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UNIT II
Planning – nature, importance, forms, types, steps in planning, objectives,
policies, procedures and methods, natures and types of policies. Decision-
making, process of decision-making, types of decisions, problems involved
in decision-making

Planning: (page: 2.1- P.Mgt- G.K. Vijayaraghavan & M.Sivakumar)

A plan is a forecast for accomplishment. It is a predetermined course of action. It is today's
projection for tomorrow's activity In other words; to plan is to produce a scheme for future action, to
bring about specified results at a specified cost, in a specified period of time.

Planning is the most basic of all management function. Planning refers to the
determination of course of action to achieve a desired result. Planning is the process of selecting the
objectives and determining the course of action required to achieve these objectives and determining the
course of action required to achieve these objectives. Lot of information has to be gathered and
processed before planning is formulated. Planning bridges the gap from where we are and where we
want to go. It makes the things possible to occur which would not otherwise happen. Let us look at what
the following observations suggest about planning.
 Planning is outlining a future course of action in order to achieve on objective.
 Planning is looking ahead
 Planning is getting ready to do something tomorrow
 Plan is a trap laid down to capture the future

Definitions of Planning:
According to Koontz and O’Donnell, “Planning is an intellectual process, the conscious
determination of course of action, the basing of decisions on purpose, facts and considered estimates”.

According to Louis Allen, “Management planning involves the development of forecasts,

objectives, policies, programmes, procedures, schedules and budgets.”

According to Heinz Weihrich and Harold Koontz, “Planning involves selecting mission
and objectives and the actions to achieve them; it requires decision-making that is, choosing from
alternative future courses of action.”

Nature of Planning:
The planning refers to the process of designing the future course of action for an
organisation to achieve specific goals. The nature of planning is discussed below;

a) Planning – a primary function:

Planning is the primary function of management and it proceeds all the function such as
organising, directing, controlling etc. There is meaning of other activities without setting the
goals to be achieved a line of action to be followed. In fact, all other functions of management
largely depend upon planning.

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b) Planning – a dynamic process:

Planning is a continuous managerial function involving complex processes such as
perception, analysis, communication, decision and action. It is a never-ending activity of a
manager of an enterprise. Most of the plans are modifying, revising according to the changes of
circumstances. Moreover, series of plans are to be followed successively one after the other.
Thus the planning process will continue and will never come to an end.

c) Planning – based on objectives and policies:

Planning process involves setting of objectives to be achieved and determining the
technique for achieving those objectives to be achieved and determining the technique for
achieving those objectives. The various techniques such as policies, programmes, procedures are
formulated. Objective determines where we are to go, and planning makes a bridge over where
we are and where we want to go. Thus the planning and objectives are related.

d) Planning – a selective process:

For achieving a particular objective, there are number of alternatives available. The
planning manager has to select only one alternative which is best suited to firm. Thus planning is
one kind of selective process.

e) Pervasiveness of Planning:
Planning is generally considered as a function of top-level management, but it is not true.
Planning function should spread or make available throughout the organisation. Every manager
has a planning function to perform. Only the scope of planning differs from person to person
depending upon the levels of management.

f) Planning – an intellectual process:

Planning is a mental activity. It is a process where a number of activities are to be taken
to decide the future course of action. Various levels of managers has to consider various course
of action, achieving the desired goals, the detailed process of every course of action and then
finally decide which course of action may suit them best. Thus Planning is an intellectual action.

g) Planning is directed towards efficiently:

In general, all management functions including Planning are directed to increase the
efficiency of the firm. Corollary of Planning is;
(i) Planning is and intellectual activity that aims the best way of doing things and
(ii) Planning provides with goals and objectives.
Thus Planning is directed towards efficiency.

h) Planning – Focus with future activities:

Planning is primarily concerned with looking into future. It forecasts the future situation
in which the organisation has to function. Simply planning decides in the present what is to be
done in future.

i) Flexibility of Planning:
Planning is flexible as commitment which is based on future course of action. These are
always dynamic. Therefore, an adjustment is needed between the various factors and planning.
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j) Planning is based on facts:

Planning is not guesswork or trial and error method. It is conscious determination of projecting a
course of action for the future. Planning is based on facts, objectives and considered forecasts.

Importance of Planning: (Page: 101- B.O& Management- Dinkar pagare)

The increasing peace of environmental changes has increased the need for anticipating
the developments and planning to meet them. A management that does not identify the emerging
situations, nor prepares to meet them, will soon find the survival of the organisation threatened from all
sides. Like Alice in wonderland, management has ever to “run fast” to be even with the turbulent
changes. The following points highlight the importances of planning:

a) Selection of “optimum” goals:

Planning involves rational thinking and decision-making concerning a proposed course of
action. It also implies selection of one course of action and rejection of other possible course of
action. The selected course of action is naturally the one that promotes the overall organisational
goals within the framework of the resource availability and economic, social and political
factors.

b) Tackling increasing complexities:

An organisation is a heterogeneous group of human beings who differ from one another
in many respects. It is unlikely that they will work effectively and harmoniously in the interest of
the organisation, unless they have a plan in the making of which they have had a share and,
which they regard as common property. Thus, Planning is essential to any goal-directed activity.

c) Meeting environmental changes:

