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R.

Arun Kumar, AP/Mech, RIT


UNIT II – PLANNING
SYLLABUS

Nature and purpose of planning – planning process – types of


planning – objectives – setting objectives – policies – Planning
premises – Strategic Management – Planning Tools and Techniques

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– Decision making steps and process.
Objective:

 To study different types of planning, its tools and techniques.

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Outcome:

 The student will be able to explain the different types of


planning process and tools used for planning.
NATURE AND PURPOSE OF PLANNING:

 Planning is the most basic form of all management functions.

 Everyone used to plan in our day to day activities.

 We plan to execute our official work, improvise career, plan our

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investment, etc.
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BOEING 787 AIRCRAFT
 Planning involves defining the organizations' goals,
establishing strategies for achieving those goals and
developing plans to integrate and coordinate work
activities.

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 Planning is deciding in advance what to do, how to do it, when
to do it, and who is to do it.

 Planning bridges the gap from where we are to where we


want to go.

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 It makes it possible for things to occur which would not otherwise
happen.

- Harold Koontz and Cyril O’Donell


 In formal planning, specific goals covering a specific period of
time are defined.

 Shared among all the members of an organization to reduce


uncertainty and create common understanding about what need

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to be done.
NATURE OF PLANNING:

1. Pervasiveness:

 Occurs irrespective of level of management. Every manager


has a planning function to perform.

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NATURE OF PLANNING:

2. Primary in nature:

 Precedes other functions of an organization.

 Without planning other functions of an organization becomes

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meaningless.
NATURE OF PLANNING:

3. Continuous in nature:

 Never ending activity.

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NATURE OF PLANNING:

4. Flexible in nature:

 Future is unpredictable, thus planning must provide enough


room to cope with the changes in global market.

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NATURE OF PLANNING:

5. Goal oriented:

 Carried out to attain the objective of an organization.

 Provides guidelines for attaining goals.

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NATURE OF PLANNING:

6. Integrated process:

 Integrates the plans and actions of a manager.

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NATURE OF PLANNING:

7. Forward looking:

 Without planning, business become random in nature.

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NATURE OF PLANNING:

8. Intellectual process:

 Involves brain activity.

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NATURE OF PLANNING:

9. Factual process:

 Process is based on some predictions and past experiences.

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NATURE OF PLANNING:

10. Effective and efficient process:

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PURPOSE OF PLANNING:

1. Provides direction:

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PURPOSE OF PLANNING:

2. Reduces uncertainty:

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PURPOSE OF PLANNING:

3. Minimizes waste and redundancy:

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PURPOSE OF PLANNING:

4. Set standards for controlling:

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PURPOSE OF PLANNING:

5. Provides basis for team work:

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PURPOSE OF PLANNING:

6. Adaption to change in work environment:

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PURPOSE OF PLANNING:

7. Improves morale:

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PURPOSE OF PLANNING:

8. Facilitates decision making:

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PLANNING PROCESS,
TYPES OF PLANNING

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GOALS:

 Goals are also called as objectives.

 Goals are desired outcomes or targets.

 They guide management decisions and form the criteria against

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which the work results are measured.
TYPES OF GOALS:

 Financial goal

 Strategic goal

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Stated goals

Real goals


“To bring inspiration and innovation to every athlete in the
world.”

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“To be world’s high performance benchmark independent oil
and gas company”

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“To be a global transformation partner”

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PLANNING PROCESS:

 Planning is a process which contains number of steps within it.

 Planning process differs from organization to organization and


from objective to objective.

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 With some minor modifications, process is applied for all types of
plans.
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PLANNING PROCESS:
PLANNING PROCESS:

1. Situation analysis:

 Manager should collate all the information relevant to a given


activity for which planning is to made.

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 Should analyze past experience, current trends and future scope.

 Helps to bring the issues and problems related to activity to


light.
PLANNING PROCESS:

2. Identification of opportunities:

 The exact planning starts.

 Identify the opportunity and carry out SWOT analysis.

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 If the organization gets positive result, it would pass on to next
stage, else the opportunity would be dropped.
PLANNING PROCESS:

3. Objective setting:

 Represents the destination of an organization.

 Objectives of an organization and various departments are fixed.

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 Timeline to finish the objectives are also fixed during this stage.
PLANNING PROCESS:

4. Planning premises:

 Denotes the circumstances under which the planning will be


undertaken.

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 It represents the assumptions that are to be considered.
PLANNING PROCESS:

5. Determining alternative course of actions:

 Requires imagination, foresight and ingenuity.

 E.g. To improve productivity and organization can focus on

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increasing wages or incentives or technology investment, etc.
PLANNING PROCESS:

6. Evaluation of alternatives:

 Analyzing various aspects and results of all the alternatives.

 Involves micro analysis of all the alternatives.

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PLANNING PROCESS:

7. Selection of best alternatives:

 After micro analysis, the best methodology is preferred for to


accomplish the goal of an organization.

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PLANNING PROCESS:

8. Derivative plans:

 Organization have to think about secondary or sub plans to


accomplish.

