Planning Raghudathesh G P, Lata S H Asst Professor

MANAGEMENT & ENTREPRENEURSHIP (VTU) - 10AL51

UNIT - 1

UNIT 2: PLANNING: Nature, importance and purpose of planning process - Objectives - Types of plans
(Meaning only) - Decision making - Importance of planning - steps in planning & planning premises -
Hierarchy of plans.
6 Hours

TEXT BOOKS:
1. Principles of Management - P. C. Tripathi, P. N. Reddy; Tata McGraw Hill, 4th Edition,
2010.
2. Dynamics of Entrepreneurial Development & Management - Vasant Desai Himalaya
Publishing House.
3. Entrepreneurship Development - Small Business Enterprises - Poornima M Charantimath -
Pearson Education 2006.

Special Thanks To:

BY:
RAGHUDATHESH G P, LATA S H
Asst Professor
ECE Dept, GMIT
Davangere 577004
Cell: +917411459249
Mail: datheshraghubooks@gmail.com, lathah@gmit.ac.in
Website: raghudathesh.weebly.com
Quotes:
Dont Count the days, make days count.
If you afraid of failure, you dont deserve to be successful.
Every saint has a past. Every sinner has a future.
When a goal matters enough to a person, that person will find a way to accomplish what
at first seemed impossible.
In a crisis, dont hide behind anything or anybody. They are going to find you anyway.

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Planning Raghudathesh G P, Lata S H Asst Professor

Nature of Planning:
Planning is the most basic function of management. It is referred to as "deciding in advance"
as to what to do, how to do, when to do and who has to do it etc.
Planning is the beginning of the process of management. A manager must plan before he
can possibly organize, staff, direct or control. Because planning sets all other functions into
action, it can be seen as the most basic function of management.
Planning is an intellectual process which requires a manager to think before acting. It is
thinking in advance. Planning involves selection of objectives and goals and determines the
ways and means of achieving them.
Planning is a continuous process, a manager must constantly watch the progress of his
plans, and he must monitor the conditions both within & outside the organization.
Planning is an all pervasive function i.e, planning is important to all managers regardless of
their levels in the organization.
Thus planning bridges the gap from where we are to where we want to be.
Top level managers are concerned with long range planning involving 2 to 5 years, middle
level managers are concerned with medium range planning involving few months to one
year and lower level managers are concerned with planning the activities of daily or week or
upto a month, where as a worker plans his day's work.
A plan must be flexible to change to adapt to the changing structure without undue cost.

Importance of Planning:
Minimizes risk and uncertainty:
In today's complex organizations, decision making cannot be relied only upon
intuition, planning plays a vital role in decision making in such complex situations.
By providing more rational and fact based procedure for making decisions, planning
allows managers and organizations to minimize risk & uncertainty.
Planning deals with the futurity of present decision.
Facilitates effective control:
In planning, the manager sets goals & plans to accomplish these goals. These goals
& plans become standards against which performance can be measured.
The function of control is to ensure that the activities conform to the plans.

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Planning Raghudathesh G P, Lata S H Asst Professor

Focuses Attention And Concentration On Organization's Goals:

Planning helps manager to focus attention on the organization's goals & activities.
This makes it easy to apply and coordinate resources of organization more
economically.
It also enables the manager to decide in advance an orderly sequence of steps to
achieve organization goals & avoid overlapping of activities.
Leads to success:
Planning does not ensure success, but leads to success. This is because if the work is
planned in advance, there will be no confusion arising & things will happen as per
the plan.
Without plans it is very difficult to accomplish goals. Hence its important for
success of organization.
Bridge between the present and the future:
Plans bridge the gap between present & future.
There is a gap between what we are today & what we want to be in future. A proper
& systematic plan forms the bridge between these two.

Purpose of Planning:
Planning is the beginning of all other functions of management. The purposes of planning
are listed below:
1. To select from many available alternatives so as to achieve the objectives of the
enterprise, economically, effectively and efficiently.
2. To direct all other functions of management.
3. To set up the goals of an enterprise in perspective, within the environment.
4. To form the basis of budget.
5. To forecast the future to avoid uncertainty and change.
6. To provide effective control.
7. To search for alternatives and adopt the best way of accomplishing the work and
8. To focus the vision on the objectives and goals.

