PLANNING

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 Six Honest Serving Men
Rudyard Kipling
I send them over land and sea,
I send them east and west;
But after they have worked for me,
I give them all a rest.
I keep six honest serving-men I let them rest from nine till five,
For I am busy then,
(They taught me all I knew); As well as breakfast, lunch, and tea,
Their names are What and For they are hungry men.
But different folk have different views;
Why and When And How and I know a person small
Where and Who. She keeps ten million serving-men,
Who get no rest at all!
She sends em abroad on her own affairs,
From the second she opens her eyes
One million Hows, Two million Wheres,
And seven million Whys!

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 Meaning & Definition Of Planning

 Planning (also called forethought) is the process of thinking about and

organizing the activities required to achieve a desired goal.
 Not only does planning provide direction and a unity of purpose for
organizations,it also answers six basic questions in regard to any activity:
1. What needs to be accomplished?
2. When is the deadline?
3. Where will this be done?
4. Who will be responsible for it?
5. How will it get done?
6. How much time, energy, and resources are required to accomplish this goal?

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 Planning: Definitions
 “Generally speaking, planning is deciding in advance what is to be done”
W H Newman
 “Planning is deciding in advance what to do, how to do, when to do and who
is to do it. Planning bridges a gap between from where we are to where we
want to go”
Harold . Koontz and O'Donnell.
 “ Planning is the selecting and relating of facts and the making and using of
assumption regarding the future in the visualization and formulation of
proposed activities believed necessary to achieve desired results”
George R Terry

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 Nature / Characteristics of Planning

Planning is an Intellectual Process

 Planning is an intellectual process of thinking in advance.
 It is a process of deciding the future on the series of events to follow.
 Planning is a process where a number of steps are to be taken to decide the future course
of action.
 Managers or executives have to consider various courses of action, achieve the desired
goals, go in details of the pros and cons of every course of action and then finally decide
what course of action may suit them best.

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Planning Contributes to the Objectives
 Planning contributes positively in attaining the objectives of the
business enterprise. Since plans are there from the very first stage of
operation, the management is able to handle every problem
successfully.
 Plan try to set everything right.
 A purposeful, sound and effective planning process knows how and
when to tackle a problem.
 This leads to success.
 Objectives thus are easily achieved.

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Planning is a Primary Function of Management
 Planning precedes other functions in the management process.
 Certainly, setting of goals to be achieved and lines of action to be
followed precedes the organization, direction, supervision and control.
 No doubt, planning precedes other functions of management.
 It is primary requisite before other managerial functions step in.
 But all functions are inter-connected.
 It is mixed in all managerial functions but there too it gets precedence.
 It thus gets primary everywhere.

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A continuous Process
 Planning is a continuous process and a never ending activity of a
manager in an enterprise based upon some assumptions which may or
may not come true in the future.
 Therefore, the manager has to go on modifying revising and adjusting
plans in the light of changing circumstances.
 According to George R. Terry, "Planning is a continuous process and
there is no end to it.
 It involves continuous collection, evaluation and selection of data, and
scientific investigation and analysis of the possible alternative courses
of action and the selection of the best alternative.

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Planning Pervades Managerial Activities
 From primary of planning follows pervasiveness of planning.
 It is the function of every managerial personnel.
 The character, nature and scope of planning may change from
personnel to personnel but the planning as an action remains intact.
 According to Billy E. Goetz, "Plans cannot make an enterprise
successful. Action is required, the enterprise must operate managerial
planning seeks to achieve a consistent, coordinated structure of
operations focused on desired trends. Without plans, action must
become merely activity producing nothing but chaos.“

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 Forecasting And Planning
Forecasting
 Forecasting is guessing of the
future course of events correctly.
 Forecasting attempts to give a
range of probabilities.
 It is a part of planning and is
based on the past experience.
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Planning
 Planning decides as to what we
will do about the future
probabilities.
 Planning is a wider term that
includes forecasting.
12
 *Objectives of Planning

 Planning Avoids Chaos (Complete disorder and confusion).

 Planning Minimises Cost.

 Helps in Purposeful and Orderly Activities.

 It guides Business along the Predetermined Channel.

 Help the Performance of other Managerial Functions.

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 Role, Significance, Importance &
Advantages of Planning

 An organisation without planning is like a sailboat minus its rudder.

