Unit - 2 POM

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MG2351 – PRINCIPLES OF MANAGEMENT

Unit – II Planning

A process that involves defining the organization‘s goals, establishing an overall strategy for

achieving those goals and developing a comprehensive set of plans to integrate and coordinate

organizational work. – Stephen P.Robbins & Mary Coulter.

Nature of Planning

Planning is goal-oriented: Every plan must contribute in some positive way towards the

accomplishment of group objectives. Planning has no meaning without being related to

goals.

Primacy of Planning: Planning is the first of the managerial functions. It precedes all

other management functions.

Pervasiveness of Planning: Planning is found at all levels of management. Top

management looks after strategic planning. Middle management is in charge of

administrative planning. Lower management has to concentrate on operational planning.

Efficiency, Economy and Accuracy: Efficiency of plan is measured by its contribution

to the objectives as economically as possible. Planning also focuses on accurate forecasts.

Co-ordination: Planning co-ordinates the what, who, how, where and why of

planning.Without co-ordination of all activities, we cannot have united efforts.

Limiting Factors: A planner must recognize the limiting factors (money, manpower etc)

and formulate plans in the light of these critical factors.

Flexibility: The process of planning should be adaptable to changing

environmental conditions.

Planning is an intellectual process: The quality of planning will vary according to the

quality of the mind of the manager.

Purpose of Planning

Planning gives direction

Reduces the impact of change

Minimizes waste and redundancy

Sets the standards used in controlling


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Planning Process (or) Steps in Planning

1. Being aware of opportunities

Managers should take a preliminary look at possible future opportunities and see

them clearly and completely, know where their company stands in light of its

strengths and weaknesses, understand what problems it has to solve and why and

know what it can expect to gain.

Planning requires a realistic diagnosis of the opportunity situation.

2. Establishing Objectives

The second step in planning is to establish objectives for the entire enterprise and

then for each subordinate work unit.

Objectives specify the expected results and indicate the endpoints of what is to be

done, where the primary emphasis is to be placed and what is to be accomplished

by the network of strategies, policies, procedures, rules, budgets and programs.

Enterprise objectives give direction to the major plans, which by reflecting these

objectives, define the objective of every major department. Major departmental

objectives in turn control the objectives of subordinate departments and so on

down the line. In other words, objectives form a hierarchy.

Being Aware of Opportunities

Setting Objectives or Goals

Considering Planning Premises

Identifying Alternatives

Comparing Alternatives in light of goals sought

Choosing an Alternative

Formulating Supporting Plans

Quantifying plans by making Budgets


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Managers should also have the opportunity to contribute ideas for setting their

own goals and those of the enterprise.

3. Developing Premises

The next logical step in planning is to establish, circulate and obtain agreement to

utilize critical planning premises such as forecasts, applicable basic policies and

existing company plans.

In what environment – internal or external – will our plans operate?

Premises – Assumptions about the environment in which the plan is to be carried

out.

It is important for all the managers involved in planning to agree on the premises.

Principle of Planning Premises

o The more thoroughly individuals charged with planning understand and

agree to utilize consistent planning premises, the more coordinated

enterprise planning will be.

Forecasting is important in premising.

4. Determining Alternative Courses

The fourth step in planning is to search for and examine alternative courses of

action.

The more common problem is not finding alternatives but reducing the number of

alternatives so that the most promising may be analysed.

5. Evaluating Alternative 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.

6. Selecting a Course

This is the point at which the plan is adopted. i.e., the real point of decision

making.

Occasionally, an analysis and evaluation of alternative courses will disclose that

two or more are advisable and the manager may decide to follow several courses

rather than the one best course.

7. Formulating Derivative Plans

Derivative plans are almost invariably required to support the basic plan.

8. Quantifying Plans by Budgeting

After decisions are made and plans are set, the final step is to quantify them by

converting them into budgets.