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 E.g. If an organization prefers to provide transport facility instead
of outsourcing, then it have to think about financial burden, etc.
PLANNING PROCESS:

9. Implementation of plans:

 Communicating plan to all employees and providing instructions.

 Deploying facilities like raw materials, man power, machinery,

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etc.

 Linking implementation with reward system and ensuring


execution.
PLANNING PROCESS:

10. Follow up:

 Monitoring the consequences of implementation, so that


necessary corrective actions can be to fine tune the plan.

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R.Arun Kumar, AP/Mech, RIT
PLANNING TYPES:
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TYPES OF PLANNING
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PLANNING TYPES:
PLANNING TYPES:

1. Breadth: Based on the range of area.

 Strategic planning

 Operational planning

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PLANNING TYPES:
Strategic Plans:
 Apply to the entire organization.
 Establish the organization’s overall goals.
Seek to position the organization in terms of its environment.

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 Cover extended periods of time


PLANNING TYPES:
Operational Plans
 Plans that encompasses a particular operational area of
the organization..
Specify the details of how the overall goals are to be achieved

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 Cover short time period.


PLANNING TYPES:

2. Time frame: Based on duration for achieving the goal.

 Long term goal

 Short term goal

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PLANNING TYPES:
Long term goals:
 Plans with time frames extending beyond three years.

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PLANNING TYPES:
Short term goals:
 Plans with time frames on one year or less.
 Any plans between these time duration are called as
intermediate plans.

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PLANNING TYPES:

3. Specificity: Based on range of defining.


 Specific plans
 Directional plans

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PLANNING TYPES:
Specific Plans
 Plans that are clearly defined and leave no room for
interpretation.
They have clearly defined objectives.

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 No uncertainty
PLANNING TYPES:
Directional Plans
 Flexible plans that set out general guidelines, provide focus,
yet allow freedom in implementation.
Directional plans are used when uncertainty is high.

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 They provide focus but do not lock managers into specific goals
or courses of action.
PLANNING TYPES:

4. Frequency of use: Based on usage of planning.


 Single-Use Plan
 Standing Plans

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PLANNING TYPES:
Single-Use Plan
 A one-time plan specifically designed to meet the need of a
unique situation.

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PLANNING TYPES:
Standing Plans
 Ongoing plans that provide guidance for activities performed
repeatedly.

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SINGLE USE PLANS VS STANDING PLANS

Single use plans Standard/Repeated use plans


1.Programmes 1.Objectives
2.Budgets 2.Policies

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3.Projects 3.Procedures
4.Rules
5.Strategies
Single Use Plans:

1. Programmes

 A specific plan devised to meet a particular situation.

2. Budget

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 A financial or quantitative statement prepared prior to a definite
period of time.

3. Project

 Part of general programme.


Standing Use Plans:

1. Objectives

 Specific goals or targets to be accomplished.

 Realistic, flexible.

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2. Policies
 Guiding principles established by the company to govern actions
usually under repetitive conditions.

3. Procedures

 Prescribe the manner or method by which the work is to be


performed.
Standing Use Plans:
4. Rules
 A decision made by the management regarding what is to be done
and what is not to be done in a given situation.
5. Strategy

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 A special kind of plan formulated in order to meet the challenge
of the polices of competitors.
Tactical Planning:

 Deals with the low level units of an organization.

 Concerned with shorter time frames and narrower scopes.

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Contingency Planning:

 Plans that are devised for specific situation.

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Advantages of Planning:

 Helps in achieving objectives.

 Better utilization of resources.

 Economy in operation.

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 Reduces uncertainty and risk.

 Effective control.

 Improves coordination.

 Guides in decision making.

 Improves output of an organization.

 Provides decentralization.
Disadvantages of Planning:

 Lack of accuracy.

 Time and cost.

 Inflexibility.

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 Delay during emergency period.
OBJECTIVES AND
SETTING OBJECTIVES

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DEFINITIONS:

 Objectives are those ends which the organizations seeks to


achieve by its existence and operations.

 Objective is a specific commitment to achieve a measurable

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result within a specified time.
Characteristics of Organizational Objectives:

 Multiplicity

 Hierarchy

 Networking

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 Time dimension

 Quantifiable and non – quantifiable objectives.

 Social sanction
Characteristics of Organizational Objectives:
1. Multiplicity:
 Multiplicity of objectives trigger the problem of fixing
priorities and harmonizing them.

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Characteristics of Organizational Objectives:
2. Hierarchy: (Top – down and bottom – up approaches)
 Objectives are framed across different levels of an
organization.
e.g. achieving profit, improving shares – top level management

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cost reduction, waste management – middle level management


reducing absenteeism, maintenance – low level management
Characteristics of Organizational Objectives:
3. Networking:
 Objectives are intertwined and networked with one other.
 e.g. Marketing, HR and Production.

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Characteristics of Organizational Objectives:
4. Time dimension:
 Objectives are time bound.
 e.g. short term, long term, intermediate term.

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Characteristics of Organizational Objectives:
5. Quantifiable and non – quantifiable:
 Objectives based on numbers are called quantifiable.
 Objectives based on quality are called as non – quantifiable.
e.g. Improving productivity, increasing profit to certain number.