Business environment changes more rapidly and sweepingly than can be imagined.
Change in social values, increase in competition, new product discoveries, change in consumer
tastes and preferences, have each the potential to upset any organisation. Management should
discern and exploit the emerging situation by adjusting and adapting the inputs and
transformation process to suit the environment changes.

d) Safeguard against business failures:

Often, business failures are blamed on cut-throat competition, unpredictability of
consumer tastes and preferences, rapid technological changes and abrupt economic and political
development. However, in many cases, failure of business is caused due to rash and unscientific
decision-making, which is a direct result of lack of proper planning.

e) Unity of action:
Planning enables the people within an organisation to work effectively and harmoniously
for the accomplishment of common goals. It provides them a stake in their own future and thus
induces them to do their utmost to meet the challenge.

f) Effective coordination and control:

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Planning makes it easy to exercise effective control and coordination. The work to be
done, the persons and the departments which have to do it, time limit with in which it is to be
completed and the costs to be incurred, are all determined in advance. This facilitates proper and
timely measurement of actual performance and its comparison with the planned performance.
FORMS OF PLANNING:
Planning can be classified on different bases, which are discussed below:

1. Strategic and Functional Planning:

In strategic or corporate planning, the top management determines the general objectives of the
enterprise and the steps necessary to accomplish them in the light of resources currently available and
likely to be available in the future. Functional planning, on the other hand, is planning that covers
functional areas like production, marketing, finance and purchasing.

2. Long-range and Short-range Planning:

Long-range planning sets long-term goals for the enterprise and then proceeds to formulate specific
plans for attaining these goals. It involves an attempt to anticipate, analyze and make decisions about
basic problems and issues which have significance reaching well beyond the present operating horizon
of the enterprise. Short-range planning, on the other hand, is concerned with the determination of short-
term activities to accomplish long term objectives. Short-range planning relates to a relatively short
period and has to be consistent with the long-range plans. Operational plans are generally related to
short periods.

3. Ad hoc and Standing Planning:

Ad hoc planning committees may be constituted for certain specific matters, as for instance, for project
planning. But standing plans are designed to be used over and over again. They include organizational
structure, standard procedures, standard methods, etc.

4. Administrative and Operational Planning:

Administrative planning is done by the middle level management, which provides the foundation for
operative plans. The lower level managers to put the administrative plans into action, on the other hand,
do operative planning.

5. Physical Planning:
It is concerned with the physical location and arrangement of building and equipment. City planning and
regional planning are the illustrations of physical planning.

6. Formal and Informal Planning:

Various types of planning discussed above are of formal nature. The management carries them on
systematically. They specify in black and white the specific goals and the steps to achieve them. They
also facilitate the installation of internal control systems. Informal planning, on the other hand, is mere
thinking by some individuals, which may become the basis of formal planning in future.

Types of Plans: (page: 2.4- P.Mgt- G.K. Vijayaraghavan & M.Sivakumar)

A Plan, as defined earlier involves deciding future course of action to achieve the desired goal.
There are different types of plans are developed by an organisation. All the plans are referred to a future

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course of action. However, some variances with respect to the scope and operation are found in the
implementation. Some are single use plans where some are standing plans or multipurpose plans.
Single use plans are meant for one time use and are of ad hoe nature. Standing plans, on
the other hand, are the recurring plans which are used repeatedly in similar situations. These standing
guides are use in think and actions over long periods. The classification of various plans is depicted as
follows;

(a) Mission or purposes:

Mission may be defined as “a statement which defines the role that an organisation plays
in the society”. The terms mission or purposes are often used interchangeably. The term ‘mission’
implies the basic character or philosophy of an organisation and basic purpose for which it exits.
Mission distinguishes an organisation form other organisations. For e.g., the mission of an
educational institution is to provide good education to the society of students, where as the mission
of an army of nation is to serve or safeguard the nation. Mission serves as a guide for defining the
objectives and strategies of the enterprise. It also suggests how an organisation is going to conduct
its business.
A good mission should provide answ4ers to two important questions,
1. What is our business?
2. What should it be?

These two questions force the management to define the customers and their needs. The basic
objectives of mission are accomplished by undertaking activities going in clearly defined directions,
achieving goals. Mission is the foundation for deciding strategies, properties, work assignment, etc.

(b) Objectives:
The terms “objectives” or “goals” are often used interchangeable. Objectives are the end
results towards which the activities of firm are aimed or directed. Objectives determine the end
results of a organisation. Goals are the foundation upon which the whole structure of plan built.
Goals and objectives may differ. Goals of one department may be different from other department,
but all are towards the attainment of common objectives.
Objectives should be derived from and be constant with the mission they are meant to
fulfill. Mission has to be translated into objective otherwise it remains only a good intention. All
effective management now days imply management by objectives.

(c) Strategies:
Strategy of an organisation is the programmes of action and deployment of resources to
attain its objectives. It is also the process of the determination of the long-term objectives of an
organisation and the adoption of course of action and allocation of resources necessary to achieve
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the goals. The aim of a strategy is to gain an advantageous position by counteraction the actions of
competitors. Strategy is designed to achieve overall company goals in a competitive external
environment.
The following factors should be considered while formulating strategies;
 Mission and objectives of an organisation.
 Values, aspirations and prejudices of top level management
 Opportunities and threads of the external environment
 Strength and weakness of the firm in various aspects such as funds, organisation
structure, human talent, technology etc.
(d) Policies:
Policies are general statement or understandings which provide guidance in decision
making to various managers. All policies are not statements as some of the oral understanding in
terms which govern the actions of subordinates. Policies exist at all level in the organisation. Some
may be major company policy affecting the whole organisation where as others may be minor or
derivative policies affecting the functioning of departments within the organisation.
Policies help in achieving the objectives as the provide ready-made solution of problems.
Policies may be very clear and explicit. Good policies are flexible, easy to interpret and consistent
with overall objectives of the organisation. Policies are formulated by all functional are as of an
organisation. Policies are formulated by all functional are as of an organisation such personal
policies, production policies, financial policies, marketing policies etc.