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The overall budget of an enterprise represents the sum total of income and

expenses, with resultant profit or surplus and the budgets of major balance sheet

items such as cash and capital expenditures.

If done well, budgets become a means of adding the various plans and set

important standards against which planned progress can be measured.

Types of Plan

Plans – Documents that outline how goals are going to be met including resource allocations,

schedules and other necessary actions to accomplish the goals.

Types

I.

Strategic Plans - Plans that apply to the entire organization, establish the organization‘s overall

goals and seek to position the organization in terms of its environment.

Operational Plans - Plans that specify the details of how the overall goals are to be achieved.

Long-term plans - Plans within a time frame beyond three years

Short-term plans - Plans covering one year or less.

Directional Plans - Plans that are flexible and that set out general principles.

Specific Plans - Plans that are clearly defined and that leave no room for interpretation

Single-use plan - A one-time plan specifically designed to meet the needs of a unique situation.

Standing Plans - Ongoing plans that provide guidance for activities performed repeatedly.


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II.

Operational plans lead to the achievement of tactical plans, which in turn lead to the attainment

of strategic plans. In addition to these three types of plans, managers should also develop a

contingency plan in case their original plans fail.

a) Strategic plans:

A strategic plan is an outline of steps designed with the goals of the entire organization as a

whole in mind, rather than with the goals of specific divisions or departments. It is further

classified as

i) Mission:

. The mission is a statement that reflects the basic purpose and focus of the organization which

normally remain unchanged. The mission of the company is the answer of the question : why

does the organization exists?

Mission of Ford: ―we are a global, diverse family with a proud inheritance, providing exceptional

products and services‖.

ii) Objectives or goals:

Both goal and objective can be defined as statements that reflect the end towards which the

organization is aiming to achieve. However, there are significant differences between the two. A

goal is an abstract and general umbrella statement, under which specific objectives can be

clustered. Objectives are statements that describe—in precise, measurable, and obtainable terms

which reflect the desired organization‘s outcomes.


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iii) Strategies:

Strategy is the determination of the basic long term objectives of an organization and the

adoption of action and collection of action and allocation of resources necessary to achieve these

goals.

Strategic planning begins with an organization's mission. Strategic plans look ahead over the

next two, three, five, or even more years to move the organization from where it is currently to

where it wants to be. Requiring multilevel involvement, these plans demand harmony among all

levels of management within the organization. Top-level management develops the directional

objectives for the entire organization, while lower levels of management develop compatible

objectives and plans to achieve them. Top management's strategic plan for the entire

organization becomes the framework and sets dimensions for the lower level planning.

b) Tactical plans:

A tactical plan is concerned with what the lower level units within each division must do, how

they must do it, and who is in charge at each level. Tactics are the means needed to activate a

strategy and make it work.

Tactical plans are concerned with shorter time frames and narrower scopes than are strategic

plans. These plans usually span one year or less because they are considered short-term goals.

Long-term goals, on the other hand, can take several years or more to accomplish. Normally, it is

the middle manager's responsibility to take the broad strategic plan and identify specific tactical

actions.

c) Operational plans

The specific results expected from departments, work groups, and individuals are the

operational goals. These goals are precise and measurable. ―Process 150 sales applications each

week‖ or ―Publish 20 books this quarter‖ are examples of operational goals.


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An operational plan is one that a manager uses to accomplish his or her job responsibilities.

Supervisors, team leaders, and facilitators develop operational plans to support tactical plans (see

the next section). Operational plans can be a single-use plan or a standing plan.

i) Single-use plans apply to activities that do not recur or repeat. A one-time occurrence,

such as a special sales program, is a single-use plan because it deals with the who, what, where,

how, and how much of an activity.

Ø Programme: Programme consists of an ordered list of events to be followed to execute a

project.

Ø Budget: A budget predicts sources and amounts of income and how much they are used for a

specific project.

ii) Standing plans are usually made once and retain their value over a period of years while

undergoing periodic revisions and updates. The following are examples of ongoing plans:

Ø Policy: Policies are general statements that explain how a manager should attempt to handle

routine management responsibilities. Typical human resources policies, for example, address

such matters as employee hiring, terminations, performance appraisals, pay increases, and

discipline.

