me unit2 notes

8/6/2019 Me Unit2 Notes

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Management & Entrepreneurship Unit 2TJIT, B'lore

2

UNIT 2

PLANNING


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Management & Entrepreneurship Unit 2

Nature of Planning

Most basic function of managementIt is the beginning of management

No planning ChaosIntellectual processThinking in advance

What,when,how,who Decision makingDecision Making : Choosing amongalternatinves

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Nature of Planning

Planning is a continuous processPrinciple of Navigational Change

Navigator Analogy Watch progress of plans Constantly monitor the conditions with and

outside the org Wiser to be right than consistent

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Nature of PlanningPlans must be flexible Ability to change direction to adapt to

changing situations without undue cost

Plans must provide for as many contingenciesas possible Areas of Flexibility

Technology-Chane & vary product mix according

to customer needsMarket Ability to quickly market in unservedareas

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Nature of Planning

Finance- Ability to obtain additional funds onfavourable termsPersonnel-Ability to shift individuals from one job to

another Organisation Ability to change organisationalstructure

Flexibility is possible only within limits

CostResistance to change

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Nature of Planning

Planning is all-pervasive i.e. important to all managers

Top managerslong term planningMore time planning

Lower level managersDay to day planning

Less time planningMore time executing

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Importance of Planning

Minimizes Risk and Uncertainity Provides a rational fact based procedure for

making decision Helps to cope with changing environment Futurity of present decisions

Machinery example

Feeling of control because problems havebeen anticipated while planning

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Leads to Success Companies that plan outperform companies

that dont Planning is proactive not reactive

Focuses Attention on Organisations Goals Easier to coordinate results Focus towards identical goals Chalk out a sequence of steps to achieve

goalsTJIT, B'lore 9


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Facilitates Control Control Conformance to plans

Plan is the benchmark against whichperformance is measured

Trains Executives A means for training executives

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Objectives

Goals or aims which the managementwishes to achieve

The end point for all business activitiesOnly after objectives are defined amanager can determine the resourcesrequired

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Objectives

Vision Dream of the entrepreneur

The root of all objectivesPurpose Primary role defined by society A broad aim that applies to all organisations

of that category

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Objectives

Mission Unique aim that sets the organisation apart

from other organisations An organisations specialisation Decides the scope of the business

Objectives Specific targets to be reached by an

organisation Translation of an organisations mission into

concrete termsTJIT, B'lore 1

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Objectives

Whose Objectives are organisationalobjectives?

Organisations are a coalition of stake holders Objectives take all stakes into account thenspecify a common viewpoint

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Characteristics of Objectives

Objectives are multiple in numbersObjectives are either tangible or intangible

Objectives have priorityObjectives are arranged hierarchicallyObjectives clash with each other

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Requirements of Sound

ObjectivesObjectives must be clear and acceptableObjectives must support one another

Objectives must be precise andmeasurableObjectives should always be valid

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Advantages of Objectives

Provide a basis for planningAct a motivators provide a sense of

purposeEliminate haphazard actionBasis for managerial control

Facilitate better managementLessen misunderstanding and confilctProvide legitimacy for organisations

activitiesTJIT, B'lore 1

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Purpose of Planning

To select from various alternatives toachieve objectives

To direct functions of managementTo set up the goals of an enterpriseTo form basis for budgeting

To forecast the futureTo provide effective control

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Types Of Plans

Forms of Planning

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Strategic Pl anning Tactica l Pl anning

Long term Short Tem

Top management Lower Management

Major goals of organisation Use of facilities andresources

Less detailed Focusesonly on long term goals

Detailed Day to dayoperations

Long term goals so moreuncertain

Based on pastperformance so lessuncertain


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Types of Plans

Standing Plans: Policies

Procedures Rules Methods

Single Use Plans Programmes Budgets

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Policy

Terry A verbal written or implied overallguide, setting up boundaries that supplythe general limits and direction in whichmanagerial action will take place.General guideline for decision makingPolicy provides a framework within whichdecisions must be made by managementPolicies channelise decisions

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Policy

Classification of Policies

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B ased On Source

B asis of Functions

B asis of organisation

Original Policies Personnel policy Top level policy

Appealed Policies Promotion Policy DepartmentalPolicy

Implied Policies Pricing Policy Shop level policy

Externally ImpliedPolicies Distribution Policy

Investment Policy


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ProceduresDetailed guideline for carrying out policiesare called proceduresIt provides a detailed set of instructions

for performing a sequence of actionsinvolved in doing a piece of workThe same steps / procedure is followed

each time the activity is performedRaw material procurement example ,personnel recruitment policy example

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Policy vs. Procedure

P o licy P rocedure

General guides for both thinking andaction for people at higher levels

General guideline to action for peopleat lower levels

Help to fulfill the objectives of enterprise

Procedures show the way toimplement policies

Allow some latitude in decision making Procedures are specific and allow nolatitude

Established without study or analysis Established through study or analysis

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Methods

A prescribed way in which one step of aprocedure is to be performed

E.g. procedure : steps in recruitingmethod: screening applications, written testMethods increase the effectiveness andusefulness of proceduresAdvantage Reduce fatigue, better productivity, lower cost

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Programmes

Precise plans or definite steps in proper sequence which need to be taken todischarge a given task

Programmes are drawn in conformity withobjectives and are made up of policies,procedures,budgets, etc.Essential ingredients of every programme

Time phasing Budgeting

Example of opening five branchesTJIT, B'lore 2

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Programmes

A single step in the programme is set upas a project

Schedule specifies the time when each of a series of action should take place

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BudgetsA financial and/or quantittative statement

prepared prior to a definite period of time,of the policy to be pursued during thatperiod for the purpose of obtaining a given

objectivePlans for future period of time containingexpected results in numerical terms.