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Planning Raghudathesh G P, Lata S H Asst Professor

Objectives:
Objectives are goals or aims which the management wishes the organization to achieve.
Objectives are the end points or pole-star towards which all business activities like
organizing, staffing, directing and controlling are directed.
Characteristics of Objectives:
1. Objectives Are Multiple In Number:
This implies that every business enterprise has a package of objectives set out in
various key areas.
In business enterprise, there are eight key areas in which objectives of performance
and results have to be set.
These are market standing, innovation, productivity, physical and financial
resources, profitability, manager performance and development, worker
performance and attitude and public responsibility.
2. Objectives Are Either Tangible Or Intangible:
For some of the objectives such as in the areas of market standing, productivity,
physical and financial resources there are quantifiable values available.
Other areas of objectives are not readily quantifiable and are intangible, such as
manager's performance, worker's morale, public responsibility, etc.
3. Objectives Have A Priority:
This implies that at a given point in time, the accomplishment of one objective is
relatively more important than of others.
Ex.: the goal of maintaining minimum funds may be critically important to a firm
having difficulty in meeting payrolls& due dates on accounts.
4. Objectives Are Generally Arranged In A Hierarchy:
This means that we have a corporate objective of the total enterprise at the top,
followed by divisional or departmental objectives.
Next comes the objectives of each section and finally individual objectives.
5. Objectives sometimes clash with each other:
The process of breaking down the enterprise into units like production, sales &
finance, requires objectives to be assigned to each unit.

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Planning Raghudathesh G P, Lata S H Asst Professor

The process of assigning objectives to each unit creates problem, achieving the goal
of one unit may pose a threat for achieving the goals of another.
Ex.: the production goal of mass production of low quality products may conflict
with the sales goal of selling high quality products.
Requirements of Objectives: While laying down objectives there are certain requirements
that the manager should always keep in mind:
1. Objectives must be both clear and acceptable:
The ultimate test of clarity is the people's understanding of the objectives.
Unambiguous communication is helpful in ensuring clarity of understanding.
The objectives must also be acceptable to the people, that is, they should be
compatible with their individual goals.
2. Objectives Must Support One Another:
Objectives could interlock or interfere with one another.
In view of this, there is need for coordination and balancing the activities of the
entire organization. Otherwise it becomes difficult for the manager to achieve the
company's overall objectives.
3. Objectives must be precise and measurable:
An objective must always be spelled out in precise, measurable terms. There are
several reasons for this:
a. The more precise and measurable the goal, the easier is to decide how to
achieve it.
b. Precise and measurable goals make it easier for lower level managers to
develop their own plans for actually achieving those goals.
c. It is easier for managers to ascertain whether they are succeeding or failing if
their goals are precise and measurable.
4. Objectives should always remain valid:
This means that the manager should constantly review, reassess and adjust them
according to changed conditions.
Advantages of Objectives:
1. They provide a basis for planning.
2. They eliminate accidental action which may result in undesirable consequences.

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Planning Raghudathesh G P, Lata S H Asst Professor

3. They facilitate coordinated behavior of various groups which otherwise may pull in
different directions.
4. They facilitate better management of the enterprise by providing a basis for leading,
guiding, directing and controlling the activities of people of various departments.
5. Performance can be measured accurately.

Forms of Planning:
Based on the nature of planning, the planning is classified as strategic planning (long range
planning) and tactical planning (short range planning).
The strategic plans are done at top level of management and are generally long term plans,
whereas tactical plans are done at lower levels and are of short term in nature.
Sl No Strategic Planning Tactical Planning
1 It is long Term It is short Term
2 Done at top management Done at lower levels of Management
It decides the major goals, policies and It decides the detailed use of resources
3
allocate of resource to achieve these goals. for achieving each goal.
It is less detailed because it is not involved It is more detailed because it is
4 with the day-to-day operations of the involved with the day-to-day operations
organization. of the organization.

Types of Plans:
There are 2 types of plans
1. Single use Plans:
As the name suggests, they are developed to achieve a specific end; when
that end is reached, the plan is dissolved. Single use plan includes:
a. Policies:
A policy is general guideline for decision-making.
It sets up boundaries around decisions.
Although policies deal with "how to do" the work, they do not dictate
terms to subordinates. They only provide a framework within which
decisions must be made by the management. Thus we may hear that
the recruitment policy of a company is to recruit meritorious people
through employment exchange etc.