 Without planning, organisation, are subject to the winds of
organizational change.
 Planning is one of the most important and crucial functions of
management.
 According to Koontz and O'Donnell, "Without planning business
becomes random in nature and decisions become meaningless and
adhoc choices."
 According to George R. Terry, "Planning is the foundation of most
successful actions of any enterprise.“

Contd..

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Contd..

Advantages of Planning:
 Reduction of Uncertainty
 Better Utilization of Resources
 Increases Organizational Effectiveness
 Reduces the Cost of Performance
 Concentration on Objectives
 Helps in Co-ordination
 Makes Control Effective
 Encouragement to Innovation
 Increase in Competitive Strength
 Delegation is Facilitated

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Reduction of Uncertainty
 Future is always full of uncertainties. A business organisation has to function
in these uncertainties. It can operate successfully if it is able to predict the
uncertainties. Some of the uncertainties can be predicted by undertaking
systematic. Some of the uncertainties can be predicted by undertaking
systematic forecasting. Thus, planning helps in foreseeing uncertainties which
may be caused by changes in technology, fashion and taste of people,
government rules and regulations, etc.
Better Utilization of Resources
 An important advantage of planning is that it makes effective and proper
utilization of enterprise resources. It identifies all such available resources and
makes optimum use of these resources.

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Increases Organizational Effectiveness
 Planning ensures organizational effectiveness. Effectiveness ensures
that the organisation is in a position to achieve its objective due to
increased efficiency of the organisation.
Reduces the Cost of Performance
 Planning assists in reducing the cost of performance.
 It includes the selection of only one course of action amongst the
different courses of action that would yield the best results at minimum
cost.
 It removes hesitancy, avoids crises and chaos, eliminates false steps
and protects against improper deviations.

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Concentration on Objectives
 It is a basic characteristic of planning that it is related to the organizational
objectives.
 All the operations are planned to achieve the organizational objectives.
 Planning facilitates the achievement of objectives by focusing attention on
them.
 It requires the clear definition of objectives so that most appropriate alternative
courses of action are chosen.
Helps in Co-ordination
 Good plans unify the interdepartmental activity and clearly lay down the area
of freedom in the development of various sub-plans.
 Various departments work in accordance with the overall plans of the
organisation. Thus, there is harmony in the organisation, and duplication of
efforts and conflict of jurisdiction are avoided.
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Makes Control Effective
 Planning and control are inseparable in the sense that unplanned action
cannot be controlled because control involves keeping activities on the
predetermined course by rectifying deviations from plans.
 Planning helps control by furnishing standards of performance.
Encouragement to Innovation
 Planning helps innovative and creative thinking among the managers
because many new ideas come to the mind of a manager when he is
planning.
 It creates a forward-looking attitude among the managers.

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Increase in Competitive Strength
 Effective planning gives a competitive edge to the enterprise over
other enterprises that do not have planning or have ineffective
planning.
 This is because planning may involve expansion of capacity, changes
in work methods, changes in quality, anticipation of tastes and fashions
of people and technological changes etc.
Delegation is Facilitated
(Delegation means to assign, entrust, hand over,transfer )
 A good plan always facilitates delegation of authority in a better way
to subordinates.

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 Limitations Of Planning
Internal Limitations External limitations
 Rigidity  Political Climate
 Misdirected Planning  Labour Union
 Time consuming  Technological changes
 Probability in planning  Policies of competitors
 False sense of security  Natural Calamities
 Expensive  Changes in demand and prices

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Internal Limitations
Rigidity
 Planning has tendency to make administration inflexible.
 Planning implies prior determination of policies, procedures and
programmes and a strict adherence to them in all circumstances.
 There is no scope for individual freedom.
 The development of employees is highly doubted because of which
management might have faced lot of difficulties in future.
 Planning therefore introduces inelasticity and discourages individual
initiative and experimentation.

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Misdirected Planning
 Planning may be used to serve individual interests rather than the
interest of the enterprise.
 Attempts can be made to influence setting of objectives, formulation of
plans and programmes to suit ones own requirement rather than that of
whole organization.
 Machinery of planning can never be freed of bias.
 Every planner has his own likes, dislikes, preferences, attitudes and
interests which is reflected in planning.

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Time Consuming
 Planning is a time consuming process because it involves collection of
information, it’s analysis and interpretation thereof.
 This entire process takes a lot of time specially where there are a
number of alternatives available.
 Therefore planning is not suitable during emergency or crisis when
quick decisions are required.