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Improving job satisfaction, enhancing quality of products.


Characteristics of Organizational Objectives:
6. Social sanction:
 Objectives will confirm to general needs of the society.

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Importance and role of objectives:

 Legitimacy
 Sense of direction

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 Motivational aid
 Control mechanism
 Co – ordination
 Unifying force
Importance and role of objectives:
1. Legitimacy
 They describe the purpose of an organization.
 They provide the identity to an organization.

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Importance and role of objectives:
2. Sense of direction:
 Provides the guide way towards the target.
 Every employee must have clear idea about what he/she is

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supposed to do in his/her job.
Importance and role of objectives:
3. Motivational aid:
 Apart from incentives and rewards, objective of an organization
will be the driving force to attain a goal.

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Importance and role of objectives:
4. Control mechanism:
 Being a driving force, objectives restricts employees from
deviation.

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Importance and role of objectives:
5. Co – ordination:
 Objectives serve as unifying force for an organization.
 e.g. executives coordinates the efforts of their subordinates.

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Importance and role of objectives:
6. Uniqueness:
 They are core force to planning.
 They serve as reference points for the formulation of policies,

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strategies, procedures, etc.
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SETTING OBJECTIVES:
SETTING OBJECTIVES:
 Setting objective must meet following criteria:
1. Should be consistent with the values of management.
2. Should pin point strength of an organization.

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3. Should satisfy external environment factors.
Objective setting guidelines:
 Objectives should be clear and specific.
 Should be expressed in measurable terms.
 Objectives should be attainable and realistic.

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 Objectives should be time bound.
 Should be whole heartedly accepted by employees.
 Objectives should be challenging.
 Objectives should have sub-goals and linked to rewards.
 Objectives should be inter – connected and mutually
supportive.
 Objectives should be flexible and adaptable.
 It should be set down in all key – result areas.
Benefits of objectives formulation:
 Sets specific target.
 Provides direction for employee.
 Increases staff motivation.

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 Helps to focus on specific task.
 Builds relationship.
 Helps to measure the performance of employee.
 Helps to prioritize.
 Enables the success to be measured.
Limitations in objectives formulation:
 Immeasurability
 Inadequate resource allocation
 Stress on employee

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 Neglecting ground reality
 Avoiding consultation
 Unclear and rigid objective
 Time constraint
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SMART Objectives:
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MANAGEMENT BY
OBJECTIVES
MANAGEMENT BY OBJECTIVES:

 MBO was conceptualized by Peter F. Drucker and was made into


practice by Harold Smiddy.

 Harold Smiddy was a long time Vice President of GEC.

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DEFINITION:

 Management By Objectives is a process of setting mutually


agreed upon goals and using those goals to evaluate
employee performance.

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 Specific performance goals are jointly determined by employees
and managers.
 Progress towards accomplishing goals is periodically reviewed.
 Rewards are allocated on the basis of progress towards the goals.

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KEY ELEMENTS OF MBO:
 Goal specificity
 Participative decision making
 An explicit performance/evaluation period
Feedback

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STEPS IN MBO:
 Step 1: The organization’s overall objectives and strategies are
formulated.

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STEPS IN MBO:
 Step 2: Major objectives are allocated among divisional and
departmental units.

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STEPS IN MBO:
 Step 3: Unit managers collaboratively set specific objectives
for their units with their managers.

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STEPS IN MBO:
 Step 4: Specific objectives are collaboratively set with all
department members.

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STEPS IN MBO:
 Step 5: Action plans, defining how objectives are to be achieved,
are specified and agreed upon by managers and employees.

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STEPS IN MBO:
 Step 6: The action plans are implemented.

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STEPS IN MBO:
 Step 7: Progress toward objectives is periodically reviewed and
feedback is provided.

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STEPS IN MBO:
 Step 8: Successful achievement of objectives is reinforced by
performance-based rewards.

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Characteristics of Well written goals:
 Written in terms of outcomes, not actions
 Measurable and quantifiable
 Clear as to time frame
Challenging yet attainable

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 Written down
 Communicated to all necessary organizational members
STEPS IN GOAL SETTING:
1. Review the organization’s mission statement.
Do goals reflect the mission?

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STEPS IN GOAL SETTING:
2. Evaluate available resources.
Are resources sufficient to accomplish the mission?

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STEPS IN GOAL SETTING:
3. Determine goals individually or with others.
Are goals specific, measurable, and timely?

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STEPS IN GOAL SETTING:
4. Write down the goals and communicate them.
Is everybody on the same page?

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STEPS IN GOAL SETTING:
5. Review results and whether goals are being met.
What changes are needed in mission, resources, or goals?

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PLANNING IN MBO PROCESS:
ADVANTAGES:
 Employee feel motivated when working in the organization
because of clear goals.
 Improvement of managing through result oriented planning.
Classification of organization roles and structures as well as

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delegation of authority according to the results expected of the


people occupying the roles.
 Encouragement of commitment to personal and organizational
goals.
 Development of effective controls that measure results and lead
to corrective action.
 Autonomy in implementation of plan.
DRAWBACKS:
 MBO is not the best approach for organization functioning in
dynamic environment.
 Overemphasis on individual accomplishment may create
problems with teamwork.