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BudgetsBudgets

Sales budget Production budget Cash budget

Revenue budget Expense budget

Since they are numerical budgets facilitatecomparison of actual results with plannedonesEliminating unnecessary expenditure

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Planning Premises

Internal & External Premises Internal premises

Within the company Sales forecast

Policies Capital Investment in plant & equipment Skill of labour force

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Planning Premises External premises

Outside the companyThree main categories Business environments

Factors which influence demand for products Factors which affect the resources available to the

enterprise

External Premises Include General business & economic environment Technological changes Population growth Political stability

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Planning Premises

Tangible & Intangible premises Tangible premises

Can be measured quantitatively

e.g Population growth, Industry demand, capital

Intangible premises They are qualitative in nature Cannot be measured

E.g political stability, sociological factors, business &economic environment

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Planning Premises

Controllable & Non-Controllable premisesNon-controllable premises

There are uncontrollable factors due to which some

premises need to be revised periodically. These arecalled non-controllable premises Uncontrollable factors e.g. strikes wars natural

calamities

Controllable premises Controllable factors cannot upset well though out

calculations of the organisation regarding the plan E.g. companys advertising policies,capital

resources,

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Steps in Planning

Establishing Verifiable Goals or Set Goalsto be Achieved:

Determine the objectives of the enterpriseSet by upper level or top managersType of goal depends on

Mission of the organisation Values of its managers

Potential abilities of the organisationE.g. Walchand Hirachand , Jamshedji Tata

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Steps in Planning

Establishing Planning Premises Planning premises = Assumptions about the

future Why premises? They are important because

they reveal facts about the future likepopulation growth, economic conditions

government policies etc Since managers at different levels differ aboutthese premises the chief executive shouldarrive at the premises acceptable to all.

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Steps in Planning

Deciding the plannning period Decide the period of the plan They can range from a year to decades Planning period is based upon a period in

future that can be reasonable anticipated Factors influencing choice of a period

Lead time in development and commercialisationTime required to recover capital investmentLength of commitments made

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Steps in Planning

Finding alternatives courses of actionTo search and examine alternative course of action

Reasonable alternatives exist for all plansAn alternative that is not quite obvious is usuallythe best

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Steps in Planning

Evaluating and selecting a course of action Evaluate the alternatives in light of premises

and goals Select the best course of action Done with quantitative techniques and

operations research

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Steps in Planning

Developing derivative plans Plans drawn up by middle level and lower

level managers for day-to-day operations Lower level managers also create derivative

plans the same way Select realistic goals Assess their sub-units strengths Analyse part of the environment that can affect them

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Steps in Planning

Measuring and controlling the progress Progress should be measured to

Take remedial action to make the plan work

Change original plan if it is unrealistic

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Hierarchy of Plans

Plans are arranged in a hierachyObjectives stand at the top of the

hierarchyDiagram

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Limitations of PlanningPlanning is expensive and time-consumingprocessPlanning restricts the organisation to the mostrational and risk-free opportunities.

The scope of planning is said to be limited in thecase of organisations with rapidly changingsituationsEstablishment of advance plans can make

administration inflexibleDifficulty of formulating accurate premises limitsefficacy of planning

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DecisionDecision making can refer to a specific actand/or a general process. It is the act of choosing one alternative from a set of

alternatives.It can be explained at a process whichincludes recognizing and defining natureof a decision situation , identifyingalternatives, choosing the best alternativeand putting it into practice

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Decision

Decision : When decisions are made themanager is choosing

Deciding what to do on the basis of someconscious judgement or delibrate logic

Managers have alternatives when they aremaking a decision, It requires wisdom andexperience to evaluate these alternatives

and select the bestManagers have a purpose/goal. Decisionis made to come closer to goal

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Types of DecisionsProgrammed & Non-Programmed

Programmed decisions;Made in accordance with some policy, rule or procedureRepetitive, routine and easy for managers to makeE.g pricing customer orders, determining salarypayments for employees who have been sickAll managers will make same decision in the samesituationGreshams law of decision making: The generaltendency for programmed decisions toovershadow non programmed decisions.

