GK Planning Students Notes

7/28/2019 GK Planning Students Notes

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PLANNING



2

Provides

Direction Planning bridges

the gap between

where we are &

where we want to

be

Minimizes impulsive

& arbitrary decisions

Reduces

Uncertainties

Resource

Allocation

Importance of Planning – Why Plan?

GK7/4/2013 2



REASONS FOR PLANNING



Nature and Characteristics of planning• Planning is the determination of line of action to achieve the desired goals.

• Planning is deciding in advance what should be done, how it should bedone and who will do it.

Important characteristics of planning:

1. “Choosing” is at the root of planning: Picking out the best from among a

number of alternatives becomes important.

2. “Planning” is the thinking process: Planning denotes logical thinkingand decision-making. It involves decision as to:

– What is to be done?

– How it is to be done?

– When it is to be done?

– By whom it is to be done?Decision in respect of these can be made only when the management has the

gift and foresight and vision backed by facts and proper experience.

4



8. Planning is an integrated process: Planning involvesselection of concrete objectives and formulation of soundpolicies, programmes, procedures and strategies for theaccomplishment of the objectives. Such an important taskcan’t be accomplished by sitting in an isolated corner.

9. Co-ordination: Planning co-ordinates the activities of theorganization like what, who, how, where and why of planning.

10. Limitation: Planning recognizes the shortcomings andlimitations and frames the plan taking these aspects into

consideration.11. Flexibility: The planning process should be flexible as toadjust in the changing conditions.

6



STEPS IN PLANNING :

Being aware of opportunities

Setting objectives or goals

Considering planning premises

Identifying the alternatives

Comparing the alternatives in the light of the goals sought

Choosing an alternative

Formulating the supporting plans

Numberizing the plans by making budgets



Porter’s 5 force model



ADMINISTRATION AND MANAGEMENT

Oliver Sheldon :

Administration determines, Management executes

Brech :

Management is total process of executive control.

Administration carries out the procedures.

Henry Fayol :

Management refers to managerial functions in Industries. Administration refers to managerial functions in Govt.

organizations



‘Plans Are Nothing but Planning is Everything’ - Dwight D.Eisenhower

Identifying and selecting appropriate goals and courses of action for an organization.

The planning function determines how effective andefficient the organization is and determines the strategy of

the organization. Three Steps in the Planning Process:

Deciding which goals to pursue.

Deciding what courses of action to adopt.

Deciding how to allocate resources.



PLANNING Defined

Defining the organization’s objectives or goals

Establishing an overall strategy for achieving those goals

Developing a comprehensive hierarchy of plans to integrate

and coordinate activities



TYPES OF PLANS :

Purposes / Mission

Objectives

Strategies

Policies

Procedures

Rules

Programs

Budgets



FIRST LEVEL

MANAGERS

MIDDLE LEVEL

MANAGERS

TOP LEVEL

MANAGERS

BOARD OF

DIRECTORS



Mission

It identifies the basic function or task of an enterprise oragency or any part of it. Example:

Mission Of Oil Company : Are To Search For Oil And To

Produce ,Refine, Market Petroleum Product.

DUPONT Company – Better Thing Through Chemistry.

NASA – Get A Person To The Moon Before Russians.



How To Write a Mission Statement

1. List the organization's core competencies; its unique strengths and

weaknesses.

2. List the organization's primary customers, internal or external, by type, not

by name.

3. Review how each customer relates to each of the organization's strengths.

Ask them if possible.

4. Write a one-sentence description of each customer/strength pairing.

5. Combine any that are essentially the same.

6. List the sentences in order of importance to the organization's vision, if one

exists.

7. Combine the top three to five sentences into a paragraph.

8. Ask your customers if they would want to do business with an organization

with that mission.



9. Ask your employees if they understand and support it and can act on it.

10. Ask your suppliers if it makes sense to them.

11. Incorporate the feedback from customers, employees and suppliers and

repeat the process.

12. When you have refined the paragraph into statements that clearly

articulates the way the company wants to relate to those it effects, publish it

to everyone. Post it on the wall, email it to everyone, etc.