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 Difficulty in implementation.
 Difficulty of setting verifiable goals with right degree of
flexibility.
 Overuse of quantitative goals and the attempt to use numbers
in areas where they are not applicable.
MBO AT MICROSOFT BY BILL GATES
 Eliminate politics, by giving everybody the same message.

 Keep a flat organization in which all issues are discussed


openly.

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 Insist on clear and direct communication.

 Prevent competing missions or objectives.

 Eliminate rivalry between different parts of the organization.

 Empower teams to do their own things.


https://www.youtube.com/watch?v=9FZDVmSvsH0

https://www.youtube.com/watch?v=0qM5YYWaRC4

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POLICIES AND PLANNING
PREMISES

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DEFINITION:

 Policy is a general guideline for decision making.

 According to Koontz and Weihrich, “Policies are general


statements of understandings which guides or channelize

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thinking in decision making or subordinates.
 Policies deal with ‘How to do’ but it do not dictate terms to
subordinates.

 Policy is only a framework within which decisions must be


made.

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NATURE OF POLICY:
1. Relationship to organization’s objectives:
 Policies are based on the objectives and they contribute towards
the attainment of objectives.

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NATURE OF POLICY:
2. Clarity of policy:
 Policies are clear, definite and explicit leaving no room for
interpretation.

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NATURE OF POLICY:
3. Guideline towards decision making:
 Prescribes the criteria for current and future actions.

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NATURE OF POLICY:
4. Policies are written:
 Policies are stared with precise covering of all anticipated
conditions.

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NATURE OF POLICY:
5. Consistency:
 Provides steadiness in various operations of an organization.

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NATURE OF POLICY:
6. Balance of policy:
 Should maintain balance between stability and flexibility.

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NEEDS FOR POLICY:

 Operationalize objectives.

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 Save time and effort.

 Facilitate delegation of authority.

 Speedup decision making.

 Control administration.
POLICY FORMULATION PROCESS:

1. Definition of policy

2. Creation of policy alternatives

3. Evaluation of policy alternatives

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4. Choice of policy

5. Communication of policy

6. Implementation of policy

7. Review of policy
TYPES OF POLICIES:
Classification on the basis of sources:
1. Originated or Formulated policies:
 Originated by top level managers, flows down the level of the
management.

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 Acts as a guidelines for lower level units to formulate their own
unit policies.
TYPES OF POLICIES:
Classification on the basis of sources:
2. Appealed policies:
 Policies formulated on the request or appeal of lower level
managers.

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TYPES OF POLICIES:
Classification on the basis of sources:
3. Implied policies:
 Sometimes policies are not clearly stated and the actions of top
level managers provides guidelines for actions at the lower levels.

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TYPES OF POLICIES:
Classification on the basis of sources:
4. Externally imposed policies:
 Policies that are imposed by some external forces such as unions,
government, association, etc.

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TYPES OF POLICIES:
Classification on the basis of functions:
 Production policy
 Sales policy
Financial policy

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 Personnel policy, etc.


TYPES OF POLICIES:
Classification on the basis of organization levels:
 Company policy
 Department policy
Derivative policy

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Advantages:
 Ensures uniformity in actions.
 Speeds up decision at lower levels.
 Delegation of Authority or work becomes easier.
Gives practical shape to the objectives by elaborating and

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directing the way in which the predetermined objectives are to be


attained.
PLANNING PREMISES:
 Usually plans are prepared for future, which are uncertain. Thus
the management makes certain assumptions about the future.

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DEFINITION:
 According to Koontz and Weihrich, Planning premises are the
anticipated environment in which plans are expected to
operate.
According to Dr.G.R.Terry, Planning premises are the

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assumptions providing a background against which the


estimated events affecting the planning will take place.
IMPORTANCE:

 Well organized planning can be done.

 Risk of uncertainty reduces.

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 Risk of flexibility reduces.

 Co-ordination becomes effective.

 Increases in profitability.
CLASSIFICATION:
1. Internal and External:
 Internal are assumptions considered within an organization.
e.g.: Man power, Resource availability, Capacity of a plant.
External are assumptions considered outside an organization.

R.Arun Kumar, AP/Mech, RIT


e.g.: Business environment, Demand in market, Technological


advancement
CLASSIFICATION:
2. Tangible and Intangible premises:
 Tangible are the assumptions that deals with numbers.
e.g.: Working hour, Monetary unit.
Intangible are the assumptions that can’t be measured.

R.Arun Kumar, AP/Mech, RIT


e.g.: Employee welfare, Motivation.


CLASSIFICATION:
3. Controllable and uncontrollable:
 Assumptions that are completely under control.
e.g.: Procedures, Organization structure.
Assumptions that can’t be controlled by an organization.

R.Arun Kumar, AP/Mech, RIT


e.g.: Population growth, Taxation policy of government.