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Planning Raghudathesh G P, Lata S H Asst Professor

The policies can be classified on the basis of sources like original

policies, appealed policies, implied policies or on the basis of
functions like personal policies, promotion policies, investment
policy or may be on the basis of level of organization like top level
policy, departmental policy etc.
b. Procedures:
Procedures are the detailed guidelines that are used to carry out the
policies.
A procedure provides a detailed set of instructions for performing a
sequence of actions involved in doing a certain piece of work.
Procedures are to be followed every time when the activity is
performed. For ex: the procedure for recruitment of personnel may
be:
Inviting applications through advertisements
Screening the applications
Conducting written test
Conducting interview for those who have pass written test
Medical examination of those who are selected for the posts
c. Methods:
A method is a prescribed way in which one step of a procedure is to
be carried out. Thus a method is a part of procedure.
A procedure has a number of steps, each step may have number of
methods to do it.
Methods help in increasing effectiveness of a procedure.
d. Rules:
Rules are detailed and recorded instructions that a specific action
must or must not be done under the given instructions.
Reporting time to office, availing of leaves, etc., are some of the
examples that follow rules.
A rule is different from policy, procedure or method.
It is not a policy because it does not give a guide to thinking.

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Planning Raghudathesh G P, Lata S H Asst Professor

It is not a procedure because there is no time sequence to a particular

action.
It is not a method because it is not concerned with the particular step
of a procedure.
2. Standing plans:
They are designed for situations that often repeat.
These plans can be used again and again.
a. Programs:
Programs are precise plans or definite steps in proper sequence
which need to be taken to discharge a given task.
Programs are made up of policies, procedures, budgets etc.
Thus, an enterprise may have a program of opening five branches in
different parts of the country or installing new machines or acquiring
new line of business or introducing new product in the market.
The essential ingredients of every program are time phasing &
budgeting.
Specific dates should be laid down for the completion of each
successive stage of a program, a provision should be made in the
budget for financing the program.
b. Budgets:
Budgets are plans for a future period of time containing statements of
expected results in numerical terms i.e, rupees, man-hours, product-
units.
The important budgets are sales budget, production budget, cash
budget, expense budget etc.
sales budget shows the expected sales of finished goods for a period,
production budget reflects anticipated production over a period, cash
budget projects the expected now of cash for a period in advance etc.
Budgets are very useful for an enterprise. Being expressed in
numerical terms, they facilitate comparison of actual results with the
planned ones & serve as control for measuring performance.

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Planning Raghudathesh G P, Lata S H Asst Professor

Difference Between Policy and Procedure:

Sl
Policies Procedure
No
1 General guidelines of the organization for Detailed guidelines at the action level to
decision making carryout policies
2 Top Level activity Departmental activity
3 Policies fulfill the objectives of the Procedures guide the way to implement the
organization polices
4 Policies are often made without any study Procedures are always made after through
or analysis study and analysis of work

DECISION MAKING:
1 Planning is an intellectual process, which requires a manager to think before acting.
2 Through planning, managers of any organization decide what to do, when to do, how to do
and who has to do.
3 Hence decision-making is an integral part of planning. It is defined as "the process of
choosing among alternatives".
4 Decision-making occurs at many stages of planning process.
5 Decision-making and choosing the best alternative is probably the most important activity of
the planning process.

Types of Decisions:
1 Programmed and Non programmed Decisions:
Programmed decisions are those that are made in accordance with some policy, rule
or procedure so that they do not have to be handled each time they occur.
These decisions are generally repetitive, routine and are obviously the easiest for
managers to make.
Ex.: such decisions are sanctioning an hour's permission, determining salary
payments to employees, recording office supplies and so on.
Non-programmed decisions are non-repetitive. If a problem has not arisen before or
if there is no cut and dry method for handling it or if it deserves custom-tailored
treatment, it must be handled by a non-programmed decisions.