A good mission statement provides strategic vision and direction for the

organization and should not have to be revised every few years. Goals and

objectives are the short-term measures used to get there.

Revise the organization's mission statement when it is no longer

appropriate or relevant.



Objectives

OBJECTIVES ARE DEFINED AS THE IMPORTANT ENDS

TOWARDS WHICH ORGANIZATIONAL AND INDIVIDUAL

ACTIVITIES ARE DIRECTED

VERIFIABLE OBJECTIVES-FACILITATE MEASUREMENT OF THE

SURPLUS AS WELL AS THE EFFECTIVENESS AND EFFICIENCY OF

MANAGERIAL ACTIONS



TOP DOWN APPROACH –UPPER LEVEL MANAGERS

DETERMINE THE OBJECTIVES FOR SUBORDINATES.

BOTTOM UP APPROACHES –SUBORDINATES INITIATE THESETTING OF OBJECTIVES FOR THEIR POSITIONS AND PRESENT

THEM TO THEIR SUPERIOR.



Overall objectives of a University

ATTRACTING HIGHLY QUALIFIED STUDENTS

OFFERING BASIC TRAINING IN PROFESSIONAL FIELD

GRANTING PhD degrees

New knowledge through research

Operating school through tuition, gifts of alumni and friends



Networking of Objectives

BOTH OBJECTIVES AND PLANNING PROGRAMS NORMALLY

FORM A NETWORK OF DESIRED RESULTS AND EVENTS .

IF GOALS ARE NOT INTERCONNECTED AND IF THEY DO NOTSUPPORT ONE ANOTHER, PEOPLE VERY OFTEN PURSUE PATHS

THAT MAY SEEM GOOD FOR THEIR OWN DEPARTMENT BUT

MAY BE DETRIMENTAL TO THE COMPANY AS A WHOLE.



POLICIES

• Policies are also the plans in that they are general statements or

understanding which guide or channel thinking in decision making.

• Not all policies are statement, they are often merely implied from the

actions of managers.

• Ex – the practice of promoting from within.

• Polices define an area within which a decision is to be made and ensure

that the decision will be consistent with and contribute to the objective.

• They help decide issues before they become problems.



EXAMPLES ARE

POLICIES OF HIRING UNIVERSITY TRAINED ENGINEERS

ENCOURAGE EMPLOYEE SUGGESTION

PROMOTING FROM WITH IN

SETTING COMPETITIVE PRICES

POLICIES HELP IN DECISION MAKING – POLICES OF BUYING

FROM THE LOWEST OF THREE QUALIFIED BIDDERS



PROCEDURES

• Procedures establish a required method of handling future

activities.

• They are guides to actions , rather than to thinking and they

detail the exact manner in which certain activities must be

accomplished.

• Chronological sequences of actions of required actions.

• Ex- company policies may grant vacation to employees ;

procedures to implement this policy will provide for

scheduling vacation to avoid any disruption of work.



RULES

• Rules—spell out specific required actions or non actions,

allowing no discretion.

• They are simplest type of plan

• They guide actions without specifying time sequence

• May or may not be part of procedure

• Ex—no smoking, quite unrelated to any procedure



PROGRAMS

Programs are a complex of goals, polices, procedures, rules,

task assignments, steps to be taken, resources to be employed

and other elements necessary to carry out a given course of

action; they are ordinarily supported by budgets.



BUDGETS Budgets are the statement of expected results expressed in numerical

terms , referred as numberized programs

Can be in terms of--- no of labour hours, units of production, financialterms, machine-hours,

Budgets usually implements a program , it may in itself be a program.

Variable or flexible budgets—depends on level of output

Program budgets—the agencies and each dept. Within the agencies

identifies the goals. Zero based budgets—combination of variable and

program budgets.