The following are the reasons for the need of policies;

 To ensure a uniform pattern of actions.
 To simplify and speed up the process of decision making
 To secure coordination of efforts
 To improve the performance of subordinates.

(e) Procedures:
A procedure is a chronological order of actions required to implement a policy and to
achieve an objectives. For e.g., a company’s policy may be to sell the obsolete products at a
discount. The procedure may explain how to decide which product is obsolete and what percentage
discount is to be offered.
Procedures are guiding to action rather than thinking. Procedures are found throughout
the organisation. The various procedures are
◊ Procedures for placing orders for material and equipment
◊ Procedures for sanctioning different types of employee’s leave.
◊ Procedure for handling grievances at the shop floor level.

Policies and procedures are closely interrelated. For instance, if the policy of an engineering
college is to grant 45days vocation leave in a year to its staffs, a procedure should be established
so that grant of leave to staffs will not disturb the work of the college. A procedure is established
for repetitive activity so that same steps are followed each time that activity is performed.

(f) Rules:

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Rules are plans in which they suggest the required course of action. A rule requires that a
definite action has to be taken in a particular way with respect to a situation. Some examples of rules
are as follows;
◊ Starting time of organisation is 10 a.m.
◊ No smoking during office hours.
◊ Employee will be allowed to avail leave for not more than are day in a month etc.

Rules are definite and do not change with the change in situation. Rules should not be confused
with polices and procedures. A policy provides guideline for management actions by defining
area of discretion, whereas rule provides such discretion. Polices contain some operational
freedom or discretion while rules allow no discretion in their application. Rules, unlike
procedure, have no sequence of action or time limit for the action.
(g) Programmes:
A programme is a broad term which includes goals, policies, procedure, rules, task
assignment, steps to be taken, resources to be employed to carry out a given course of action. Terry
and Franklin define programme as “comprehensive plan which includes future use of different
resources in an integrated pattern and establishes a sequence of required actions and time schedule
for each in order to achieve stated objectives.”
For instant, launching of satellite is a programme. Programmes are generally supported
by ‘time phasing’ and budgeting. It means that specific dates are prescribed for the completion of
various phases of programme and also adequate budget and made for financing the programme.
A programme may be major or minor. A primary programme requires many supporting
programmes. For instance, in late 90’s all the banks in India have computerised their all activities.
This may be considered as a major programme. On the other hand, mordernisation of small
equipment in some of the factory may be considered as a minor programme.
Programme may be prepared for repetitive and non-repetitive course of action. Programme for
repetitive action are referred as routine planning while programmes for non-repetitive action are
known as creative planning.

(h) Budgets:
A budget is a statement of expected results in numerical terms and therefore it may be
referred as a numerical programme, a budget is quantitative expression of a plan. It may be generally
expressed in terms of financial plans other units may also be used such as in terms of man hour, units of
products, machine hours or any other numerically measurable term.
Budget is a part of the planning and budget is the fundamental statement of planning. A
budget forces a company to make the following factors in advance: whether for short term or long
term, a numerical compilation of expected cash flow, expenses and revenues, labour and machine
hour utilization etc. Budgets are also useful device for control.
There are various types’ budgets or Flexible budget:
i. Variable budgets or Flexible budget:
These budgets vary according to the organisation output.
ii. Programme budgets:
In this budget, the agency identifies goals, develops detailed programmes to meet the
goals, and estimates the cost of each programme.
iii. Zero based budget:
It is a combination of programme and variable budget.

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(i) Schedules:
A schedule specifies time limits within which activities are to be completed.
Scheduling is the process of establishing a time sequence for the work to be done. Schedules are
essential for avoiding delays and for ensuring continuity of operations. A schedule lays down a time
table fixing starting and finishing dates for different activities.

(j) Projects:
A project is a distinct cluster of functions and facilities for a definite purpose and definite
time period. It is designed and executed as a distinct plan. It is integrated into a unity and is
designed to achieve a stated objective. A project is defined in terms of capital investment,
specific objective, and interdependence of tasks. For instance, installation of a computer may be
designated as a project. It is marked separate from the normal operations because of special
significance. Projects help to facilitate coordination and control by identifying an integrated
work package within a heterogeneous mass of activities and resources.

Steps in the Planning process:

Planning is the endless process. The process is constantly modified to suit changes in
environmental conditions and changes in objectives and opportunities for the firm. As organisations
differ in terms of their size and complexity, no single planning procedure is applicable to all
organizations. However, all planning processes contain some basic steps, which are represented as
follows. An extended model of the planning process is shown below;

(a) Analysing Opportunities:

The Manager should be aware of the opportunities in the external environment, as well as
those within the organisations. Identification of awareness of the opportunity is the starting point of
planning. First of all they should identify the possible future opportunities and analyse them clearly and
completely.