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Planning Raghudathesh G P, Lata S H Asst Professor

Ex.: how to allocate an organization's resources, what to do about a failing product

line and so on. These decisions involve heavy expenditure and are generally taken
by top management.
2 Minor and Major decisions:
Minor decisions are those decisions related to day-to-day and periodical
occurrences.
Purchase of stationary, granting leave and permissions etc., are some examples of
minor decisions.
Major decisions are those decisions generally taken by top management.
Some of them are purchasing new machinery, employing new technology, hiring
new people etc., are some of the major decisions.
3 Routine and Strategic decisions:
Routine, tactical or housekeeping decisions are those that they relate to the present.
Their primary purpose is to achieve as high a degree of efficiency as possible in the
company's ongoing activities.
Provision for air conditioning, better lighting, parking facilities, cafeteria service,
etc., are all routine decisions.
Strategic decisions are similar to major decisions and are generally taken by top
management.
Lowering the price of the product, changing the product line, installation of an
automatic plant, etc., are strategic decisions.
Usually, routine decisions are taken by managers at lower levels, while strategic
decisions are taken by managers at higher levels.
4 Individual and group decisions:
Decisions may be taken by an individual or a group of individuals.
If the decisions are taken by a single person, they are called individual decisions and
if taken by a committee or group of people, then they are called group decisions.
Individual decisions are taken where the problem is of routine nature, and definite
rule and procedures exist.
Inter departmental decisions and important strategic decisions are generally taken by
a group.

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Planning Raghudathesh G P, Lata S H Asst Professor

Group decision-making has advantages like increased acceptance, better

communication, better co-ordination and more information processed.
It has some disadvantages also like, delay in arriving at decisions, groups may be
indecisive, and groups may compromise or dominate.
To utilize the advantages of group decisions and avoid its disadvantages two new
techniques are proposed known as:
a. Nominal Group Technique:
The members independently generate their idea and give in writing.
The ideas are summarized and discussed for clarity and evaluation.
Finally each member silently gives rating and opinion about each
idea through voting system.
The one with maximum vote is selected as the group's decision.
b. Delphi technique:
Persons who are physically dispersed and anonymous to one another
are asked to send their opinion on a topic through mail.
A carefully designed questionnaire is circulated for this purpose.
The responses are summarized into a feedback report and sent back
to them with a second questionnaire.
A final summary is developed on the basis of replies received second
time.
5 Temporary and permanent decisions:
Some decisions are to be taken depending on situation till the solution is found.
A decision is taken to meet an unexpected solution and is temporary in nature. These
are generally taken by shop managers.
Permanent decisions are taken on a permanent basis.

Steps in Rational Decision-Making:

A decision is rational if appropriate means are chosen to reach desired ends.
1. Recognizing the problem:
The first step in decision-making is the problem recognition.

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Planning Raghudathesh G P, Lata S H Asst Professor

A problem may exist either due to a deviation from the past experience, a deviation
from the plan, people bringing problems to the manager or problems arising from
competition.
2. Deciding Priorities among problems:
The manager should identify the problems which he can solve, the problems which
he feels that his subordinates can solve and the problems which are to be referred to
the higher officers.
With this decision, the manager is left with very few problems to solve.
3. Diagnosing the Problem:
Correct diagnosis of the problem is very important for any manager.
Managers should follow systems approach in diagnosing a problem.
He should make a thorough study of all the sides of a problem coupled with
organization before arriving at solution.
If the diagnosis is made correctly, then finding solution becomes easy.
4. Developing alternative solutions or courses of action:
After having diagnosed the problem, the next step is to find alternate solutions.
It is very rare that there is a problem with only unique solution. Alternatives do exist.
Sometimes, in the absence of past history of alternate solutions, the manager has to
depend only on his own ability in finding alternatives.
5. Measuring and comparing the consequences of alternative solutions:
The alternative solutions are measured and compared for their consequences.
This involves a comparison of the quality and acceptability of these alternatives.
6. Converting the decision into effective action and follow -up of action:
The next step is to convert the decision into action.
This requires the communications of the decisions to the concerned employees in
clear and simple terms.
If there is any opposition or non-acceptance from the employees, steps should be
taken to convince them to accept the same.