MANAGEMENT BY OBJECTIVES (MBO) :

Following are the common features of the organizational objectives :

Verifiable and quantified objectives

Hierarchy of objectives

Network of objectives

Multiplicity of objectives

Process of objective setting & organizational hierarchy



MBO Defined :

IT IS A COMPREHENSIVE MANAGERIAL SYSTEM THAT INTEGRATES MANY KEY

MANAGERIAL ACTIVITIES IN A SYSTEMATIC MANNER AND THAT IS

CONSCIOUSLY DIRECTED TOWARD THE EFFECTIVE AND EFFICIENT

ACHIEVEMENT OF ORGANISATIONAL AND INDIVIDUAL OBJECTIVES.



MBO emphasizes on the following :

Performance appraisal

Short term objectives and motivation

Long term planning



Process of MBO :

Setting preliminary objectives at the top

Clarifying organisational roles

Setting subordinates objectives

Recycling of objectives



CASCADING OF OBJECTIVES



SETTING EMPLOYEE OBJECTIVES

• Identify an employee’s key job tasks.

• Establish specific and challenging goals for each key task.

• Allow the employee to actively participate.

• Prioritize goals.• Build in feedback mechanisms to assess goal progress.

• Link rewards to goal attainment.



WEAKNESSES OF “MBO”

Failure to teach the philosophy of MBO

Failure to give guidelines to goal setters

Difficulty of setting goals

Emphasis on short run goals

Danger of inflexibility

Desire to make goals verifiable people may use quantitative

goals and attempt to use numbers in areas where they are not

applicable.



BENEFITS AND PROBLEMS OF “MBO”

Benefits – Leader/subordinate

efforts are focused onactivities that will lead

to goal attainment – Performance improved

up and down the chain

– Motivated people

Problems – Change adversely affects

planning – Low morale reduces

effectiveness – Lower level goals take

precedence – Over-centralized authoritylimits participation

– Paperwork



PLANNING (CONTD..)

Strategic Planning



Types of Plans

BREADTH TIME SPECIFICITY FREQUENCYOF USE FRAME OF USE

Strategic Long term Directional Single use

Tactical Short term Specific Standing



Strategic Planning

Strategic plans

Apply broadly to the entire organization.

Establish the organization’s overall objectives.

Seek to position the organization in terms of itsenvironment.

Provide direction to drive an organization’s efforts to

achieve its goals.

Serve as the basis for the tactical plans. Cover extended periods of time.

Are less specific in their details.



Tactical plans (operational plans)

Apply to specific parts of the organization.

Are derived from strategic objectives.

Specify the details of how the overall objectivesare to be achieved.

Cover shorter periods of time.

Must be updated continuously to meet currentchallenges.



Specific plans

Plans that have clearly defined objectives and leave no room

for misinterpretation.

• “What, when, where, how much, and by whom” (process-

focus)

Directional plans

Flexible plans that set out general guidelines.

• “Go from here to there” (outcome-focus)



Single-use plans

A plan that is used to meet the needs of a particular or unique

situation

• Single-day sales advertisement

Standing plan

A plan that is ongoing and provides guidance for repeatedly

performed actions in an organization

• Customer satisfaction policy



Directional versus Specific Plans



STRATEGIC PLANNING PROCESS

INPUTS

People,

Capital,

Mgrl.Skills,

Tech.

Skills,

Goals of

claimants

Topmgmt.

Orientati

on

Purpose

&Objectiv

es of the

orgn.

Enterpri

seprofile

PresentExt.

Environ

ment

Forecast

of future

environm

ent

Resource

Audit

Ext.

Threats &Opportuni

ties

Devpt. Of

AlternateStrategies

Int.

Strengths &

Weaknesses

Feedback

Evaluation

&Strategic

choice

Implement

ation &Control

Medium &

short runplanning



For a business enterprise, the major strategies thatgive an overall direction to operations are likely tobe in the following areas:

• New or changed product or services.

• Marketing.

• Growth.

• Finance.

• Organization.• Personnel.

• Public relations.

4 t l th t h l i



4 tools that help managers in

developing strategies

• Critical question analysis.

• SWOT analysis.

• Business portfolio analysis.

• Porter’s model for Industry analysis.

These 4 strategy development tools are related

but distinct. Managers should use the tool or combination of tools that seem most

appropriate for them and their organisations.



