competitive advantage in the market. However the organization, cannot change its technology so frequently, therefore higher is the rate of technological changes, more would be the problem of long term planning.

5.      Time and cost factors- planning process is quite time consuming and costly. planning steps may go for high level of precision, unlimited amount of time in forecasting, evaluating alternatives, developing supportive plans, etc if they do not have limitations of time. Besides this planning is also limited because of the cost factor. If cost increases planning becomes more elaborative and formalized. Additional staff is to be appointed and paper work increases. It cannot be taken beyond the level at which it justified cost.

6.      Failure of people in planning- there are many reasons why people fail in planning like lack of commitment to planning, failure to formulate sound plans, lack of clear and meaningful objectives, tendency to overlook planning premises , failure to see the scope of plan, failure to see planning as a rational approach, excessive reliance on past experience, lack of top management support, lack of proper delegation of authority, lack of adequate control over technology, etc.

 

MAKING PLANNING EFFECTIVE

ü  Linked to long term objectives

ü  Direction for action

ü  Simplicity

ü  Flexible

ü  Consistent

ü  Initiative at top level

ü  Feasible

ü  Participating in planning process

ü  Integration of long term and short term plans

ü  Establishing climate for planning

PROCESS OF PLANNING

 PROCESS OF PLANNING

Planning process consists of various steps in a sequence through which plans are formulated.

Perception opportunity is not strictly a planning process. However, it is very important for planning because it leads to formulate plans by providing due whether opportunity exist for taking up particular plans once the opportunity are perceived to be available, steps of planning  are undertaken.

1.       Setting objectives – major organizational objective are set. Objectives are the end results to be achieved by implementations of plans. Organizational objectives are specified in all key result area. Once organizational objectives are identified, objectives of organization units and sub units can be identified on the basis of organization objective.

 

Establishing planning premises- after setting organizational objectives, the next step is establishing planning premises i.e, the conditions under which planning activities will be undertaken. Planning premises are

1.       assumption about the expected environmental and internal conditions in future. These are based on which the plans are formulated.

There are two types of planning premises:-

A)     EXTERNAL:- it includes factors of environment which affect organizational working.

B)      INTERNAL:- includes organization policies, resources and ability of organization to with stand the environment pressure.

At the top level it focus externally, as one moves down the organization hierarchy emphasis on planning premises changes from external to internal.

 

2.       Identifying alternatives- based on the organization objectives and planning premises , various alternatives (course of action) are identified. It suggests that a particular objective can be achieved through alternative actions.

 

3.       Evaluating alternatives- In this, an attempt is made to evaluate how each alternative contribute to achieve objective of the organization in light of its resources and constraints. For evaluation of alternative rational criteria should be used like organizational vision, cost, return, risk, etc.

 

4.       Choosing alternative- after evaluating an alternative, the most suitable one is selected. Sometimes more than one alternative is equally good, in such case more than one alternative is chosen keeping in view the various planning premises. This is beneficial as the planner must be ready with alternative plan, known as contingency plan, which can be implemented in changing situations.

 

5.       Plan implementation- after selecting plan it is implemented i.e, putting the plan into action, for implementing the plan, various action plan known as supporting plans/ derived plans are formulated like, plans for buying equipments, buying raw materials, recruitment and training etc on the basis of main plan these are implemented.

 

6.       Follow up action- plan implementation takes a lot of time. Therefore, when the plan is taken into action, follow up action is required to see whether the plan is implemented according to the schedule or not.

  

TYPES /LEVELS/MODES/FORMS OF PLANNING

 

TYPES /LEVELS/MODES/FORMS OF PLANNING

1.     

          COORPORATE PLANNING AND FUNCTIONAL PLANNING

2.       STRATEGIC PLANNING AND OPERATIONAL PLANNING

3.       LONG TERM PLANNING AND SHORT TERM PLANNING

1.      

     Corporate planning and functional planning

Planning activity is pervasive and can be undertaken at various levels of an organization. It may be for the organization as a whole or for different functions.

Thus, on the basis of activities, there may be planning for the organization as a whole called corporate planning or for its different functions called functional planning.

Corporate planning- It is undertaken at the top level or the corporate level and covers entire organizational activities. It is of integrative nature. Its basic focus is to determine the long term objectives of organization as a whole and generates plans to achieve them, bearing in mind the possible change of environment. It provides basis for functional planning.

Functional planning- It is of segmental nature and is undertaken for each major function of the organization like production/operation, marketing, finance, human resources etc.

At the second level, it is undertaken for sub function within each major function.

Example- marketing planning is undertaken at the level of marketing department and to put marketing plan in action like sales, promotion, marketing research etc.

 

2.      Strategic planning and operational planning-

 

Strategic planning- it involves setting long term direction of the organization in which it wants to proceed in future. It is the process of deciding long term objectives and deciding where the organizational resources and efforts should be put to achieve its objectives. It deals with strategic issues like – type of business to be undertaken, diversification of business into new lines, type of product to be offered etc, it also involves rigorous analysis of various environmental factors to relate the organization relates to its environment.

 

Operational planning- also known as tactical planning. It is the process of deciding the most effective use of the resources already allocated through strategic planning and to develop a control mechanics to ensure effective implementation of the actions. Usually it covers 1 year. It aims at sustaining the organization in its production/generation and distribution of products in the market.

 

1.      Long term and short term planning-

 

Long term planning- it is of strategic nature and involves usually plans for 5 years. It usually covers all the functional areas of the business. In this process, high emphasis is placed on the analysis on the environmental factors. Basic changes like change in organizational vision and mission, major changes in structure, change in key personnel etc.  becomes the significant factors for long term planning.