Ø Procedure: A procedure is a set of step-by-step directions that explains how activities

or tasks are to be carried out. Most organizations have procedures for purchasing supplies and

equipment, for example. This procedure usually begins with a supervisor completing a

purchasing requisition. The requisition is then sent to the next level of management for approval.

The approved requisition is forwarded to the purchasing department. Depending on the amount

of the request, the purchasing department may place an order, or they may need to secure

quotations and/or bids for several vendors before placing the order. By defining the steps to be

taken and the order in which they are to be done, procedures provide a standardized way of

responding to a repetitive problem.


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Ø Rule: A rule is an explicit statement that tells an employee what he or she can and cannot do.

Rules are ―do‖ and ―don't‖ statements put into place to promote the safety of employees and the

uniform treatment and behavior of employees. For example, rules about tardiness and

absenteeism permit supervisors to make discipline decisions rapidly and with a high degree of

fairness.

d) Contingency plans

Intelligent and successful management depends upon a constant pursuit of adaptation, flexibility,

and mastery of changing conditions. Strong management requires a ―keeping all options open‖

approach at all times — that's where contingency planning comes in.

Contingency planning involves identifying alternative courses of action that can be implemented

if and when the original plan proves inadequate because of changing circumstances.

Unexpected problems and events frequently occur. When they do, managers may need to change

their plans. Anticipating change during the planning process is best in case things don't go as

expected. Management can then develop alternatives to the existing plan and ready them for use

when and if circumstances make these alternatives appropriate.

Objective

Objectives or goals are the ends toward which activity is aimed.

An objective is verifiable when at the end of the period one can determine whether or not

it has been achieved.

Nature of objectives

Objectives state end results

Overall objectives need to be supported by sub objectives.

Objectives form a hierarchy as well as network.

Hierarchy of Objectives

Key Result Area (KRA) – An area in which performance is essential for the success of the

enterprise.

Non-verifiable objective: Eg., To make a reasonable profit.


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Verifiable objective: Eg., To achieve a return on investment of 12% at the end of the current

fiscal year.

Management By Objectives(MBO)

―A management system in which specific performance goals are jointly determined by

employees and their managers, progress toward accomplishing those goals is periodically

reviewed and rewards are allocated on the basis of this progree‖. - Stephen P.Robbins and Mary

Coulter

Elements

Goal specificity

Participative decision-making

An explicit time period

Performance feedback

Process of MBO

Setting of Organizational purpose and Objectives

o The first basic step in MBO is the definition of organizational purpose and

objectives


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o Questions, such as ―why does the organization exist?‖, ―what business are we in?‖

and ―what should be our business?‖ provide guidelines for the statement of

purpose. This, in interaction with external factors then determines the long-range

strategic objectives.

Key Result Areas (KRAs)

o Organizational objectives and planning premises together provide the basis for the

identification of key result areas.

o It may be emphasized that KRAs are derived from the expectations of various

stakeholders and indicate the priorities for organizational performance.

Setting subordinate’s objectives

o The organizational objectives are achieved through individuals. Therefore, each

individual manager must kow in advance what he is expected to achieve.

o The process of objective setting begins with superior‘s proposed

recommendations fro his subordinate‘s objectives. In turn, the subordinate states

his own objectives as perceived by him. Thereafter, the final objectives for the

subordinate are set by the mutual negotiation between superior and subordinate.

Organizational Purpose and

Objectives

Planning Premises

Key Result Areas

Superior’s Objectives

Subordinate’s statement of his

objectives

Superior’s recommendation for

subordinate’s objectives

Subordinate’s agreed objectives

Subordinate’s Performance

Matching Resources


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Matching resources with objectives

o Resource availability becomes an important aspect of objective setting because it

is the proper application of resources which ensures objective achievement.