From that we should know;

 Where we stand
 What is our strength and weakness
 What problem we wish to solve and why and
 What we expect to gain
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Once the opportunities are perceived from availability, the other steps of planning are undertaken.

(b) Establishing the objectives or goals:

The next step in planning is to establish objectives for the entire organisation and for
every work unit within the organisation. Objectives specify the results expected from a particular course
of action and define the areas that should receive special attention. In addition, objectives specify what
should be achieved by the network of strategies, policies, procedures, rules, budgets and programmes.
Organisational objectives provide direction to the major plans. These plans help the various departments
of an organisation prepare their objectives in line with the organisational objectives. Thus, there exists a
hierarchy of objectives in an organisation.
Objectives must be stated clearly and must be established for all keys areas where
performance affects the well-being of the organisation. They should be specified in measurable terms
like costs, targets pr quality specifications.

(c) Determining planning premises:

Planning premises are the assumptions that should be made about the various elements of
the environment. It provides the basic frame work in which plans operate. These premises may be
internal or external.
The Internal premises includes organisational, polices, resources of various types, sales
forecasts and the ability of the organisation to withstand the environmental pressure. External premises
includes total factors in task environment like political, social, technological, competitors, plans and
actions and government polices etc.
The plans are formulated on the basis of both internal and external premises. The nature
of planning premises differs at different levels of planning. At the top level it is mostly externally
focused where as the bottom level is internally focused.

(d) Identifying Alternatives:

Various alternative courses of action can be identified after establishing organisational
objectives and planning premises. A particular objective can be achieved through various actions. For
instance, if expansion is an organisation’s objective, it can be achieved by expansion in the same field,
or diversification, or amalgamation, or by introducing a new product variant in the market and so on.
Thus, there are many ways of achieving the same goal. A common problem at this stage is selecting the
most promising alternatives for further analysis. The planner must examine these alternatives and decide
on the best ones through careful analysis. These alternatives lay the foundation for the next step in
planning.

(e) Evaluating Available Alternatives:

After identifying alternative courses of action and examining their advantages and
disadvantages, the next step is to evaluate the alternatives keeping in mind the goals of the organisation
and the available resources. Each alternative may have some positive and negative aspects. For instance,
one alternative may be highly profitable but may require heavy investment and may have a long
gestation period; another one may be less profitable but may also involve less risk. Since the future is
uncertain, the planner can never be sure of the outcome of any alternative. Thus, many variables and
limitations have to be considered when evaluating alternative courses of action. The use of planning and
decision-making techniques, such as operations research, helps in the evaluation of alternatives.

(f) Selecting an alternatives:

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After the evaluation of various alternatives, the most appropriate course of action is selected. If
more than one alternative may be chosen for execution. When the situation changes and the selected
plan do not provide to be the best, the other alternative may be tried.

(g) Implementing the Plan:

This involves putting the plan into action. In order to implement the actions stated in the
plan, managers have to make a series of decisions. A manager can implement the plans of a firm through
the use of authority, persuasion or policy. Authority is a legitimate form of power that comes with the
position and is not associated with a person. It is often sufficient to implement relatively simple plans
that do not cause a significant change in the status quo. But a complex and comprehensive plan cannot
be implemented through authority alone. Persuasion is “the process of selling a plan to those who must
implement it, by communicating relevant information so that the individuals understand all the
implications.” Thus, persuasion requires convincing others, so that the plan is accepted on the basis of
its merits rather than on the authority of the manager. When long-term plans are developed, manager
generally formulates policies for implementing them. Policies are usually written statements that provide
guidelines for selecting particular courses of action for achieving a firm’s objectives. Effective polices
are those that are flexible, comprehensive, coordinated, ethical and clear

(h) Reviewing the plan:

Once a plan has been implemented, it has to be reviewed. A review helps managers to evaluate the
plan and also identify deviations from the established course of action. It thus helps managers take the
necessary corrective measures. At every stage of the review, the outcomes must be compared with the
expected results. This will help the organization develop future plans. A periodic review of plans
enables an organization to update them in the light of changes in the business environment.

Objectives:
Objectives may be defined as the future results or a desired state of affairs which the organisation
seeks and strives to achieve. Objectives provide the organisation with a purpose that keeps its attention
and efforts focused in a particular direction so that it is capable of steering a steady course towards their
accomplishment, taking corrective action when necessary to avoid obstacles.
Objectives may be defined as the goals which an organisation tries to achieve. Objectives are
described as the end- points of planning. According to Koontz and O'Donnell, "an objective is a term
commonly used to indicate the end point of a management programme." Objectives constitute the
purpose of the enterprise and without them no intelligent planning can take place. Objectives are,
therefore, the ends towards which the activities of the enterprise are aimed. They are present not only the
end-point of planning but also the end towards which organizing, directing and controlling are aimed.
Objectives provide direction to various activities. They also serve as the benchmark of measuring the
efficiency and effectiveness of the enterprise. Objectives make every human activity purposeful.
Planning has no meaning if it is not related to certain objectives.

Features of Objectives:
 The objectives must be predetermined.
 A clearly defined objective provides the clear direction for managerial effort.
 Objectives must be realistic.
 Objectives must be measurable.
 Objectives must have social sanction.
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 All objectives are interconnected and mutually supportive.