Critical question analysis

• What is our business?Glass bottle manufacturers missed their opportunities byseeing themselves for too long as glass bottle makersrather than as liquid container manufacturers while

plastic and metal containers come to replace glass inmany cases.

• 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?

• Do we wish to develop our own new products?



The key questions that serve as guides for

establishing a marketing strategy are:

• Where are our customers and why do they

buy?

• How do our customers buy?

• How is it best for us to sell?

• Do we have something to offer that

competitors do not?



TOWS Matrix/SWOT Analysis

SWOT analysis

Analysis of an organization’s

strengths, weaknesses,opportunities, and threats in order to

identify a strategic niche that the

organization can exploit



SWOT Analysis

S W O T

What is SWOT Analysis?



SWOT

AnalysisOppurtunity

Threats

Strengths

Weakness

Acronym for Strengths,

Weaknesses, Opportunities, and

Threats.

Technique is credited to Albert

Humphrey who led a research

project at Stanford University in

the 1960s and 1970s.

Planning tool used to understand

Strengths, Weaknesses,

Opportunities, & Threats

involved in a project / business.

Used as framework for

organizing and using data and

information gained from

situation analysis of internal andexternal environment.

Technique that enables a group /

individual to move from everyday

problems / traditional strategies

to a fresh perspective.





STRENGTHS

Characteristics of the business or a team

that give it an advantage over others in

the industry.

Positive tangible and intangible

attributes, internal to an organization.

Beneficial aspects of the organization

or the capabilities of an organization,

which includes human competencies,

process capabilities, financial

resources, products and services,

customer goodwill and brand loyalty.

Examples - Abundant financial resources,

Well-known brand name, Economies of scale, Lower costs [raw materials or

processes], Superior management talent,

Better marketing skills, Good distribution

skills, Committed employees.





WEAKNESSES

Characteristics that place the firm at a

disadvantage relative to others.

Detract the organization from its

ability to attain the core goal and

influence its growth.

Weaknesses are the factors which do

not meet the standards we feel they

should meet. However, weaknesses

are controllable. They must be

minimized and eliminated.

Examples - Limited financial resources,

Weak spending on R & D, Very narrow

product line, Limited distribution, Highercosts, Out-of-date products / technology,

Weak market image, Poor marketing skills,

Limited management skills, Under-trained

employees.





OPPORTUNITIES


Chances to make greater profits in theenvironment - External attractive factors

that represent the reason for an

organization to exist & develop.

Arise when an organization can take

benefit of conditions in its

environment to plan and execute

strategies that enable it to become

more profitable.

Organization should be careful and

recognize the opportunities and grasp

them whenever they arise. Opportunities

may arise from market, competition,

industry/government and technology.

Examples - Rapid market growth, Rival

firms are complacent, Changing customerneeds/tastes, New uses for product

discovered, Economic boom, Government

deregulation, Sales decline for a substitute

product .

SWOT ANALYSIS - THREATWhat is SWOT Analysis?



SWOT ANALYSIS THREAT

!

THREATS


External elements in the environment thatcould cause trouble for the business -

External factors, beyond an organization’s

control, which could place the

organization’s mission or operation at risk.

Arise when conditions in external

environment jeopardize the reliability

and profitability of the organization’sbusiness.

Compound the vulnerability when they

relate to the weaknesses. Threats are

uncontrollable. When a threat comes, the

stability and survival can be at stake.

Examples - Entry of foreign competitors,

Introduction of new substitute products,Product life cycle in decline, Changing

customer needs/tastes, Rival firms adopt

new strategies, Increased government

regulation, Economic downturn.

Aim of SWOT Analysis?



S W

TO

To help decision makersshare and compare ideas.

To bring a clearer

common purpose and

understanding of factors

for success.

To organize the

important factors linked

to success and failure in

the business world.

To analyze issues that

have led to failure in the

past.

Aim of SWOT Analysis?

To provide linearity tothe decision making

process allowing

complex ideas to be

presented systematically.

Benefits & Pitfalls of SWOT Analysis




Benefits of SWOT Analysis

Forecasting

Provides a variety of information

critical to forecasted variables.