 

Short term planning- usually covers 1 year. This aims at making effective use of organizational resources, financial, physical and human resources. It directly and immediately effect functional areas- production, marketing, and finance, etc  .

 

NATURE OF PLANNING AND IMPORTANCE OF PLANNING

NATURE OF PLANNING   

   

Planning proceeds all other managerial function. It establishes the objectives necessary for the group efforts. All other functions are performed to achieve the objectives set by the planning process.

1.       Rational approach-

planning is a rational approach for defining where one stands at the present and where one wants to go in the future and how to reach there. It involves the choice of appropriate means to fill the gap between present status and future status. The present and future status is usually expressed in terms of objectives and actions to be taken to achieve these objectives.

1.       Open system approach- planning adopts an open system approach which indicates that the future course of actions is influenced by the environment in which an organization operates. Therefore managers have to take into account various feature of environment.

2.       focus on objectives –

This is done in two forms-

a)      planning specifies the objectives which are to be achieved within specific time frames.

b)      Planning also specifies how these objectives are to be achieved.

 

3.       Decision making – it involves choosing the most appropriate alternative out of the several alternatives available, thus planning involves choosing the most appropriate alternative.

 

4.       Forward looking- planning is concerned with looking into future. It requires forecasting the future behavior of environment.

 

5.       Pervasiveness – planning is pervasive and extends throughout the organization. Thus every manager at any level of management performs planning function. This is why organization has plans at different level.

 

6.       Continuous process-  Planning is a continuous process. Even if a plan is decided to be executed over a period of time, the planning process does not come to an end. This is because business environment is dynamic in nature and any change in it requires adjustments in the plan through the planning process.

 

7.       Flexibility- Planning has flexibility as this process works in a dynamic environment business environment. It assumes that actual results if environmental conditions changes during plan execution period ,to ensure this , there is need for realizing the plan with changed environment .

 

8.       Mental exercise- planning is a thinking process rather than doing process. It works in environment which is abstract and not physical and requires considerable thinking. Therefore it requires conceptual skills to succeed in planning.

IMPORTANCE OF PLANNING

It is said that “if you have planned well, half of your work is done”. The most important difference between successful and unsuccessful organization is planning. This is why top management devotes maximum time in planning.

1.       Direction of action- “a good plan is like a road map, it shows the final destination and usually the best way to get there.” A good plan is a result of good planning action. Planning provides direction for action, by prescribing what is to be achieved and how it can be achieved.

 

2.       Reducing the risk of uncertainty-  Planning does not reduce uncertainty of environment but reduces the risk.

 

3.       Reduces overlapping and wasteful activities- By prescribing what is to be done and how it can be done. By this only necessary activities are performed, and there is no duplication of activities.

 

4.       Promoting creativity and innovation- Creativity is generation of new ideas for solving problems and innovation is introduction of any product or service or ideas that is considered as new, which helps an organization to increase its market standing.

 

5.       Facilitating decision making- Planning facilitates decision making throughout an organization by providing standing plans. Decisions are made on the basis of guidelines provided by these standing plans. Example- planning set policies, procedures, rules etc. this quickens decision making process.

 

6.       Helps in coordination – all managerial functions leads to coordination in the organization , real beginning is made at the planning stage. Various department work in accordance with the overall plan and the harmony is achieved.

 

7.       Providing basis for controlling-  In controlling, actual performance results are compared with standards and standards and standard are decided in planning process. If there is any deviation between the two, necessary corrective actions are taken to ensure that no deviation emerges in future.

PLANNING - MEANING AND CONCEPT

 

PLANNING

MEANING AND CONCEPT

Planning has been defined as one of the five major functions of management. Planning is the bridge between the present and the future.

Planning is a decision making activity requiring the process of ascertaining objectives and deciding on activities to attain these objectives.

Planning is also a process of preparing for the change and coping with uncertainty by formulating future course of action.

Basic purpose of planning is to reduce the risk and uncertainity.

Planning is required at all the levels though there is a greater need of it at the higher level. It is divided in two levels:-

A)     HIGHER LEVEL- planning is generally a long term, covering a period of between 6 months to 10 years , and is concerned with goals, strategies for the entire organization.

B)      LOWER LEVEL- planning is short term ranging from day to day and maximum 1 month and is only concerned with individual work units or departments.

The important aspect of planning process are defining and establishing objectives , policies, procedures, methods, rules and regulations ,budget, programmes , strategies, and etc.

The concept can be understood as –

P – performance of the past

L – loopholes of yesterday

A – analytical study of P&L

N – new goals for future

Planning is the first and most important function of Management , because “management starts with planning and ends with control”.

It bridges the gap between where we are and where we want to go. It is a process of visualizing into the future and discover alternative courses of action so as to select the best alternative, to achieve the desired goal.

DEFINATION OF PLANNING

Theo Haimann- “Planning is the deciding in advance, what is to be done”.

ACCORDING TO CLAUDE S GEORGE, “planning involves looking ahead, conceptualizing about future events and making decisions today which affects the future”.

ACCORDING TO KOONTZ AND O DONNELL, “planning is an intellectual process, the conscious determination of future course of action, the basing of decision on purpose, facts and considered estimate.

ACCORDING TO LOUIS A ALLEN, “planning involves the development of forecast, objectives, policies, programmes, procedure, schedules and budgets.

 

CONCEPT

There are two terms-

1.       PLANNING- it is a process consisting of various steps.

2.       PLAN- it is a commitment to a particular course of action, believed necessary to achieve particular results.

for example- government of India prepares 5 year plans, which consists of various actions to be taken , results to be achieved and resources to be used. These plans are prepared through planning process.

“Planning involves deciding in advance what to do and how to do it, i.e., planning decides future course of action which an organization takes.