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Probability in planning
 Planning is based on forecasts which are mere estimates about future.
 These estimates may prove to be inexact due to the uncertainty of
future.
 Any change in the anticipated situation may render plans ineffective.
 Plans do not always reflect real situations in spite of the sophisticated
techniques of forecasting because future is unpredictable.
 Thus, excessive reliance on plans may prove to be fatal.

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False sense of security
 Elaborate planning may create a false sense of security to the effect that
everything is taken for granted.
 Managers assume that as long as they work as per plans, it is satisfactory.
Therefore they fail to take up timely actions and an opportunity is lost.
 Employees are more concerned about fulfillment of plan performance rather
than any kind of change.
Expensive
 Collection, analysis and evaluation of different information, facts and
alternatives involves a lot of expense in terms of time, effort and money.
 According to Koontz and O'Donnell, ’ Expenses on planning should never
exceed the estimated benefits from planning. ’

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External Limitations of Planning
 Political Climate-Change of government from Congress to some other
political party, etc.
 Labour Union-Strikes, lockouts, agitations.
 Technological changes-Modern techniques and equipments,
computerization.
 Policies of competitors-Eg. Policies of Coca Cola and Pepsi.
 Natural Calamities-Earthquakes and floods.
 Changes in demand and prices-Change in fashion, change in tastes,
change in income level, demand falls, price falls, etc.

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 Principles of Effective Planning
 Keep aims Crystalise. (Make or become definite and clear):-
clear,unambiguous,solid,reasonable and attainable.
 Develop accurate Forecast.
 Involve subordinates in the Planning Process.
 The plan must be Sound. (sound,assumptions,information,consistency)
 Don’t be Overoptimistic.(feelings,emotions and intutions)
 Decide in advance the criteria for Abandoning a Project.
 Keep plan Flexible.
 Review Long-range plan on Short-range basis. (split into manageable
periods)
 Fit the Plan to the Environment.(stable environment-rigid plan)

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 Types of Plans
Plans

Standing Single-Use
Plans Plans

Mission Programs

Objective Budgets

Strategies

Policies

Procedures

Rules

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 Types of Plans

 Plans commit individuals, departments, organizations, and the

resources of each to specific actions for the future.
 Effectively designed organizational goals fit into a hierarchy so that
the achievement of goals at low levels permits the attainment of high-
level goals.
 This process is called a means-ends chain because low-level goals
lead to accomplishment of high-level goals.

There are two broad types of Plans:

 Standing Plans
 Single-use plans

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Standing Plans or Continuing or Ongoing plans are usually made once
and retain their value over a period of years while undergoing periodic
revisions and updates.
 Example-Mission,Objectives,Strategies,Policies,Procedures,Rules
etc.
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.
 A budget is also a single-use plan because it predicts sources and
amounts of income and how much they are used for a specific project.
 Examples-Programme,Budget etc.

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 Vision & Mission

The first step in establishing an organisation begins with a dream.

 The vision is like a company dream.
 Visualization of what is wanted and it comes alive.
 The owner should be the one with the vision. And it should include goals to
attaining, (short and long).

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 The strategy statement of a firm sets the firm’s long-term strategic direction
and broad policy directions.
The main constituents of a strategic statement are as follows:
 Vision Sets the broad, long term direction, purpose and goals of the
organization.
 Mission Describes the path to reaching it.
 Values Are the guidelines for day to day activity on this path
 Examples:Vision and Mission of Centers for Disease Control
Vision Healthy People in a Healthy World
Mission To promote health and quality of life by preventing and controlling
disease, injury, and disability

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 According to Kris Cole, together, an organization’s vision, mission and values
achieve six things:
 Help the organization position itself in the marketplace
 Help employees focus on what’s important
 Provide a framework for the business plan
 Guide day to day activities and act as a reference point for decision making
 Send a clear message to all stakeholders about:
 Who the organization is
 What it stands for
 What it will achieve in broad terms
 How it will achieve it
 Enhance an organization’s reputation and help it attract like minded
employees.
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Vision statement - Where are we headed?
 The key questions to ask yourself here are:
 What, in broad terms do we do?
 What do we aspire to become in the future?

A Vision Statement should:

 Express what the organization truly wants and cares about
 Provide a clear picture of what everyone is striving to achieve
 Unify employees by defining an enterprise’s fundamental purpose
 Provide a starting point for moving forward and help the organization assess
its progress and respond to change
 Challenge, stretch and inspire people so they know their effort is worthwhile.