Threats, for e.g., can impact a

business's forecast. By

understanding the company's

advantages & disadvantages,

forecasts will be more accurate.

Decision Making Tool

Provides well-rounded

information that prompt

well-informed decisions.

Knowing the Competion

Reviews a company's

competitors & benchmarksagainst them to configure

strategies that will put the

company in a competitive

advantage.

Benefits of

SWOT

Analysis





Benefits of SWOT Analysis

Helps in setting of objectives for strategic planning

Besides the broad benefits, here are few more benefits of conducting SWOT Analysis:

Provides a framework for identifying & analyzing strengths, weaknesses,

opportunities & threats

Provides an impetus to analyze a situation & develop suitable strategies

and tactics

Basis for assessing core capabilities & competencies

Evidence for, and cultural key to, change

Provides a stimulus to participation in a group experience




Pitfalls of SWOT Analysis

Can be very subjective. Two people rarely come up with the same final

version of a SWOT. Use it as a guide and not as a prescription.

May cause organizations to view circumstances as very simple due to

which certain key strategic contact may be overlooked.

Categorizing aspects as strengths, weaknesses, opportunities & threats

might be very subjective as there is great degree of uncertainty in market.

To be effective, SWOT needs to be conducted regularly. The pace of

change makes it difficult to anticipate developments.

The data used in the analysis may be based on assumptions that

subsequently prove to be unfounded [good and bad].

It lacks detailed structure, so key elements may get missed.



Tips

EXAMPLE

Mc Donald’s SWOT Analysis

i & i



WEAKNESSES

• Failing pizza test market thus limiting the

ability to compete with pizza providers.

• High training costs due to high turnover.

• Minimal concentration on organic foods.

• Not much variation in seasonal products .

• Quality concerns due to franchised operations.

• Focus on burgers / fried foods not on healthieroptions for their customers.

• Ranks very high on the Fortune Magazine's most

admired list

• Community oriented

• Global operations all over the world

• Cultural diversity in the foods

• Excellent location

• Assembly line operations.• Use of top quality products

STRENGTHS

INTERNAL

• Marketing strategies that entice people from

small children to adults.

• Lawsuits for offering unhealthy foods.

• Contamination risks that include the threat of e-coli containments.

• The vast amount of fast food restaurants that

are open as competition.

• Focus on healthier dieting by consumers.

• Down turn in economy affecting the ability to eat

that much.

THREATS

• Opening more joint ventures.

• Being more responsive to healthier options.

• Advertising wifi services in the branches.

• Expanding on the advertising on beingmore socially responsible

• Expansions of business into newly developed

parts of the world.

• Open products up to

allergen free options

such as peanut free.

OPPORTUNITIES

EXTERNAL

Tips & Exercise

Mc Donald’s

SWOT Analysis

INTRODUCTION



INTRODUCTION

BOSTON CONSULTI NG GROUP (BCG) MATRIX is developed by BRUCE HENDERSON of the BOSTON CONSULTING GROUP IN THE EARLY

1970’s.

According to this technique, businesses orproducts are classified as low or highperformers depending upon their marketgrowth rate and relative market share.



Relative Market Share

and Market Growth

To understand the Boston M atri x youneed to understand how market share

and market growth interrelate.



MARKET SHARE

• Market share is the percentage of the total market that isbeing serviced by your company, measured either in revenueterms or unit volume terms.

• RELATIVE MARKET SHARE

• RMS = Business unit sales this yearLeading rival sales this year

• The higher your market share, the higher proportion of themarket you control.

MARKET GROWTH



MARKET GROWTH

RATE

• Market growth is used as a measure of a market’sattractiveness.

• MGR = Individual sales - individual sales

this year last year

Individual sales last year

• Markets experiencing high growth are ones where the totalmarket share available is expanding, and there’s plenty of

opportunity for everyone to make money.

THE BCG GROWTH-SHARE



THE BCG GROWTH-SHARE

MATRIX

• It is a portfolio planning model which is based on theobservation that a company’s business units can be classified

in to four categories:

Stars

Question marks

Cash cows

Dogs

• It is based on the combination of market growth and market

share relative to the next best competitor.