Premises about raw materials:
 What type of material and quantity?
 What will be the price of raw material?
 Availability of raw material resource and transportation cost.
Is there any possibility to prepare required raw material in the

R.Arun Kumar, AP/Mech, RIT


company?
 If raw material is going to be purchased , should it be imported or
indigenously acquired?
Premises about personnel:
 How much skilled , unskilled , male, female, workmen, are needed
for implementation of a plan?
 How much training should be imparted in the context of new
technological development ?

R.Arun Kumar, AP/Mech, RIT


 To make an estimate regarding present and future employees.
Premises about organization:
 What will be the structure of the organization?
 Coordination among departments.
 Whether to centralize or decentralize the authority?

R.Arun Kumar, AP/Mech, RIT


Premises about basic policies:
 Whether to give importance to quality or low price?
 Premises about automation of office.
 Premises for capital.
The methods of directing to be followed .

R.Arun Kumar, AP/Mech, RIT


 Policies and rules of employment.


R.Arun Kumar, AP/Mech, RIT
STRATEGIC MANAGEMENT
DEFINITION:

 The decisions and actions that determine the long-run


performance of an organization.

 What the managers do to develop an organization’s strategy.

R.Arun Kumar, AP/Mech, RIT


 It involves all the management functions.
 They are the plans for how the organization will do whatever
it is in business to do.

 Helps an organization to attract and satisfy its customers in


order to achieve its goals.

R.Arun Kumar, AP/Mech, RIT


R.Arun Kumar, AP/Mech, RIT
WALMART (vs) KMART
BUSINESS MODEL:

 Design which defines how a company is going to make money.

 Business model focuses on two factors:

1. Whether customer will value what the company is

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providing?

2. Whether the company can make any money doing that?


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R.Arun Kumar, AP/Mech, RIT
R.Arun Kumar, AP/Mech, RIT
R.Arun Kumar, AP/Mech, RIT
R.Arun Kumar, AP/Mech, RIT
R.Arun Kumar, AP/Mech, RIT
R.Arun Kumar, AP/Mech, RIT
R.Arun Kumar, AP/Mech, RIT
R.Arun Kumar, AP/Mech, RIT
IMPORTANCE OF STRATEGIC MANAGEMENT:

 Can make a difference in how well an organization can


perform?

 Managers face continually change in situations.

R.Arun Kumar, AP/Mech, RIT


 Organizations are complex and diverse.
Interbrand/BusinessWeek Hay Group/Fortune
100 Top Global Brands (2005) America’s Most Admired Companies
(2006)
1. Coca-Cola 1. General Electric
2. Microsoft 2. FedEx
3. IBM 3. Southwest Airlines

R.Arun Kumar, AP/Mech, RIT


4. General Electric 4. Procter & Gamble
5. Intel 5. Starbucks

Harris Interactive/Wall Street Journal Great Place to Work Institute/Fortune


National Corporate Reputation (2005) 100 Best Companies to Work For (2006)

1. Johnson & Johnson 1. Genentech


2. Coca-Cola 2. Wegman’s Food Markets
3. Google 3. Valero Energy
4. United Parcel Service 4. Griffin Hospital
5. 3M Company 5. W. L. Gore & Associates
Interbrand/BusinessWeek Hay Group/Fortune
100 Top Global Brands (2015) America’s Most Admired Companies
(2016)
1. Apple 1. Apple
2. Google 2. Alphabet
3. Coca - Cola 3. Amazon

R.Arun Kumar, AP/Mech, RIT


4. Microsoft 4. Berkshire Hathaway
5. IBM 5. Walt Disney

Harris Interactive/Wall Street Journal Great Place to Work Institute/Fortune


National Corporate Reputation (2016) 100 Best Companies to Work For (2016)

1. Johnson & Johnson 1. Google


2. Coca-Cola 2. ACUITY Insurance
3. Google 3. The Boston Consulting
4. United Parcel Service Group (BCG)
5. 3M Company 4. Wegman’s Food Markets
5. Quicken Loans
STRATEGIC MANAGEMENT PROCESSES:

R.Arun Kumar, AP/Mech, RIT


STRATEGIC MANAGEMENT PROCESSES:

 Step 1: Identifying the organization’s current mission, goals


and strategies

 Mission is the reason for a firm’s being.

R.Arun Kumar, AP/Mech, RIT


 Provides clues to what the organizations see as their purpose.
STRATEGIC MANAGEMENT PROCESSES:

 Step 1: Identifying the organization’s current mission, goals


and strategies

Mission of Infosys:

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 To achieve our objectives in an environment of fairness, honesty
and courtesy toward our clients, employees, vendors and society at
large.
STRATEGIC MANAGEMENT PROCESSES:

 Step 2: Doing an external analysis

R.Arun Kumar, AP/Mech, RIT


STRATEGIC MANAGEMENT PROCESSES:

 Step 2: Doing an external analysis

 Analyzing environment is the critical step in strategic


management process.

R.Arun Kumar, AP/Mech, RIT


 Find out the opportunities (smart phones) and threats.

 Opportunities are the positive trends and threats are the negative
trends.
STRATEGIC MANAGEMENT PROCESSES:

 Step 2: Doing an external analysis

R.Arun Kumar, AP/Mech, RIT


STRATEGIC MANAGEMENT PROCESSES:

 Step 3: Doing an internal analysis

 Gives information about organization’s specific resources and


capabilities.