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Mission statement - How will we get there?
Peter Drucker says the fundamental questions to ask when preparing mission
statements are:
 What is our business?
 Who is the customer?
 What is value to the customer?
 What will our business be?
 What should our business be?
 The mission underpins the vision and describes how it will be realized.
 This means that it needs to be more specific and reflect the organization’s
standards in areas such as customer service, employee relations, product or
service quality and reliability, and profitability.

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 Philip Kotler suggests that,
"Organisations develop mission statements to share them with their
managers, employees, and customers. A well worked out mission
statement provides company employees with a shared sense of
purpose, direction and opportunity. The company mission statement
acts as an 'invisible hand' that guides geographically dispersed
employees to work independently and yet collectively toward realizing
the organizations goals.

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 A good mission statements have three major characteristics:
1. Focus on a limited number of goals
2. Stress the major policies and values that the company wants to honour
3. Define the major competitive scopes within which the company will operate
i.e.
 Industry scope
 Product and applications scope
 Competence scope
 Market segment scope
 Vertical (distribution channel) scope
 Geographical scope

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Values statement - What do we stand for?
The key questions to ask here are:
 What do we believe is important?
 What are the internal principles that guide our actions and the
behaviour of our employees?
 What do we stand for?
 An organizations values show it how to do business and respond to a
crisis and shows its employees how to behave every day.
 They link with and support its vision.

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 Objectives

 Objectives or Goals are the end towards which activity is aimed.

 Sometimes Objectives and Goals are interchangeable.
 They are the ends toward which effort and action are directed or
coordinated.
 Although it is the aim or an end, it is not necessarily
the final achievement. That’s the mission.
 Objectives and goals include whats, not hows, but they
are smaller than a mission.
 There can be a number of objectives and goals to be achieved in order
to achieve a mission, but there is usually only one mission.

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 Difference between Goal & Objective
Goal Objective

Something that one's efforts or

The purpose toward which an
Meaning actions are intended to attain or
endeavor is directed.
accomplish; purpose; target.

I want to achieve success in the I want to complete this thesis on

Example field of genetic research and do genetic research by the end of this
what no one has ever done. month.

Action Generic action Specific action

Goals may not be strictly

Measure Must be measurable and tangible.
measurable or tangible.

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Time frame Longer term Mid to short term
 Strategies
 (Strategy meaning:A plan that is intended to achieve a particular
purpose)
 It is the determination of the long term objectives of the enterprise and
the adoption of courses of action and allocation of resources necessary
to achieve these objectives.
 Example-Marketing Strategy refers to actions for
developing,Pricing,distributing and promoting products that meet the
needs of specific customer group.

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 The determination of the long term objectives of the enterprise and the
adoption of courses of action and allocation of resources necessary to achieve
these objectives.
 Strategy is how to achieve an objective, goal (or even a mission).
 It is a thoughtfully constructed plan or method or action that will be employed
to achieve the result.
 We often talk about people who are good strategists. These are people who
excel at devising schemes and plans and courses of action to achieve the
desired result.
 As one advances in the ranks of account management one move from being
more of a “doer” (execution, tactics) to being more of a “thinker” (developing
strategies to achieve objectives and solve problems).

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 Policies

 A policy provides a broad guideline for managers to follow when

dealing with important areas of decision making.
 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.

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 Procedures

 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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 Rules

 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 (making late) and absenteeism
permit supervisors to make discipline decisions rapidly and with a high
degree of fairness.

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 Programmes

 A Programme is a single use plan to carry out a special project within

an organization.
 The Project itself is not intended to remain in existence over the entire
life of the organization. Rather, it exists to achieve some purpose, that
if accomplished, will contribute to the organization's
long term success.
 Example- Special Sales Programme

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 Budgets

 A Budget is a single user financial plan that covers a specified

length of time.
 It details how funds will be spent on labour, raw materials, capital
goods, information systems, marketing and so on, as well as how the
funds will be obtained.

