BINAYAK ACADEMY, Gandhi Nagar 1st Line, Berhampur

PPM - Unit Two

Definition of Planning: Planning has been defined previously as one of the five major
functions of management. However, since planning is a bridge between the present and the
future, it has been called the primary management function. Planning is particularly
important because of scarce resources and uncertain environment with a fierce competition
for these resources.
Planning is a decision making activity requiring the process of ascertaining objectives and
deciding on activities to, attain these objectives. It is also a process of preparing for change
and coping with uncertainty by formulating future courses of action. The basic purpose of
planning is to reduce the risk of uncertainties and to initiate a coordinated effort within the
organization for the purpose of organizational success
Planning is the continuous process of making present entrepreneurial decisions
systematically and with best possible knowledge of their futurity, organizing systematically
the efforts needed to carry out these decisions and measuring the results of these decisions
against the expectation through organized, systematic feedback.
Peter Drucker thus encompasses the element of feedback that would ascertain the quality
of decisions and the accuracy of planning.
The Six P's of Planning
l. Purpose. An effective planning system requires a clear understanding of the
organization's purpose. What are the reasons for the organization's existence? Is it to
increase profit or increase market shares or generate more employment or introduce more
products, etc.? This purpose must be clear and elaborate.
2. Philosophy. Philosophy incorporates the fundamental beliefs as to how the
organization's purpose is to be .achieved. For long-term survival and growth, a philosophy
of ethical conduct must be adopted. For example, General Motor's philosophy is based upon
profitability through quality, service, and ethical behavior. IBM's philosophy was to elevate
the level of the salesman to an executive, etc.
3. Premise. This involves the strengths and weaknesses of the organization and 'its
knowledge and assumptions about its environment. By forecasting and other methods, the
management can make some conclusions about the environment trends and by knowing its
own strengths and weaknesses it can deal with the changing environment in a more
intelligent way.
4. Policies. Policies are general guidelines or constraints that aid in managerial
thinking and action. In a typical organization, there are production policies financial policies,
accounting policies, marketing policies, personnel policies, etc. These policies are more
specific than philosophy and from a basis for planning and necessary operational actions.
5. Plans: plans represent specific objective and action statements.
6. Priorities: A particular organizational goal must be given a particular priority
.limited resource of time, finance, materials etc.

PLANNING PROCESS
STAGES IN PLANNING
Planning is an intellectual process which the managers carry out for the efficient
management of the organization. The nature of this exercise will differ from one
organization to another and from one managerial level to another. However, the general
stages to be followed in laying down the organizational plans are described below:

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1. Establishment of Objectives
The first step in planning is the determination of objectives. Objectives provide direction to
various activities in the enterprise. Planning has no utility if it is not related to certain
objectives. The establishment of objectives can, at times, be more important than the
objectives themselves since their establishment emphasizes how various people and units
fit into the overall organization framework. This process can also be used to motivate
individuals to achieve objectives which they have helped to establish. Objectives clarify the
tasks to be accomplished. Overall objectives define what is to be accomplished in general
terms. The derivative objectives focus on more details; that is, what is to be accomplished,
where action is to take place, who is to perform it, how it is to be undertaken, and when it is
to be accomplished.
2. Assessment of Environment
Sufficient information must be collected in order to make the plans and sub plans.
Necessary information includes the critical assessment of the current status of the
organization together with a forward look at the environment that is anticipated. The
collection and forecasting of information should be done in terms of external and internal
environment. The assessment of external environment should include consideration of
competition now and in the future, government policies, social values, political conditions,
international situation and other externalities that may affect the organization in the future.
The assessment of internal environment may consider the strong and weak points of the
organization.
3. Premising and Forecasting.
This step involves making assumptions concerning the behaviour of internal and external
factors mentioned in the second step. It is essential to identify the assumptions on which
the plans will be based. Assumptions denote the expected environment in the future and
are known as 'planning premises'. Again, forecasting is important in premising. It helps in
making realistic assumptions about sales, costs, prices, products, technological
developments, etc. in the future. The assumptions along with the future forecasts provide a
basis for the plans. Since future environments are so complex and uncertain, it would not
be realistic to make assumptions in great details about every environment factor. It is
advisable to limit premising to those factors which are critical or strategic to the planning
Process.
4. Review of Key Factors
There is always the possibility of existence of certain limitations that could affect the ability
of the work-group to reach its objectives. An intelligent manager must make plans
anticipating the conditions or limitations that might restrict the smooth operation of the
plans. Key areas for anticipation are power, machinery, inventories of materials and parts,
finance and labour availability. These are some of the important areas which must be given
due Weightage while making plans. A good planner must consider combinations of all
possible limitations and make provision for them.
5. Development of Alternative Plans
Determining the alternative courses of action is an important step in the planning process.
There is hardly any plan for which alternatives do not exist. Without resorting to a search
for alternatives, a planner is likely to be guided by his limited imagination. Generally, there
are several alternatives for any problem. A manager should try to screen out the most
viable alternative so that he has a small number of alternatives for final selection. This will
help in the thorough analysis of the alternatives so developed.
6. Evaluation of Alternative Plans