 Objectives may be short-range, medium-range and long-range.
 Objectives may be constructed into a hierarchy.

Categories of objectives:
According to Charles Perrow, the board categories of objectives which are likely to claim the attention
of an organisation may be,
(a) Societal objectives: which are concerned with creation and maintenance of cultural
values through the production of goods and services.
(b) Output objectives, concerned with the kind of output, viz, durable goods, etc
(c) System objectives, concerned with growth, stability, profitability and efficiency.
(d) Product objectives, concerned with quality, quantity, innovativeness of the goods and
services.
(e) Derived objectives, concerned with secondary areas, e.g. community development.

Advantages of Objectives:

 Clear definition of objectives encourages unified planning.

 Objectives provide motivation to people in the organisation.
 When the work is goal-oriented, unproductive tasks can be avoided.
 Objectives provide standards which aid in the control of human efforts in an
organisation.
 Objectives serve to identify the organisation and to link it to the groups upon
which its existence depends.
 Objectives act as a sound basis for developing administrative controls.
 Objectives contribute to the management process: they influence the purpose of
the organisation, policies, personnel, leadership as well as managerial control.

Policies:
Policy is a guide to thinking and action rather than a course of action. A policy is a standing
plan. It defines the area or limits within which decisions can be made to achieve organizational
objectives. Policies are flexible and are broad plans providing scope for judgment and interpretation on
the part of subordinate managers. Policies are general statements of understanding which guide or
channel thinking in decision making of subordinates. Policies are routes to the realization of objectives
and prescribe the broad ways in which objectives can be obtained. They decide the line of action along
which subordinate executives are expected to work in order to accomplish the goals of the organization.
A policy is a continuing decision as it provides answers to problems of a recurring nature or
repetitive nature. For example, if management has adopted the policy of seniority-based promotion, the
departmental managers need not seek guidance from top management again with respect to promotional
decisions.

Essentials of Policy Formulation:

The essentials of policy formation may be listed as below:
o A policy should be definite, positive and clear. It should be understood by everyone in
the organisation.
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o A policy should be translatable into the practices.

o A policy should be flexible and at the same time have a high degree of permanency.
o A policy should be formulated to cover all reasonable anticipatable conditions.
o A policy should be founded upon facts and sound judgment.
o A policy should conform to economic principles, statutes and regulations.
o A policy should be a general statement of the established rule.

Nature of Policies:
Characteristics of a Sound Policy (Principles of policy-making) a policy can be called
sound when it contains the following characteristics:
• Based on objectives and should contribute towards the attainment of objectives.
• Should be clear, unambiguous and explicit. It should not leave scope for
misinterpretation.
• As far as possible a policy should be expressed in writing as written policies tend to be
more clear and precise. They can be communicated and understood better and their compliance
can easily be checked.
• Should be based on careful consideration of resources and environment of the
organisation.

• Should be reviewed and revised regularly to keep them up-to-date and relevant, but must
be reasonably stable and before revising them, serious thought and consideration should be
given.
• Should be in the form of general guidelines allowing scope for decision-making at lower
levels. Policies should be general and flexible guides rather than detailed procedures.
• All policies should be communicated to the concerned persons so that the policies and the
objectives of their formulation are properly understood by those who are supposed to implement
them.
• A sound policy should make for consistency in the operations of the organisation.
• Policies should conform to the norms of ethical behaviour which prevail in society and to
the ethical standards of business.

Types of policies:
These may be classified into the following categories:

(a) Organisational and functional policies – in terms of scope policies may be classified as
organisational policies and departmental policies. Organisational policies are the overall policies
of an organisation and are formulated by top management. Departmental or functional policies
are meant for specific functions or departments of business, e.g. sales policy, production policy,
financial policy, personnel policy, etc. they are derived from organisational policies to guide the
efforts of people in particular departments. Organisational or basic policies are used uniformly
throughout the organisation whereas departmental policies apply in particular departments.

(b) Originated, appealed and imposed policies – on the basis of origin, policies may be
classified as originated, appealed and imposed.

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i. Originated policies – are deliberately formulated by top management on their own

initiative in order to guide the actions of their subordinates. They are generally put in writing and
embodied in a policy manual
ii. Appealed policies – are formulated on the appeal or request of subordinates. Subordinates
make an appeal to deal with a particular case which is not covered by earlier policies.
iii. Imposed policies – arise from the influence of outside forces like government, trade
unions, trade associations, etc. These forces either impose a policy or create conditions for the
adoption of a particular policy.

(c) General and specific policies – as the area of freedom, policies may be classified as general
and specific.
i. General policies – are stated in broad terms to give freedom to units of the
organisation
ii. Specific policies – are intensively defined to restrict freedom of action.

(d) Written and implied policies.

i. Written policies - are explicit declarations in writing and are always better
guides. Than implied policies, but tend to be rigid and inflexible..

ii. Implied policies – are those inferred from the behaviour or conduct of
organisational members particularly of top executives. Where no written policy exists
on a particular topic or the expressed policy is not enforced, subordinates interpret the
actions of their superiors and make decisions accordingly. For instance, if promotions
are made on the basis of seniority, there is an implied promotional policy, even
though nothing is expressed in writing.