STARS



STARSHigh growth, High market share

• Stars are leaders in business.

• They also require heavy investment, to

maintain its large market share.• It leads to large amount of cash

consumption and cash generation.

• Attempts should be made to hold themarket share otherwise the star willbecome a CASH COW.

CASH COWS



CASH COWS

Low growth , High market share

• They are foundation of the company and

often the stars of yesterday.

• They generate more cash than required.

• They extract the profits by investing as little

cash as possible

• They are located in an industry that is

mature, not growing or declining.

DOGS



DOGSLow growth, Low market share

• Dogs are the cash traps.

• Dogs do not have potential to bring in

much cash.

• Number of dogs in the company should be

minimized.

• Business is situated at a declining stage.

QUESTION MARKS



QUESTION MARKSHigh growth , Low market share

• Most businesses start of as question marks.

• They will absorb great amounts of cash if the

market share remains unchanged, (low).• Why question marks?

• Question marks have potential to become star

and eventually cash cow but can also becomea dog.

• Investments should be high for question

marks.

WHY BCG MATRIX ?



WHY BCG MATRIX ?

To assess :

Profiles of products/businesses

The cash demands of products The development cycles of products

Resource allocation and divestment

decisions



MAIN STEPS OF BCG MATRIX

• Identifying and dividing a company into SBU.

• Assessing and comparing the prospects of

each SBU according to two criteria :

1. SBU’S relative market share.

2. Growth rate OF SBU’S industry.

• Classifying the SBU’S on the basis of BCG

matrix.

• Developing strategic objectives for each SBU.

BENEFITS



BENEFITS

• BCG MATRIX is simple and easy to understand.

• It helps you to quickly and simply screen the

opportunities open to you, and helps you

think about how you can make the most of them.

• It is used to identify how corporate cash

resources can best be used to maximize acompany’s future growth and profitability.

LIMITATIONS



LIMITATIONS

• BCG MATRIX uses only two dimensions,

Relative market share and market growth rate.

• Problems of getting data on market share and

market growth.

• High market share does not mean profits all

the time.

• Business with low market share can be

profitable too.

C C S



PRACTICAL USE

• MAHINDRA & MAHINDRA

• HLL

• IES

BCG f APPLE



BCG for APPLE

BCG f G l



BCG for Google

BCG f T G



BCG for Tata Group



CONCLUSION

Though BCG MATRIX has its limitations it is one of the

most FAMOUS AND SIMPLE portfolio planning matrix

,used by large companies having multi-products.



Four strategies emerged from BCG Matrix:

Build

Hold/Maintain

Harvest

Divest

Growth Strategies



• Direct Expansion

– Involves increasing a company’s size, revenues,

operation, or workforce.

• Merger

– Occurs when two companies, usually of similar size,combine their resources to form a new company.

• Acquisition

– Occurs when a larger companybuys a smaller one and incorporates

the acquired company’s operations

into its own.



3 Generic Competitive

Strategies/Porters Generic

Model



Differentiation strategy



• An organization that pursues a differentiation strategy seeks

to distinguish from competitors by offering somethingunique through the quality of products or services.

• Porsche sports car are indeed special; so is the caterpillarcompany, which is known for its prompt service and

availability of spare parts. Firms that are successfully able toimplement a differentiation strategy are able to chargemore than competitors because customers are willing to paymore to obtain the extra value they perceive.

• EG: Rolex watches are handmade of gold and stainless steeland are subjected to strenuous tests of quality andreliability. The firms reputation enables it to chargethousands of dollars for its watches.

Focused strategy



• A company adopting a focused strategy concentrates

on a specific regional market, product line, or group of buyers. This strategy may have either a differentiationfocus, whereby the firm differentiates its products inthe focus market, or on overall leadership focus,whereby the firm manufactures and sells its productsat low cost in the focus market.

• In the watch industry, Longines follows a focusdifferentiation strategy by selling highly jewelledwatches to wealth female customers. Fisher-Priceuses focus differentiation strategy to sell electroniccalculators with large, bright colored buttons to theparents of preschoolers.