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 Levels of Planning

 Strategic Planning

 Tactical planning

 Operational Planning

 Contingency planning

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 Levels Of Planning

Tactical Planning or

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 Strategic planning
 (Strategy meaning:A plan that is intended to achieve a particular purpose)
 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.
 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 currently is 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.
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 Tactical Planning

 (Tactics meaning the particular method you use to achieve sth: )

 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 two years 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.
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 Operational Planning

 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.
 Operational plans can be a single-use plan or an ongoing plan.
 Operational Goals are the specific results expected from departments,
work groups, and individuals .
 These goals are precise and measurable.
Example
 “Process 150 sales applications each week” or
 “Publish 20 books this quarter” are examples of operational goals.

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 Contingency Planning

 Contingency Planning involves identifying alternative courses of

action that can be implemented if and when the original plan proves
inadequate because of changing circumstances.
 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.
 Keep in mind that events beyond a manager's control may cause even
the most carefully prepared alternative future scenarios to go awry.
Contd..

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Contd..
 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.
 It is applicable to all levels of management.

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 Decision Making

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 Decision Making
 Decision-making is a process of selection from a set of alternative courses of
action, which is thought to fulfill the objectives of the decision problem more
satisfactorily than others.
 Example:Ordering a meal from the menu
 It is a course of action, which is consciously chosen for achieving a desired
result.
 A decision is a process that takes place prior to the actual performance of a
course of action that has been chosen.
 In terms of managerial decision-making, it is an act of choice, wherein a
manager selects a particular course of action from the available alternatives in
a given situation.
 Managerial decision making process involves establishing of goals, defining
tasks, searching for alternatives and developing plans in order to find the best
answer for the decision problem.
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The essential elements in a decision making process include the following:
√ The decision maker
√ The decision problem
√ The environment in which the decision is to be made
√ The objectives of the decision maker
√ The alternative courses of action
√ The outcomes expected from various alternatives, and
√ The final choice of the alternative

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 Problem
 Problem is a question raised for inquiry, consideration
or solution.
Webster dictionary
 It is the existence of deviation Between what was
expected under a given set of conditions and what
actually happened.
Miller & Starr

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 The Problem Pointers

 What type of problem is it?

 How large is the deviation?
 What are the critical factors relating to the problem?
 Why do we want to solve this problem?
 When do we want to solve this problem?
 Who should solve the problem?
 What particular method be chosen to solve the problem?

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 Symptoms of a Problem and Their Real Causes
Symptoms Underlying Problem

Low profits and/or declining sales Poor market research, high cost,ineffecient sales force

High costs Poor design process; poorly trained employees

Lack of communication between management and

Low morale
subordinates

High employee turnover Rate of pay too low; job design not suitable

High rate of absenteeism Employees believe that they are not valued

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 Types of Problems by Harvey G.Brightman

 Ill structured vs. Well Structured Problem.

 Operating level vs. Strategic Level Problems.

 Crisis vs. Opportunity Problem.

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 Ill-Structured and Well structured Problems

 Ill-Structured Problems are unique, unpredictable and unprecedented

situations. These problems are ambiguous and poorly understood and
defy any cut and dry solution. These are generally “one shot”
occurrences for which standard responses are not available and hence
require a creative process of problem solving.

 Example-Closing of plant, Buying or merging into a company, Starting

a new business etc.

 They are generally tackled by the top management.

Continue…

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 Ill-Structured and Well structured Problems

Continue…
 Well-Structured Problems are clearly defined, routine, repetitive and
respond to standardized responses. They are familiar, complete and
easily defined and analyzed

 Example-An employee’s regular absence.

 These problems are generally tacked by the lower and middle level
management who have at their disposal, a set of rules, policies and
procedures that can be used to solve these problems.

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 Operating Level and Strategic Level Problems

 Operating Level Problem are well structured problems encountered by

the organization on a daily routine basis.
They are not new or unique.

 Example-Maintaining inventory level or Sales level.

 A standard solutions exist to solve these problems

Continue…

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 Operating Level and Strategic Level Problems

Continue…
 Strategic Level Problems are unique and demand high level
management attention.
Strategic level problems may affect the survival of the organization.

 Example-Making changes in policy

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 Crisis vs. Opportunity Problem.

 The crisis problem develops suddenly and are totally

unexpected at a given time.
 Example-A forest fire/major strike at a plant
 Management generally make provisions to handle the
situation.
 The opportunity problems are more of challenges which
must be exploited for the betterment of the organisation.