Procedures:
Procedures are a chronological sequence of steps to be undertaken to enforce a policy
and attain an objective. It lays down the specific manner in which a particular activity is to be
performed. It is a planned sequence of operations for performing repetitive activities uniformly and
consistently according to George R. Terry, a procedure is a series of related tasks that make up the
chronological sequence and the established way of performing the work to be accomplished. In business,
procedures are generally established for purchase of raw materials, processing of orders, selection of
employees, redress of grievances, holding and conduct of meetings, etc. Procedures are generally laid
down for repetitive work so that same steps are taken each time the activity is performed.

Procedures are different from policies and methods:

Policy is a broad and general guide to decision-making while a procedure is an
operational guide to action. A policy provides scope for judgment while a procedure leaves hardly any
room for interpretation and judgement. A policy delineates an area of operation while a procedure lays
down the path through that area. For instance, a company may have the policy of promoting employees
on the basis of merit and in order to implement this promotion policy, the procedure may consist of
definition of merit, records of performance, tests and interviews to identify the most meritorious
employee. A policy helps in achieving an objective while a procedure shows the way to implement the
policy. Thus, a policy is wider in scope and more flexible in nature than a procedure.

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Method:
A method – outlines the specific way in which a particular step in the procedure is to be
performed. For example, it may be laid down that promotion interview will be taken by committee of
four executives. This may be called the method of interviewing. A method is more limited in scope, but
more detailed because it specifies the mechanical way by which an operation is to be performed.
Methods help in increasing the usefulness and effectiveness of a procedure. It lays down the manner of
proceeding in the performance of work. A procedure plays an important role in the daily operations of
an organisation:
• Simplifies work by eliminating unnecessary steps
• Avoids chaos or random activity by ensuring consistency in operations.
• Indicates a standard way of performing a work and, therefore, ensures uniformity of
action
• Eliminates the need for further decision-making by laying down a standard path to
follow.
Provides a standard for appraisal of employees and can be used to judge whether work is proceeding as
planned and so a procedure serves as basis for control. However, procedures become redundant unless
these are regularly revised and modified

Decision Making:
Decision making is the act of choosing one alternative from among a set of alternatives.
The decision-making process, however, is much more than this. For example, the person making the
decision must have somehow recognized that a decision was necessary and identified the set of feasible
alternatives before selecting one. Hence, the decision-making process includes recognizing and defining
the nature of a decision situation, identifying alternatives, choosing the “best” alternative, and putting it
into practice.

The word “best” implies effectiveness. Effective decision making requires an

understanding of the situation driving the decision. Most people would consider an effective decision to
be one that optimizes some set of factors such as profits, sales, employee welfare, and market share. In
some situations, though, an effective decision may be one that minimizes loss, expenses, or employee
turnover. It may even mean selecting the best method for going out of business or terminating a contract.

Characteristics of Decision Making:

Decision making implies that there are various alternatives and the most desirable alternative is
chosen to solve the problem or to arrive at expected results.
 The decision-maker has freedom to choose an alternative.
 Decision-making may not be completely rational but may be judgmental and emotional.
 Decision-making is goal-oriented.
 Decision-making is a mental or intellectual process because the final decision is made by
the decision-maker.
 A decision may be expressed in words or may be implied from behaviour.
 Choosing from among the alternative courses of operation implies uncertainty about the
final result of each possible course of operation.
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 Decision making is rational. It is taken only after a thorough analysis and reasoning and
weighing the consequences of the various alternatives.

Types of Decisions:

(a) Programmed and Non-Programmed Decisions: Herbert Simon has grouped organizational
decisions into two categories based on the procedure followed. They are:

(i) Programmed decisions: Programmed decisions are routine and repetitive and are made within the
framework of organizational policies and rules. These policies and rules are established well in advance
to solve recurring problems in the organization. Programmed decisions have short-run impact. They are,
generally, taken at the lower level of management.

(ii) Non-Programmed Decisions: Non-programmed decisions are decisions taken to meet non-repetitive
problems. Non-programmed decisions are relevant for solving unique/ unusual problems in which
various alternatives cannot be decided in advance. A common feature of non-programmed decisions is
that they are novel and non-recurring and therefore, readymade solutions are not available. Since these
decisions are of high importance and have long-term consequences, they are made by top level
management.

(b) Strategic and Tactical Decisions: Organizational decisions may also be classified as strategic or
tactical.

(i) Strategic Decisions: Basic decisions or strategic decisions are decisions which are of crucial
importance. Strategic decisions a major choice of actions concerning allocation of resources and
contribution to the achievement of organizational objectives. Decisions like plant location, product
diversification, entering into new markets, selection of channels of distribution, capital expenditure etc
are examples of basic or strategic decisions.

(ii) Tactical Decisions: Routine decisions or tactical decisions are decisions which are routine and
repetitive. They are derived out of strategic decisions. The various features of a tactical decision are as
follows:
o l Tactical decision relates to day-to-day operation of the organization and has to be taken
very frequently.
o l Tactical decision is mostly a programmed one. Therefore, the decision can be made within
the context of these variables.
o l The outcome of tactical decision is of short-term nature and affects a narrow part of the
organization.
o l The authority for making tactical decisions can be delegated to lower level managers
because : first, the impact of tactical decision is narrow and of short-term nature and Second, by
delegating authority for such decisions to lower-level managers, higher level managers are free
to devote more time on strategic decisions.

Decision Making Process:

The decision making process is presented in the figure below:

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(i) Specific Objective: The need for decision making arises in order to achieve certain specific
objectives. The starting point in any analysis of decision making involves the determination of whether a
decision needs to be made.