3 l l f St t



3 levels of Strategy

• Corporate level strategy: What business weare in?

• Business level strategy or competitive

strategy: How do we compete?

• Functional-level strategy: How do we support

business level strategy?



PREMISING



PREMISING

Planning Premises are defined as :

“ The anticipated environment in which plans are expected to

operate”

They include, assumptions or forecasts of the future known

conditions that will affect the operation of plans.

All forecasts may not become premises.

Sales forecasts, production requirements are premises on

which to develop plans.

But, a forecast of costs or revenue from a new capital

investment translates a planning program into future

expectancies (not a premise).



Plans themselves become premises often, for other futureplans.

Effective premising is a four part process:

1. Selection of the premises which bear materially on the

programs. What factors in the environment (Ext/int) will influence most the

course of plans for which I am responsible?

2. Development of alternative premises for contingency

planning. Since the future is unknown/unpredictable with certainity, managers

should develop plans under various other assumptions also.



3. Verification of consistency of the premises.

4. Communication of the premises.

One of the basic requirements for managers in planning, is effective

premise communication, interpreting these premises broadly, andmake sure that premises important for their planning is made

available to them in time.



PLANNING (CONTD…)

DECISION MAKING



DECISION MAKING

“ Selection of a course of action from amongalternatives”

It is the core of planning.

A plan cannot said to exist unless a decision - a commitment

to resources, direction or reputation has to be made.

Managers often see decision making as their central job

because they must constantly choose what is to be done, who

is to do it, and when, where and how it will be done.

Decision making is however a step in planning process (Majorstep)

Process of Decision making :



Process of Decision making :

Following are the steps in decision making:

1.Premising

2.Identifying alternative courses of action

3.Evaluating the alternatives in the light of the goals sought.

4.Choosing an alternative (real decision making)



Rationality in decision making:

To be effective, decision making must be rational.

No one can make decisions affecting the past, and hence all

decisions must operate for the future and the future almost

invariably involves lot of uncertainty.

Secondly, it is difficult to identify all the alternatives that

might be followed to reach a goal. Again not all alternatives

can be analyzed, even with the latest available analytical

techniques and computers. Hence, a manager must settle for a “LIMITED” or “BOUNDED”

rationality.



In other words limitations of information, time anduncertainty involved, limit rationality even though a manager

tries very hard to be completely/ absolutely rational.

Limiting factor is something that stands on the way of

accomplishing a desired objective. Principle of Limiting Factor says that

“By recognizing and overcoming those factors (Limiting

factors) that stand critically on the way of a goal/objective, the

best alternative course of action can be selected.”

Evaluation of Alternatives :

In evaluation both quantitative and qualitative factors are to be equally



In evaluation both quantitative and qualitative factors are to be equallyconsidered.

Quantitative factors can be measured accurately in numerical terms such

as time, cost and revenue. Success of a business venture is endangered if the intangible qualitative

factors are ignored.

Qualitative/intangible factors include quality of labour, labour relations,the risk of technological change etc.

Managers must identify first the qualitative factors and then determinewhether a reasonable qualitative measurement can be given to them. If not, he must find out as much as about these factors and rate them in thelight of their importance, compare their possible influence on theoutcome and then come to a final decision.



Types of decisions



Types of decisions

A Programmed decision is applied to a structured or routineproblem (Routine and repetitive kind of work).

A Non-programmed decision is applied for unstructured,

novel and ill-defined situation of non-recurring type.

Higher level – Non-programmed decisions Middle level – Mix of both ( Programmed & Non-programmed)

Lower level – Programmed decisions.

Simple decision

Complex decision

Decision making under uncertainty



Decision making under uncertainty

Following techniques are used : Risk analysis – Risk involved with a decision is measured and

the decision based on the amount of risk.

Decision trees – Decision trees developed on the basis of the

various decision alternatives and the nodes at which thedecisions are to be taken. Probability is attached to each and

every decision alternative. The best path on the decision tree

is identified.

Preference Analysis – Here the alternatives are compared oneagainst the other and the best preferred alternative is

selected.

GK Planning Students Notes

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