Common Difficulties in Decision-Making:

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Planning Raghudathesh G P, Lata S H Asst Professor

During the process of decision-making, the managers face many difficulties. Some of them
are:
1. Incomplete Information:
This is a major problem for every manager.
Lack of information leaves manager in a uncertainty situation & also most decisions
involve too many complex variables for one person to be able to examine all of them
fully.
2. Un-supporting Environment:
The environment-physical and organizational-that prevails in an enterprise affects
both the nature of decision and their implementation.
If there is all round goodwill & trust and if the employees are properly motivated,
the manager is encouraged to take decisions with confidence.
Under opposite circumstances, he avoids decision making.
3. Non Acceptance by Subordinates:
If subordinates have a stake in the decision or are likely to be strongly affected by it,
acceptance will probably be necessary for effective implementation.
Democratic leadership style which encourages subordinates to suggest, criticize,
make recommendations or decide upon policies or projects is an effective device for
gaining their acceptance.
4. Ineffective communication:
Ineffective communication makes implementation difficult.
The manager should therefore take care to communicate all decisions to the
employees in clear, precise & simple language.
5. Incorrect Timing:
In decision making, the problem is not merely of taking a correct decision; it is also
of selecting an appropriate time for taking the decision.
Ex: if the manager wants to decide about introducing a new product in the market he
should take the decision at the correct time else he may lose the market to his
competitor.

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Planning Raghudathesh G P, Lata S H Asst Professor

Steps in Planning and Planning Premises:

1. Being Aware of Opportunities:
This is the first step for planning.
Once we are aware of opportunities, realistic objectives can be set up.
2. Establishing Verifiable Goals or Goals to be Achieved:
Its important to establish objectives for the entire enterprise & the objectives for
each subordinate work units. i.e., major objectives are broken down into
departmental & individual objectives.
3. Developing Planning Premises:
It is the process of creating assumptions about the future on the basis of which the
plan will ultimately formulated.
Planning premises are important for the success of planning, it tells about which plan
is to be carried out.
a. Internal and external premises:
Internal premises are premises within the organization. Some examples are
policies, investment, availability of equipment, capability of work force,
funds flow etc.
External premises are premises outside the organization, they include
government policies, technological changes, economic conditions, business
environment demand etc.
b. Tangible and intangible sources:
Tangible premises are measurable premises.
Ex: investment, demand etc. Intangible premises are those which cant be
quantitatively measured.
Ex is business environment, economic conditions technological change etc.
c. Controllable and un-controllable premises:
Some of the premises are controllable like man power, input technology,
machinery, financial equipments etc.
Some other premises like strikes, wars, change in policies etc are
uncontrollable by organization.

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Planning Raghudathesh G P, Lata S H Asst Professor

4. Deciding the planning period:

Business varies considerably in their planning periods.
In some instances, plans are made only for one year while in others they span
decades.
5. Finding Alternative Courses of Action:
This step is to search & identify some alternative courses of action.
It is very rare that in a plan there will be no alternative. In this step alternatives are
listed.
6. Evaluating And selecting a Course of Action:
Once the alternatives are found, the next step is to evaluate them with respect to the
premises & goals.
A desired and best suitable alternative is selected by comparative analysis of risk,
cost & gain keeping in mind the objectives.
7. Developing Derivative Plans:
In order to complete the task the selected plan must be translated into programs,
working plans & financial requirements in the sub-units.
These sub-derived plans from main plans are termed as derivative plans.
8. Measuring and Controlling the Progress:
This is the last step in planning.
Each activity of plan is monitored on a continuous basis and if any deviation or
shortfall is noticed, then the manager will initiate suitable corrective action.

Hierarchy of Plans:
The plans are generally arranged in a hierarchy within any organization.
It starts at the top with objectives & goals of an organization.
The second level is strategies.
There are 2 types of strategies namely Single-use plans & Standing plans.
The third level is action plans.
The Top Management sets the goals & objectives. These include long-term plans &
strategies of organization.

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Planning Raghudathesh G P, Lata S H Asst Professor

For ex: a company aims to improve their production by 20% during next 2 years. Such
objectives can be achieved by strategies.
Strategies are carried out by 2 types of plans namely Single-use plans & Standing plans.
Single-use plans are developed to achieve a specific goal, after reaching the goal the plan is
dissolved.
Ex.: budgets, construction of a bridge, dam or shopping complex etc.
Standing plans are developed for projects that happen again and again.
Ex.: admission procedure in a collage, recruitment procedure of an organization etc action
plans are the plans executed by lower level organization, these are routine plans executed by
foreman and supervisors.

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