(ii) Problem Identification: A problem is a felt need, a question which needs a solution. In the words of
Joseph L Massie "A good decision is dependent upon the recognition of the right problem". The
objective of problem identification is that if the problem is precisely and specifically identifies, it will
provide a clue in finding a possible solution. A problem can be identified clearly, if managers go
through diagnosis and analysis of the problem.

(a) Diagnosis: Diagnosis is the process of identifying a problem from its signs and symptoms. A
symptom is a condition or set of conditions that indicates the existence of a problem. Diagnosing the real
problem implies knowing the gap between what is and what ought to be, identifying the reasons for the
gap and understanding the problem in relation to higher objectives of the organization.

(b) Analysis: Diagnosis gives rise to analysis. Analysis of a problem requires:

 Who would make decision?
 What information would be needed?
 From where the information is available?
Analysis helps managers to gain an insight into the problem.

(iii) Search for Alternatives: A problem can be solved in several ways; however, all the ways cannot be
equally satisfying. Therefore, the decision maker must try to find out the various alternatives available in
order to get the most satisfactory result of a decision. A decision maker can use several sources for
identifying alternatives:
o His own past experiences
o Practices followed by others and
o Using creative techniques.

(iv) Evaluation of Alternatives: After the various alternatives are identified, the next step is to evaluate
them and select the one that will meet the choice criteria. /the decision maker must check proposed
alternatives against limits, and if an alternative does not meet them, he can discard it. Having narrowed
down the alternatives which require serious consideration, the decision maker will go for evaluating how
each alternative may contribute towards the objective supposed to be achieved by implementing the
decision.
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(v) Choice of Alternative: The evaluation of various alternatives presents a clear picture as to how each
one of them contribute to the objectives under question. A comparison is made among the likely
outcomes of various alternatives and the best one is chosen.

(vi) Action: Once the alternative is selected, it is put into action. The actual process of decision making
ends with the choice of an alternative through which the objectives can be achieved.

(vii) Results: When the decision is put into action, it brings certain results. These results must
correspond with objectives, the starting point of decision process, if good decision has been made and
implemented properly. Thus, results provide indication whether decision making and its implementation
is proper.

Steps in an effective decision-making process:

A. The first step is to identify the organizational problem, i.e., discrepancies between a current state or
condition and what is desired.
i. The scanning state involves monitoring the work situation for changing circumstances that
may signal the emergence of a problem.
ii. The categorization stage entails attempting to understand and verify signs that there is some
type of discrepancy between a current state and what is desired.
iii. The diagnosis stage involves gathering additional information and specifying both the
nature and the causes of the problem.

B. The generation of alternative solutions step is facilitated by using the four principles associated with
brainstorming.
i. Don’t criticize ideas while generating possible solutions
ii. Freewheel, i.e., offer even seemingly wild and outrageous ideas in an effort to trigger more
usable ideas from others.
iii. Offer as many ideas as possible to increase the probability of coming up with an effective
solution.
iv. Combine and improve on ideas that have been offered.

C. The choice of an alternative step comes only after the alternatives are evaluated systematically
according to six general criteria:
i. Feasibility is the extent to which an alternative can be accomplished within related
organizational constraints, such as time, budgets, technology, and policies.
ii. Quality is the extend to which an alternative effectively solves the problem under
consideration.
iii. Acceptability is the degree to which the decision makers and others who will be affected by
the implementation of the alternative are willing to support it.
iv. Costs are the resource levels required and the extent to which the alternative is likely to
have undesirable side effects.
v. Reversibility is the extent to which the alternative can be reversed, if at all.
vi. The ethics criterion refers to the extent to which an alternative is compatible with the social
responsibilities of the organization and with ethical standards.

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D. Finally, the implementing and monitoring the chosen solution step must be planned to avoid failure
of the entire effort.
1. Implementation requires careful planning.
a. The amount of planning depends upon whether the projected changes are minor or major.
b. Irreversible changes require a great deal of planning.
2. Implementation requires sensitivity to those involved in or affected by the implementation.
a. Affected individuals are more likely to support a decision when they are able to participate in its
implementation.
b. If Participation is not feasible, individuals should be kept informed of the changes.
3. Monitoring is necessary to ensure that things are progressing as planned and that the problem that
triggered the planning process has been resolved.

AN EIGHT-STEP APPROACH TO MAKING BETTER DECISIONS

The following list is adapted from Smart Choices by Hammond,

i. Work on the right decision problem. Be careful in stating the problem, and avoid
unwarranted assumptions and option-limiting prejudices.
ii. Specify your objectives. Determine what you want to accomplish, and which of your
interests, values, concerns, fears, and aspirations are the most relevant.
iii. Create imaginative alternatives. Alternatives represent different courses of action, and
your decision can be no better than your best alternative.
iv. Understand the consequences. Determine how well different alternatives satisfy all of
your objectives.
v. Grapple with your tradeoffs. Since objectives frequently conflict with each other, it
becomes necessary to choose among less-than-perfect possibilities.
vi. Clarify your uncertainties. Confront uncertainty by judging the likelihood of different
outcomes and assessing their possible impacts.
vii. Think hard about your risk tolerance. In order to choose an alternative with an acceptable
level of risk, become conscious of how much risk you can tolerate.
viii. Consider linked decisions. Many important decisions are linked over time. The key to
making a series of decisions is to isolate and resolve near-term issues while gathering
information relevant to issues that will arise later.