R.Arun Kumar, AP/Mech, RIT


STRATEGIC MANAGEMENT PROCESSES:

 Step 3: Doing an internal analysis

 Gives information about organization’s specific resources and


capabilities.

R.Arun Kumar, AP/Mech, RIT


 Here strengths and weakness are analyzed.
STRATEGIC MANAGEMENT PROCESSES:

 Step 4: Formulating strategies

 After analyzing all the factors the strategies will be formulated.

 Three types of strategies are: corporate, business and

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functional.
STRATEGIC MANAGEMENT PROCESSES:

 Step 5: Implementing strategies

R.Arun Kumar, AP/Mech, RIT


STRATEGIC MANAGEMENT PROCESSES:

 Step 6: Evaluating results

 Adjustments and corrective actions.

R.Arun Kumar, AP/Mech, RIT


TYPES OF STRATEGIES:

1. Corporate Strategy
1.1 Growth strategy
1.1.1 Concentration
1.1.2 Vertical integration

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1.1.2.1 Backward vertical integration
1.1.2.2 Forward vertical integration
1.1.3 Horizontal integration (Related and Unrelated)
1.1.3.1 Related horizontal integration
1.1.3.2 Unrelated horizontal integration

1.2. Stability strategy


1.3. Renewal strategy
1.3.1 Retrenchment strategy
1.3.2 Turnaround strategy

2. Business Strategy
3. Functional Strategy
CORPORATE STRATEGY:

 Specifies what businesses a company is in or wants to be in?

 Top management’s overall plan for the entire organization


and its strategic business units.

R.Arun Kumar, AP/Mech, RIT


CORPORATE STRATEGY:

 Corporate strategies are classified into three types:

1. Growth

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2. Stability

3. Renewal
CORPORATE STRATEGY:

1. Growth Strategies:

 With growth strategy, an organization expands the number of


markets served or products offered.

R.Arun Kumar, AP/Mech, RIT


 Expands in current businesses or new businesses.

1.1 Concentration

1.2 Vertical Integration

1.3 Horizontal Integration

1.4 Diversification
CORPORATE STRATEGY:

1.1 Concentration:

 Focuses only on primary line of business and increases the


number of products offered.

R.Arun Kumar, AP/Mech, RIT


 e.g.: CRI Pumps, Coimbatore.
CORPORATE STRATEGY:

1.2 Vertical Integration:

1.2.1 Backward vertical integration.

 e.g.: eBay online payment mode

R.Arun Kumar, AP/Mech, RIT


1.2.2 Forward vertical integration.

 e.g.: Bata showrooms


CORPORATE STRATEGY:

1.3 Horizontal Integration:

 Company grows by combining with competitors.

 e.g.: RNAIPL

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CORPORATE STRATEGY:

1.4 Diversification:

1.4.1 Related diversification (variety of business in same field)

 e.g. Godrej

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1.4.2 Unrelated diversification (different field)

 e.g. Tata Group of India


CORPORATE STRATEGY:

2. Stability Strategies:

 Organization continues to do what is currently doing.

 Serves the clients by offering same product.

R.Arun Kumar, AP/Mech, RIT


 e.g.: Iruttu Kadai
CORPORATE STRATEGY:

3. Renewal Strategies:

 Arises when the organization is in problem.

3.1 Retrenchment Strategy (short run renewal)

R.Arun Kumar, AP/Mech, RIT


3.2 Turnaround Strategy (problems are more serious)
CORPORATE PORTFOLIO ANALYSIS:

 In case of collection of businesses, management uses BCG (Boston


Consulting Group) matrix.

R.Arun Kumar, AP/Mech, RIT


COMPETITIVE STRATEGIES:

 Strategy focused on how an organization should compete in each of


its Strategy Business Unit (SBU).

R.Arun Kumar, AP/Mech, RIT


ROLE OF COMPETITIVE ADVANTAGE:

1. Quality as a competitive advantage:

 Iruttu Kadai

R.Arun Kumar, AP/Mech, RIT


ROLE OF COMPETITIVE ADVANTAGE:

2. Sustaining competitive advantage:

 MIT

R.Arun Kumar, AP/Mech, RIT


ROLE OF COMPETITIVE ADVANTAGE:

Five forces Model:

R.Arun Kumar, AP/Mech, RIT


NEW ORGANIZATION STRATEGIES:

1. e-Business Strategies:

R.Arun Kumar, AP/Mech, RIT


NEW ORGANIZATION STRATEGIES:

2. Customer Service Strategies

R.Arun Kumar, AP/Mech, RIT


NEW ORGANIZATION STRATEGIES:

3. Innovation Strategies:

R.Arun Kumar, AP/Mech, RIT


PLANNING TOOLS AND
TECHNIQUES

R.Arun Kumar, AP/Mech, RIT


There are three categories of planning tools and techniques:

 Techniques for assessing the environment

 Techniques for allocating resources

 Contemporary planning

R.Arun Kumar, AP/Mech, RIT


Techniques for assessing the environment:

 Many larger accounting firms have setup external analysis


departments to study the wider environment in which they
and their clients operate.