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 Types of Decision Making
PROGRAMMED DECISIONS
 Programmed decisions are routine and repetitive, and the organization
typically develops specific ways to handle them.
 A programmed decision might involve determining how products will be
arranged on the shelves of a supermarket.
 For this kind of routine, repetitive problem, standard arrangement decisions
are typically made according to established management guidelines.
Examples:
 Starting your car in the morning
 Deciding to reorder office supply

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NON PROGRAMMED DECISIONS
 Non programmed decisions are typically one shot decisions that are
usually less structured than programmed decision.
Examples:
 Choosing a vacation destination.
 Should the firm invest in new technology

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Routine Decisions
 Routine decisions as focusing on well-structured situations that recur
frequently, involve standard decision procedures, and entail a minimum of
uncertainty.
 Common examples include payroll processing, reordering standard inventory
items, paying suppliers,and so on.
 The decision maker can usually rely on policies, rules, past precedents,
standardized methods of processing, or computational techniques.
 Probably 90 percent of management decisions are largely routine.
 Indeed, routine decisions usually can be delegated to lower levels to be made
within established policy limits, and increasingly they can be programmed for
computer “decision” if they can be structured simply enough.

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Non-Routine Decisions
 Non-routine decisions, on the other hand, “deal with unstructured
situations of a novel, nonrecurring nature,” often involving incomplete
knowledge, high uncertainty, and the use of subjective judgment or
even intuition, where “no alternative can be proved to be the best
possible solution to the particular problem.
 Such decisions become more and more common at the higher level of
management

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 Rational Decision Making

Objective Rationality
(Rational means based on logic)
 A decision as being Objectively rational if in fact it is the correct behavior for
maximizing given values in a given situation.”
 Such rational decisions are made by “
 Viewing the behavior alternatives prior to decision in panoramic [exhaustive]
fashion,
 Considering the whole complex of consequences that would follow on each
choice, and
 With the system of values as criterion singling out one from the whole set of
alternatives.
 Rational decision making, therefore, consists of optimizing, or maximizing,
the outcome by choosing the single best alternative from among all possible .

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 But it is believed that actual behavior falls short, in at least three ways,
of objective rationality
1. Rationality requires a complete knowledge and anticipation of the
consequences that will follow on each choice.
In fact, knowledge of consequences is always fragmentary.
2. Since these consequences lie in the future, imagination must supply the
lack of experienced feeling in attaching value to them. But values can
be only imperfectly anticipated.
3. Rationality requires a choice among all possible alternative behaviors.
In actual behavior,only a few of these possible alternatives ever come
to mind.

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Bounded Rationality
 Managers, under pressure to reach a decision, have neither the time nor
other resources to consider all alternatives or all the facts about any
alternative.
 A manager “must operate under conditions of bounded rationality,
taking into account only those few factors of which he or she is aware,
understands, and regards as relevant.”
 Administrators must satisfice by accepting a course of action that is
satisfactory or “good enough,” and get on with the job rather than
searching forever for the “one best way.”

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 Factors affecting Rational Decision Making

 Decisions are not always fully rational.

 There are two types of factors which puts limits on rationality in decision
making.
 First is related with decision making mechanism
 Second is related with Human Factor involved in decision making
Decision making mechanism
 A rational decision is based on some assumptions like:
 All the alternatives of choices are known
 The consequences of all the alternatives are known
 The decision maker has a complete utility ordering for all possible set of
consequences
 These assumptions are seldom fulfilled in practice.

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 Decision maker does not have information about all the alternatives.
 Even for a single alternative, he may not have all the relevant
information.
 He makes assumptions about some aspects of the decision.
 Major decisions which are generally non-programmed are made under
the conditions of partial ignorance.
 Since outcome of a decision can be known only in future, it is virtually
impossible to know the exact outcome of the decisions before the
things actually happens.
 Therefore, to the extent a decision situation is uncertain, there is limit
on making a rational decision.

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Human Factors
 Personal factors affects the choice of an alternatives in two ways.
 First, the choice is an ordering of a kind of personal preferences, and a
decision maker can not eliminate his personal preferences altogether.
 Second, choice depends on various qualitative information and its
interpretation is likely to be personalised.
 This is the reason why major organisational decisions are changed
when a new chief executive with different personality features takes
over the charges of an organisation.

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 The major human factors affecting rationality in decision making are
as follows:
Personal Value System
 Value system is a framework of personal philosophy which governs
and influences the individual reactions and responses to any situation.
 What is good or bad is judged on the basis of personal value system
 It can not only affect choice of an alternative in terms of what should
be the best for the organisation but also in terms of perceptions of
various situations under which an alternative is being chosen.