Factors Affecting the Decision making Process: -

1. Information: - It must be available, authentic, adequate; reliable must be available at the right time. It
must be analyzed and presented in the right manner.

2. Time Factor: - Decision must be taken at the right time. Some products are introduced ahead of time.
For e.g. Dishwashers introduced in India. Decisions are also time bound in business. Context,
introduction of air-conditioners, coolers and refrigerators in summer and woolen clothing in winter also
suggests the influence of time in decision making.

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3. External Environment factors: - As decision making is always interactive with the environment,
various environment factors influence decision making such as economic, political, social, cultural,
technical, ethical, legal, global factors.

4. Internal Factors: - rules, regulations, procedures within the organization or administrative

restrictions also affect decision-making.

5. Personality of the Decision-Maker or Subjectivity: - The decision making process has a lot to do
with is the decision-maker, his attitudes, perception, values, style of functioning, and the nature of
personality and overall way of thinking.

6. Participation, Acceptance and Implementation: - Elements of how decision are taken, how far they
are accepted and how they are to be implemented also contribute in the decision taking a decision
making process.

7. Precedent: - In a bureaucratic set up this becomes a ruling factor, as questions like “Have we done
this before?”, “Is there a precedent of taking such decisions?” are often asked before taking a decision.

8. Experience of a Decision Maker: - As it is said that experience is the best teacher, maturity in
business experience of a manager go a long way in taking effective decisions.

9. Power to Decision Maker:- Many times, people know what is wrong in the organization, but often
they do not have the power to decide and act. That is how the concept of empowerment is evolved which
talks about decision making to the lowest possible level.

10. Escalation of Commitment: - After a decision has been taken, it is often felt that the decision is
going in a wrong way, but more than half of the work is completed. Therefore, there comes a point of no
return and the decisions have to be completed in spite of negative feedback.

11. Bounded Rationality: - Constructing simplified models that extract the essential features from the
problems without capturing all their complexities. The decision-maker settles for the early solution that
is good enough. In Layman’s language, decision-maker finds out the earliest available alternatives, takes
certain things for granted and acts on it. The decision-maker takes generalized judgement shortcuts,
which are also called Heuristics. For e.g. if two students from a particular management institute show
exemplary performance in the job, the judgement shortcut is “every student from this institute is good”,
and vice versa.

DIFFICULTIES IN DECISION MAKING:

A business manager can make decisions by intuition, i, e., without considering carefully all the
alternatives. Practically, every one takes decisions in this way because of the feeling that the particular
course of action is the best one. This kind of feeling may have no logic behind it. Moreover, it is difficult
to explain why one is feeling a particular way. Psychologists emphasize that there are forces other thin
reason within a person, which influence and shape a decision. Decisions based on intuition are subjective
and are taken without any conscious effort to weigh the advantages and disadvantages of various
alternatives.

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Effective decision-making requires a rational choice of a course of action. There is a need to define
the term 'rational’ here. Rationality is the ability to follow a systematical, logical, thorough approach in
decision-making. Thus, if a decision is taken after thorough analysis and reasoning and weighing the
consequences of various alternatives, such a decision will be called an objective or rational decision. In
actual practice, each person takes a decision, which involves a combination of intuition and rational
thinking. A person who depends much upon intuition is more subjective and a person who depends much
upon logical thinking is more objective. This is what Herbert Simon has called the 'principle of bounded
rationality'. Simon emphasized that a person makes decisions not only on absolutely logical analysis of
facts but also on his intuition, value system and way of thinking, which are subjective in nature.
The subjectivity in decision-making arises because:
(i) The individual does not want to study and analyze the problem because of his perception.
(ii) The individual does not have the full knowledge of the alternatives and/or their consequences.
(iii) The individual interprets the organizational goals in his own way. He may adopt a course of action,
which according to him will meet the goals effectively.
(iv) The individual is careless in taking the decision. He may be indifferent towards the consequences of
his decision.
The rationality of the individuals is generally affected by the above limitations. The concept of
bounded rationality explains the behavior of people in practice. It recognizes that a man cannot be
expected to have full knowledge and information and his capacity to perceive, retain and retrieve
information is not unlimited. Human goals are multiple and conflicting. The traditional theory of complete
rational and economic man cannot work in practice.
Rationality is the ability to follow a systematic, logical and thorough approach in decision-making
process. Gross suggested three dimensions to determine rationality:
(i) the extent to which a given action satisfies human interests;
(ii) feasibility of means to the given end; and
(iii) consistency. Rationality requires complete knowledge of the consequences that will follow
each choice. But it is not always possible.
Rationality further requires a choice among all possible alternatives. But every individual has his
limitations. He may not be able to perceive all possible alternatives. Moreover, decision-making relates to
future. This requires some degree of imagination. One may not be able to imagine objectively because of
his frame of mind. From this, we can say that a man cannot be completely rational.
As said by Simon, a man has only bounded rationality because there are certain limitations to
complete rationality. Thus, Simon's point of view is highly realistic as it helps in understanding the actual
behavior of the decision maker. It also modifies substantially the traditional theory of decision-making
based on complete rational man. Subjective factors are bound to affect a person's decisions even though he
is otherwise rational.

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