R.Arun Kumar, AP/Mech, RIT


 Three techniques helps managers to do that:

1. Environmental scanning

2. Forecasting

3. Benchmarking
Techniques for assessing the environment:

1. Environmental scanning:

 Managers used to screen large amount of information to anticipate


and interpret changes in the environment.

R.Arun Kumar, AP/Mech, RIT


Techniques for assessing the environment:

1. Environmental scanning:

 Analyzing what is the need of customers and the market survival


strategy of the competitors.

R.Arun Kumar, AP/Mech, RIT


Techniques for assessing the environment:

1. Environmental scanning:

1.1 Competitive Intelligence:

 Process by which the organizations gather information about their

R.Arun Kumar, AP/Mech, RIT


competitors and get answers to questions Who they are? What
they are doing? How will they affect us?
Techniques for assessing the environment:

1. Environmental scanning:

1.2 Global Scanning:

 World markets are complex and dynamic.

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 Managers must focus how he should update the business.
Techniques for assessing the environment:

2. Forecasting:

 Predict the future events effectively.

1. Quantitative forecasting

R.Arun Kumar, AP/Mech, RIT


2. Qualitative forecasting
Techniques for assessing the environment:

2. Forecasting:

2.1 Quantitative forecasting:

 Set of mathematical rules to a series of past data to predict

R.Arun Kumar, AP/Mech, RIT


outcomes.
Techniques for assessing the environment:

2. Forecasting:

2.2 Qualitative forecasting:

 Uses judgment and opinions of knowledgeable individuals to

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predict outcomes.
Techniques for assessing the environment:

2. Forecasting:

 CPRF (Collaborative Planning, Forecasting and


Replenishment)

R.Arun Kumar, AP/Mech, RIT


 Provides frame work for the flow of information, goods and services
between retailers and manufacturers.
Techniques for assessing the environment:

Effectiveness of forecasting:

 Helps the managers in decision making.

R.Arun Kumar, AP/Mech, RIT


Techniques for assessing the environment:

Quantitative

 Time series analysis (Duration to complete)

 Regression models (Predicting a variable by assuming another

R.Arun Kumar, AP/Mech, RIT


variable)

 Econometric models (Sales change due to taxation)

 Economic indicators (Using a factor to predict. e.g. GDP)

 Substitution effect (DVD vs Pen drive)

Qualitative

 Jury of opinion (Recruiting)

 Sales force composition (Predicting next year sales)

 Customer evaluation (Surveying dealers.)


Techniques for assessing the environment:

3. Benchmarking:

 The search for the best practices among competitors and non-
competitors that lead to their superior performance.

R.Arun Kumar, AP/Mech, RIT


Techniques for assessing the environment:

Steps in Benchmarking:

R.Arun Kumar, AP/Mech, RIT


Techniques for allocating resources:

 Managers must focus on the resource allocation before the


execution of a work.

Examples:

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 Financial (equity, debts)

 Human (skilled labors)

 Physical (raw materials, equipment)

 Intangible (brand names, reputation)


Techniques for allocating resources:

 Managers must focus on the resource allocation before the


execution of a work.

1. Budgeting:

R.Arun Kumar, AP/Mech, RIT


 Numerical plans for allocating resources to specific activities.

 Used to improve time, space and use of material resources.

 e.g. revenues, expenses and capital expenditures.


Techniques for allocating resources:

1. Budgeting:

Types of budgets:

R.Arun Kumar, AP/Mech, RIT


Techniques for allocating resources:

1. Budgeting:

Methods to improve budgeting:

 Collaborate and communicate.

R.Arun Kumar, AP/Mech, RIT


 Be flexible.

 Goals should drive budgets—budgets should not determine goals.

 Use budgeting/planning software when appropriate.


Techniques for allocating resources:

2. Scheduling:

 Plans that allocate resources by detailing what activities have to


be done, the order in which they are to be completed, who is to do

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each, and when they are to be completed.
Techniques for allocating resources:

2. Scheduling:

2.1 Gantt Charts:

R.Arun Kumar, AP/Mech, RIT


Techniques for allocating resources:

2. Scheduling:

2.2 Load Charts:

R.Arun Kumar, AP/Mech, RIT


Techniques for allocating resources:

2. Scheduling:

2.3 PERT Analysis:

 A flow chart diagram that depicts the sequence of activities

R.Arun Kumar, AP/Mech, RIT


needed to complete a project and the time or costs associated
with each activity.

 To understand this one must know the following terms:

1. Events: endpoints for completion.


2. Activities: time required for each activity.
3. Slack time: Time an individual activity can be delayed.
4. Critical path: Most time consuming sequence of events.
Techniques for allocating resources:

2. Scheduling:

Steps in PERT Analysis:

1. Identify every significant activity that must be achieved for a

R.Arun Kumar, AP/Mech, RIT


project to be completed.