Therefore, there should be a matching between objectives and resources.

o The allocation and movement of resources should be done in consultation with the

subordinate manager.

Appraisal

o Appraisal aspect of MBO tries to measure whether the subordinate is achieving

his objective or not. If not, what are the problems and how these problems can be

overcome.

o It is taken as a matter of system to ensure that everything is going as planned and

the organization is able to achieve its objectives.

Recycling

o The outcome of appraisal at on level is recycled to see if the objectives have been

set properly at the level concerned and also at the next higher level.

o The three aspects involved in recycling process include setting of objectives at

various levels, action planning in the context of those objectives and performance

review. Each of these aspects gives base for others.

Benefits of MBO

Improvement of managing through results-oriented planning

Clarification of organizational roles and structures as well as delegation of authority

according to the results expected by the people occupying the roles.

Encouragement of commitment to personal and organizational goals.

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

Problems and Limitations of MBO


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Time and Cost

Failure to teach MBO philosophy

Problems in objective setting

Emphasis on short-term objectives

Inflexibility

Frustration

Prerequisites for installing MBO Programme

Purpose of MBO

Top management support

Training for MBO

Participation

Feedback for self-direction and self-control.

Strategy

The determination of the mission or purpose and the basic long-term objectives of an enterprise,

followed by the adoption of courses of action and allocation of resources necessary to achieve

these aims.

Strategic Management

The set of managerial decisions and actions that determines the long-run performance of an

organization.

Strategic management process - a six-step process that encompasses strategic planning,

implementation, and evaluation.


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Types of Organizational Strategies

Corporate-Level Strategy

o An organizational strategy that seeks to determine what businesses a company

should be in or wants to be in.

o Determines the direction that the organization is going and the roles that each

business unit in the organization will play in pursuing that direction.

o Grand Strategy

Stability strategy - A corporate-level strategy characterized by an absence

of significant change.

Growth strategy

A corporate-level strategy that seeks to increase the level of the

organization‘s operations.

Growth through direct expansion ( also called concentration) is

achieved by internally increasing a firm‘s sales, production

capacity or workforce.

Growth through vertical integration is an attempt to gain control of

inputs, outputs or both.

In horizontal integration, a company grows by combining with other

organizations in the same industry – that is, combining operations

with competitors.

Diversification

Related diversification is when a company grows by merging with

or acquiring firms in different but related industries.

Unrelated diversification is when a company grows by merging with

or acquiring firms in different and unrelated industries.

Retrenchment strategy

A corporate-level strategy designed to address organizational

weaknesses that are leading to performance declines.

o Corporate Portfolio Analysis: BCG Matrix


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A strategy tool that guides resource allocation decisions on the basis of

market share and growth rate of SBUs.

Business-Level Strategy

o An organizational strategy that seeks to determine how an organization should

compete in each of its businesses.

o Strategic Business Units (SBUs)

When an organization is in several different businesses, these single

businesses that are independent and that formulate their own strategies.

Competitive Advantage: What sets an organization apart: its distinct

edge.

Competitive Strategies: Porter’s Five Forces Model


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Three Generic Strategies

o Cost Leadership Strategy – A business-level strategy in which the

organization is the lowest-cost producer in its industry.

o Differentiation Strategy – A business-level strategy in which a

company offers unique products that are widely valued by customers.

o Focus Strategy – A business-level strategy in which a company

pursues a cost or differentiation advantage in a narrow industry

segment.

Functional-level strategy

An organizational strategy that seeks to determine how to support the business-level strategy.

Policies

Policy is a statement and predetermined guideline that provides directions for decision

making and taking action.

General statements or understandings that guide or channelize thinking in decision making.


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Types

On the basis of levels

o Basic policies are set by top level management

o General policies are set by middle level management

o Division policies are set by division heads or first line supervisors.