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Types of DecisionsNon-programmed decisions

These are novel and non-repetitiveThey are made under unstructured conditionsThese are meant for problems that

Have not arisen before

That have no cut-and-dry solution Deserve custom-tailored treatment

Made by people higher up in the hierarchyWill be influenced by personal values and attitudes

of the person making the decision.Ability to make good non-programmed decisionsmakes effective managersE.g. resource allocation,f ailing product line

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Types of DecisionsMajor & Minor Decisions

Minor decisions: These are routine innature and are taken by line managers atdepartmental level Futurity of a decision: Have no long range

impact. Eg Decision to store raw material Imp act of decision on other functiona l

areas: If a decision impacts only one functionit is a minor decision. E.g. ledger change

Qua litative factors that Enter the decision:-Recurrence of decisions: Decisions which

recur often are minor decisionsTJIT, B'lore 4

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Types of DecisionsMajor Decisions : have long range impact

and are taken by high level management Futurity of a decision: Have long-range impact.

Eg replacement of men by machinery,diversification etc

Imp act of decision on other functiona l areas: If a decision impacts all other functional areas it isa major decision. E.g. change overheadallocation

Qua litative factors that Enter the decision:-Recurrence of decisions: Decisions which dont

recur often are minor decisionsTJIT, B'lore 4

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Types of DecisionsRoutine & Strategic Decisions

Routine DecisionsRoutine decisions are supportive of the companiesoperations

Relate to the presentPurpose is to achieve a high degree of efficiencyFocus on well structured situationsOccur frequently

Entail minimum uncertaintyE.g. Payroll processing

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Types of Decisions

Strategic decisionsDeal with unstructured situationsInvolve High uncertainty

Incomplete knowledge Use of subjective judgment

Require lengthy deliberation and large amount of fund

Taken by managers at higher levelsE.g. changing product line, lowering the price of aproduct

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Types of DecisionsIndividual & Group Decisions

Individual decisions Routine problems Definite procedures to deal with the problems

exist Not much analysis is required

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Group decisionsStrategic decisions for complex problems &Interdepartmental decisions are taken by groups

Group decision methods: Dialectic method Devils advocacy Group discussions Exchange of notes Brain storming Delphi Method

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Advantages of Group decisions More information and knowledge is available More alternative solutions are likely to be generated

Better acceptance of final decisions Enhance communication Easier to implement Easier co-ordination

Disadvantages of group decisions Takes longer time and maybe costlier One person may dominate the group Groups can compromise

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Types of Decisions

Simple and Complex DecisionsWhen variables to be considered for solving a problem are few the decision insimple.

When there are many variables to beconsidered for solving a problem thedecision is complex.

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Steps in Rational DecisionMaking

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Models of Decision Making

Three models of decision makingEconomic Man Model/Econologic ModelAdministrative Man Model/Bounded rationality

modelAdministrative Man Model/Bounded RationalityModel

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E i M M d l/E l gi M d l


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Economic Man Model/Econologic Model

Believes man is completely rational and selectsthe alternative that gives greatest advantageSix steps are followed by economic manShortcomings of this model

Man will not gather all informationCannot store this infoCannot recall this infoCannot do complex calculationsCannot rank all consequences

Management decision can be made rational onlyby computers

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Administrative Man Model/Boundedrationality model

Herbert SimonUses only limited rationality

Administrative man does not have the ability tomaximize but attempts to satisfice. Looks for alternative that is good enoughBecause he looks to satisfice his search for alternatives is sequential or incremental

Administrative mans search for alternatives isguided by his experience. He uses heuristics tonarrow down the area of his search

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Eight steps Set the goal to be pursued or define the

problem to be solved Establish appropriate criteria to judge the

acceptability of a solution Use heuristics to narrow down field of search

and identify feasilble solution If no feasible solution is identified then lower

the criteria to judge acceptability and searchafresh

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If feasible solution is identified ,evaluate it todetermine its acceptability

If solution is found acceptable implement it

If solution is unacceptable initiate new search Following implementation ,evaluate the

degree of difficulty with which the goal was or was not attained

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Social Man Model

FreudMan is guided by unconscious desires

Subject to social pressuresCannot make rational decisions

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Difficulties in decision making

Incomplete InformationCauses uncertainityToo many complex variables for one person to

examine fullyUnsupporting Environment

Physical and organisational environment will affectthe nature of decision as well as their implementationIf there is goodwill and trust the manager isencouraged to make decisions

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Difficulties in decision making

Non acceptance by SubordinatesIf subordinates have stake in decision thenacceptance will be necessary

To encourage subordinates practise democraticleadership style that encourages them tosuggest,crticise,make recommendations or decideupon policies

Ineffective CommunicationIncorrect Timing

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Environment of Decision Making

Certainity Decision maker can specify the

consequences of a particular decision or acr Though future is uncertain many managerial

decisions can be made in conditionsapproaching certainity

Shipment example

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Environment of Decision making

Risk If there is risk involved the consequences of a

particular decision can be specified with known

probability values The value of probability of an event is a measure

of likelihood of occurrence of an event Evaluation is done by calculating the expected

value of payoff associated with each alternative Numerical Problem

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Environment of Decision making

Decision Tree Linking a number of event branches which

when fully arrayed resemble a tree. Example

Uncertainity

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