2. Determine the order in which these events must be completed.

3. Diagram the flow of activities from start to finish

4. Compute a time estimate for completing each activity.

5. Determine a schedule for the start and finish dates of each


activity and for he entire project.
Techniques for allocating resources:

2. Scheduling:

E.g.: Construction of an office building:

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Techniques for allocating resources:

2. Scheduling:

E.g.: Construction of an office building:

R.Arun Kumar, AP/Mech, RIT


Critical Path: A - B - C - D - G - H - J - K
Techniques for allocating resources:

3. Break – Even Analysis:

 Used to determine the point at which all fixed costs have been
recovered and profitability begins.

R.Arun Kumar, AP/Mech, RIT


Total Fixed Costs
Breakeven :
Unit Price - Unit Variable Costs
Techniques for allocating resources:

4. Linear Programming:

 Helps in selecting which is the most suitable or optimistic


method to find the solution.

R.Arun Kumar, AP/Mech, RIT


Techniques for allocating resources:

4. Linear Programming:
No. of hours required No. of hours required Monthly production
Department
for one potpourri bag for one scented candle capacity
Manufacturing 2 hours 4 hours 1,200 hours

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Assembly 2 hours 2 hours 900 hours

Profit per unit Rs.10 Rs.18


Contemporary Planning Techniques:

 Much suited for dynamic and complex situation.

R.Arun Kumar, AP/Mech, RIT


Contemporary Planning Techniques:

1. Project Management:

 The task of getting a project’s activities done on time, within


budget, and according to specifications.

R.Arun Kumar, AP/Mech, RIT


 Project is defined as one-time-only set of activities that has a
definite beginning and ending point time.
Contemporary Planning Techniques:

2. Scenario Planning:
Scenario Planning

 An attempt not try to predict the future but to reduce uncertainty

R.Arun Kumar, AP/Mech, RIT


by playing out potential situations under different specified conditions.

Scenario

 A consistent view of what the future is likely to be.


Contemporary Planning Techniques:

2. Scenario Planning:

Preparing for unexpected events:

 Identify potential unexpected events.

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 Determine if any of these events would have early indicators.

 Set up an information gathering system to identify early


indicators.

 Have appropriate responses (plans) in place if these unexpected


events occur.
DECISION MAKING STEPS
AND PROCESS

R.Arun Kumar, AP/Mech, RIT


Decision Making:

 Managers at all levels and in all areas of organizations make


decisions.

 Top level managers – Goals, Location of manufacturing facility,

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new markets etc.

 Middle level and lower level – production schedules, product


quality problems, pay rises and employee discipline etc.
Decision Making:

 Making a choice from two or more alternatives.

 For every action, decision making helps us to choose the best


solution.

R.Arun Kumar, AP/Mech, RIT


R.Arun Kumar, AP/Mech, RIT
Decision making steps:
Decision making steps:

Step1: Identifying the problem or fixing to the requirement.

Step2: Consider the factors to resolve problem (e.g. costs, features).

Step3: Adding importance / weights to each criteria.

R.Arun Kumar, AP/Mech, RIT


Step4: Identify viable alternatives.

Step5: Analyze the alternatives.

Step6: Choosing all the alternates.

Step7: Implementation of alternatives.

Step8: Evaluation.
Decision in management functions:

 We believe that the decisions taken by managers are rational.

R.Arun Kumar, AP/Mech, RIT


Decision making:

Bounded rationality:

 Managers make decisions rationally, but are limited (bounded) by


their ability to process information.

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 Managers satisfies rather than maximize.

Escalation of commitment:

 Increased commitment to a previous decision despite evidence that


it may go wrong.
Decision making:

Role of intuition:

 Taking a decision on the basis of experience, feelings and


accumulated judgment.

R.Arun Kumar, AP/Mech, RIT


Types of problems and decisions:

1. Structured problems and programmed decisions.

 e.g. for programmed decisions: Policy, procedure, rule.

2. Unstructured problems and non – programmed decisions.

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 e.g. for non – programmed decisions: expel / change the employee.
Programmed vs Non – programmed decisions:

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R.Arun Kumar, AP/Mech, RIT
Types of decision makers:
Common decision making errors:

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Common decision making errors:

1. Overconfidence Bias

 Holding unrealistically positive views of one’s self and one’s


performance.

2. Immediate Gratification Bias

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 Choosing alternatives that offer immediate rewards.

3. Anchoring Effect

 Fixating on initial information and ignoring subsequent


information.

4. Selective observation Bias

 Selecting, organizing and interpreting events based on the


decision maker’s biased perceptions.
Common decision making errors:

5. Confirmation Bias

 Seeking out information that reaffirms past choices and


discounting contradictory information.

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6. Framing Bias
 Selecting and highlighting certain aspects of a situation
while ignoring other aspects.
7. Availability Bias
 Losing decision-making objectivity by focusing on the most
recent events.
8. Representation Bias
 Drawing likeness and seeing identical situations when none
exist.
Common decision making errors:
9. Randomness Bias
 Creating unfounded meaning out of random events.

10.Sunk Costs Errors

Forgetting that current actions cannot influence past events

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and relate only to future consequences.

11. Self-Serving Bias

 Taking quick credit for successes and blaming outside


factors for failures.

12. Hindsight Bias

 Mistakenly believing that an event could have been predicted


once the actual outcome is known (after-the-fact)