On the basis of functions

o Separate policies are set by management for different managerial functions such

as production policy, purchasing policy, pricing policy, dividend policy, quality

policy, sales policy, personnel, financial etc.

On the basis of sources

o Originated policies are formulated by top level managers on their own intuition

and experience.

o Appealed policies are formulated by top level managers in response to appeals

made by lower level mangers

o Imposed policies are those which are imposed upon the organization by external

agencies such as government, trade union and trade associations.

Policy Making Process (or) Steps in Policy Making

Policy formulation – Policies are formulated by top management. Such policies arise out

of needs and purpose perceived and defined by top management.

Policies

On the basis of levels

Basic Policy

General Policy

Division Policy

On the basis of functions

Production Policy

Marketing Policy

Personnel Policy

Accounting Policy

On the basis of sources

Originated Policy

Appealed Policy

External Policy


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Policy communication – After framing the policy, the policy is communicated to those

who are responsible for its applications.

o Communication of policy may be in the form of policy manuals, written

memorandums, board letters and announcements.

Policy Application – The policy should be strictly applied by subordinates. Some

flexibility is also essential in day-to-day activities.

Policy Review and Appraisal – Policy become obsolete when it is not reviewed

periodically.

o Periodical review of policy is essential to avoid complacency in the future.

o Management should analyse the existing policies and outdated policies must be

scraped out.

Decision Making

Decision – A choice from two or more alternatives.

Decision Making Process

A set of eight steps including identifying a problem, selecting an alternative and evaluating the

decision‘s effectiveness.

1. Identification of a problem

The decision making process begins with the existence of a problem.

Problem : A discrepancy between an existing and a desired state of affairs.

Problem identification is subjective.

Before something can be characterized as a problem, managers have to be aware

of the problem, be under pressure to take action and have the resources needed to

take action.

2. Identification of Decision Criteria

Once a manager has identified a problem that needs attention, the decision criteria

important to resolving the problem must be identified.

Decision Criteria: Criteria that define what‘s relevant in a decision.

These might include criteria such as price, product model and manufacturer,

standard features, optional equipment, service warranties, repair record and

service support after purchase.

Policy Formualtion

Policy Commuication

Policy Application

Policy Review and Appraisal


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Whether they are explicitly stated or not, every decision maker has criteria that

guide his or her decisions

3. Allocation of weights to criteria

The criteria identified in step 2 are not all equally important, so the decision

maker must weight the items in order to give them correct priority in the decision.

A simple approach is to give the most important criterion a weight of 10 and then

assign weights to the rest against that standard.

The idea is to use personal preferences to prioritize the criteria identified in step 2

by assigning a weight to each.

4. Development of alternatives

The fourth step requires the decision maker to list the viable alternatives that

could resolve the problem.

No attempt is made in this step to evaluate the alternatives, only to list them.

5. Analyzing alternatives

Once the alternatives have been identified, the decision maker must critically

analyze each one.

Each alternative is evaluated by appraising it against the criteria established in

steps 2 and 3. From this comparison, the strengths and weaknesses of each

alternative become evident.

6. Selection of an alternative


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The sixth step is the important act of choosing the best alternative from among

those considered.

The decision makers have to choose the alternative that generated the highest

score in step 5.

7. Implementation of the alternative

Step 7 is concerned with putting the decision into action.

Implementation involves conveying the decision to those affected by it and

getting their commitment to it.

8. Evaluating decision effectiveness

The last step in the decision-making process involves appraising the outcome of

the decision to see if the problem has been resolved.

Did the alternative chosen in step 6 and implemented in step 7 accomplish the

desired result? Answer to this question might send the manager back to one of the

earlier steps.

Type of Decisions

Programmed Decisions

A repetitive decision that can be handled by a routine approach

The programmed decision process is characterized by high levels of certainty for both the

problem formulation and the problem solution phases.