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Perception
 Individual’s perception regarding the problems and their solutions is
different and consequently the way of tackling the problems may be
different.
 Example-an organisational problem is generally interpreted as
marketing problem by marketing people but financial problem by
finance people.

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Political and Power Behaviour
 Since the major choices in an organisation are arrived at after a lot of
consultation and involvemnt of various people at some stages of total
decision making process
 In the organisation,various interest groups put pressure according to
their own interest.
 Similarly,lower-level managers affect decision making at higher-level
 Managers at various levels affect the decision making process in such a
way that the final choice does not consider all alternatives.

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Time Constrains
 Managers do not have the time or money to search for all alternatives.
 This leads the manager to again decide based on incomplete
information.
 Managers explore a limited number of options and choose an
acceptable decision rather than the optimum decision.

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 Programmed vs. Non-programmed Decisions Making

Characteristics Programmed decisions Non-programmed decisions

Type of problem Structured Unstructured

Managerial level Lower level Upper level

Frequency Repetitive New, unusual

Information Readily available Ambiguous or incomplete

Time frame for solution Short Relatively long

Solution relies on Procedures, rules, and policies Judgment and creativity

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 Decision Making Process
Steps of Decision Making Process
Following are the important steps of the decision making process.
 Step 1: Identification of the purpose of the decision:
 Step 2: Information gathering:
 Step 3: Principles for judging the alternatives:
 Step 4: Brainstorm and analyse the different choices:
 Step 5: Evaluation of alternatives:
 Step 6: Select the best alternative:
 Step 7: Execute the decision:
 Step 8: Evaluate the results:

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Step 1: Identification of the purpose of the decision:
(Perception and diagnosis of the Problem)
 In this step, the problem is thoroughly analysed.
 There are a couple of questions one should ask when it comes to
identifying the purpose of the decision.
 What exactly is the problem?
 Why the problem should be solved?
 Who are the affected parties of the problem?
 Does the problem have a deadline or a specific time-line?

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Step 2: Information gathering:
 A problem of an organization will have many stakeholders.
 In addition, there can be dozens of factors involved and affected by the
problem.
 In the process of solving the problem, you will have to gather as much
as information related to the factors and stakeholders involved in the
problem.
 For the process of information gathering, tools such as 'Check Sheets'
can be effectively used.

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Step 3: Principles for judging the alternatives:
 In this step, the baseline criteria for judging the alternatives should be
setup.
 When it comes to defining the criteria, organizational goals as well as
the corporate culture should be taken it to consideration.
 As an example, profit is one of the main concerns in every decision
making process.Companies usually do not make decisions that reduce
profits, unless it is an exceptional case.
 Example- Govt. organisation-no profit motive
 Likewise, baseline principles should be identified related to the
problem in hand.

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Step 4: Brainstorm and analyse the different choices:
(Delibration-Long and careful consideration or discussion.)
 For this step, brainstorming to list down all the ideas is the best option.
 Before the idea generation step, it is vital to understand the causes of the
problem and prioritization of causes.
 For this, you can make use of Cause-and-Effect diagrams and Pareto Chart
tool.
 Cause-and-Effect diagram helps you to identify all possible causes of the
problem and Pareto chart helps you to prioritize and identify the causes with
highest affect.
 Then, you can move on generating all possible solutions (alternatives) for the
problem in hand.

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Step 5: Evaluation of alternatives:
 Use your judgment principles and decision-making criteria to evaluate each
alternative.
 In this step, experience, and effectiveness of the judgment principles come into
play.
 You need to compare each alternative for their positives and negatives.
Step 6: Select the best alternative:
 Once you go through from Step 1 to Step 5, this step is easy.
 In addition, the selection of the best alternative is an informed decision since
you have already followed a methodology to derive and select the best
alternative.
 The chosen alternative is called as the “Decision”

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Step 7: Execute the decision:
(Communication)
 The decision should be communicated to all the concerned persons and
departments.
 Then convert the decision into a plan or a sequence of activities.
 Execute the plan by yourself or with the help of subordinates.
Step 8: Evaluate the results:
(Feedback)
 Evaluate the outcome of your decision.
 See whether there is anything you should learn and then correct in future
decision making. This is one of the best practices that will improve your
decision-making skills.
 The feedback should also be analysed properly.

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