Rules and procedures typically spell out exactly how to respond

Programmed decisions are used for structured or routine work. Eg., Promotion decisions

Non-programmed decisions

Decisions that must be custom-made to solve unique and nonrecurring problems


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Non-programmed decisions are made by upper-level managers, this is because upper-

level managers have to deal with unstructured problems.

Non-programmed decisions are used for unstructured, novel and ill-defined situations of

a non recurring nature. Eg., Introduction of the Macintosh Computer by Apple Computer.

Comparison of Programmed and Non-Programmed Decisions

Rational Decision Making

Describes choices that are consistent and value maximizing within specified constraints.

Bounded Rationality

Behaviour that is rational within the parameters of a simplified decision-making process, which

is limited (or bounded) by an individual‘s ability to process information.

Satisficing

Acceptance of solutions that are ‗good enough‘.

Escalation of Commitment

An increased commitment to a previous decision despite evidence that it may have been wrong.


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Intuitive decision-making

A subconscious process of making decisions on the basis of experience and accumulated

judgement.

Rational Decision Making Process

Recognize the need for a decision

o Manager recognize the need for a decision in the form of a problem or

opportunity.

Definition of the problem

o A problem is the gap between present and the desired state of affairs on the

subject matter of the decision.

o The definition and diagnosis of the problem involves three types of skills:

noticing, interpreting and incorporating.

Search and develop alternatives

o The alternative course of action can be developed by collecting more information,

thinking creatively, consulting experts and undertaking research.

o Limiting Factor: A limiting factor is something that stands in the way of

accomplishing a desired objective.

Recognise the need for a decision

Definition of the problem

Search and develop alternatives

Evaluate alternatives

Selecting an alternative among alternatives

Implement chosen alternative

Learn from feedback


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o Principle of the Limiting Factor: By recognizing and overcoming factors that

stand critically in the way of a goal, the best alternative course of action can be

selected.

Evaluate Alternatives

o After identifying alternative courses of action, they must be compared and

evaluated. This step determines the relative cost of each alternative.

o Managers have to determine the advantages and disadvantages of ach alternative.

o Selecting an alternative course of action among alternatives

Experience

o Experience on the part of managers greatly influence the decision making process.

o Selecting a best alternative not only depends on the manager‘s past experience but

also depends on the creative thinking and innovative skills of the manager.

Experimentation

o Manager tests the alternatives under actual and prevailing conditions

o The experimentation may be in the form of test marketing of a new product

o This method of selecting an alternative is more expensive.

Research and Analysis

o Research and analysis involves a search for relationships among the critical

variables, constraints and premises.

o This approach requires modeling of problems and to stimulate them

o It is mainly a mathematical approach. The expenses required for this criterion is

very less compared to experimentation.

o This is one of the effective criteria to choose the best alternative course of action.

This method is more accurate one.

Implement chose alternative

Experimentation

Research and Analysis

Reliance on the past Choice made How to select from

amongst

alternatives?


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o The decision taken by the management will not serve the purpose if it is not

executed properly.

o Manager has to take essential steps to implement the solution.

Learn from feedback

o Feedback is important because decision making is a continuous and never ending

process

o Feedback information is very much useful in taking the corrective measures and

in taking right decisions in the future.

Common decision making errors and biases

Decision Making under different conditions

Decision making under certainty

o A situation in which a manager can make accurate decisions because all outcomes

are known.

o It is more idealistic than realistic.

Decision making under Risk

o Those conditions in which the decision maker is able to estimate the likelihood of

certain outcomes.


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o The ability to assign probabilities to outcomes may be the result of personal

experiences or secondary information.

Decision making under Uncertainty

o A situation in which a decision maker has neither certainty nor reasonable

probability estimates available.

o Force managers to rely on intuition, hunches, and ―gut feelings‖.

o Approaches

The optimistic manager will follow a maximax choice (maximizing the

maximum possible payoff)

The pessimist will follow a maximin choice (maximizing the minimum

possible payoff)

The manager who desires to minimize his maximum ―regret‖ will opt for a

minimax choice.

Unit - 2 POM

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