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After selecting the few viable alternatives, they should be evaluated with the help of a
number of parameters which are related to planning premises and objectives. Each of the
alternatives is to be examined in relation to the following two tests:
(I)
To what extent is it in conformity with the basic or corporate objective of the
enterprise?
(ii) To what extent each of these plans satisfies the cost, speed, quality and rate of return
on investment requirements? "
The evaluation of various alternatives will help in knowing which of them offers the greatest
choice of success in reaching the desired objective. Sometimes, it may not be possible to
analyses the alternatives properly due to a number of complexities. The planner should
take the help of various quantitative techniques of Operations Research like probability
theory, game theory, linear programming, etc.
7. Selection of Suitable Plan
The purpose of evaluating the alternative courses of action is to select the most suitable
course of action which will achieve organizational objectives. Techniques of decision making
are applied to choose a particular course of action. This may lead to the conclusion that no
one course of action is optimum. So the management may decide to select two or more
alternatives and combine them to have the most feasible plan. While selecting the plan, the
following factors should be taken into account:
(I) The plan should be logical and practical.
(II) The plan should be flexible and capable of being modified.
(III) The plan should be specific rather than general.
(IV) The plan should be acceptable to the operating personnel.
(V) The resources required for the implementation of the plan should be made available.
8. Laying Down of Derivative Plans
Basic organizational plans cannot be executed effectively unless they are supported by the
derivative or sub-plans. The derivative plans are developed within the framework of the
overall planning. For instance, if an airline decides to acquire a fleet of new planes, it will be
followed by the development of a host of derivative plans dealing with the employment and
training of various types of personnel, the acquisition of spare parts, and the installation of
maintenance facilities, scheduling, advertising, financing and insurance. The important
derivative plans used in business include policies, procedures, programmes, projects,
methods, budgets, rules, etc. They help in achieving the overall organizational goals.
Requirements of an Effective Plan
An effective plan should possess the following characteristic features:
(1) A plan should be specific. The more specific a plan is, the less chance there is for it
to be misinterpreted. Objectives should be clearly defined. The means for carrying out the
plan should also be indicated in unambiguous terms.
(2) A plan should be complete and integrated. A plan is said to be complete when it is
comprehensive enough to cover all actions expected from the individuals and sections of
the undertaking as a whole. It is said to be an integrated one when various administrative
plans are so welded into one another that the whole undertaking operates at the peak of its
efficiency.
(3) A plan should be logical. The more facts it is based on, the better it is. H facts are not
available, reasonable assumptions may be made about the future.

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(4) A plan should be flexible. No plan is infallible nor can it cover all possible
contingencies. Conditions under which a plan will be most effective change as do the
variables and factors on which the plan is formulated. Therefore, it is essential to introduce
some flexibility in every plan.
(5) A plan should be capable of being controlled. Effective planning of business
activities depends upon the ability to foresee with utmost accuracy the nature and
requirements of future events relating to industry in general and the business undertaking
in particular. Therefore, the plan must distinguish between controllable and uncontrollable
future environment for better administrative control.

TYPES OF PLANS
Plans can be classified as (1) purposes or missions, (2) objectives or goals, (3) strategies,
(4) policies, (5) procedures, (6) rules, (7) programs, and (8) budgets.
1. Purposes or Missions
The mission, or purpose (the terms are often used interchangeably), identifies the basic
function or task of an enterprise or agency or any part of it. Every kind of organized
operation has, or at least should have if it is to be meaningful, a purpose or a mission. In
every social system, enterprises have a basic function or task assigned to them by society.
For example, the purpose of a business generally is the production and distribution of goods
and services. The purpose of a state highway department is the design, building, and
operation of a system of state highways. The purpose of the courts is the interpretation of
laws and their application. The purpose of a university is teaching, research, and providing
services to the community. Although we do not do so, some writers distinguish between
purposes and missions. While a business, for example, may have a social purpose of
producing and distributing goods and services, it can accomplish this by fulfilling a mission
of producing certain lines of products. The missions of an oil company, like Exxon, are to
search for oil and to produce, refine, and market petroleum and many petroleum products,
from diesel fuel to chemicals. The mission of the Du Pont Company has been expressed as
"better things through chemistry," and Kimberly-Clark (noted for its Kleenex trademark)
regards its business mission as the production and sale of paper and paper products. In the
1960s, the mission of NASA was to get a person to the moon before the Russians. Hallmark,
which has expanded its business beyond greeting cards, defines its mission as "the social
expression business." It is true that in some businesses and other enterprises, the purpose
or mission often becomes fuzzy. For example, many conglomerates have regarded their
mission as synergy,* which is accomplished through the combination of a variety of
companies.
2. Objectives or Goals
Objectives, or goals, (the terms are used interchangeably in this book), are the ends toward
which activity is aimed. They represent not only the end point of planning but also the end
toward which organizing, staffing, leading, and controlling are aimed.
3. Strategies
For years the military used the word "strategies" to mean grand plans made-light of what it
was believed an adversary might or might not do. While the term "strategy" still usually has
a competitive implication, managers increasingly use it to reflect broad areas of an
enterprise operation. In this book, strategy is defined as the determination of the basic
long-term objectives of an enterprise and the adoption of courses of action and allocation of
resources necessary to achieve these goals.
4. Policies

BINAYAK ACADEMY, Gandhi Nagar 1st Line, Berhampur

Policies also are plans in that they are general statements or understandings that guide or
channel thinking in decision making. Policies define an area within which a decision is to be
made and ensure that the decision will be consistent with, and contribute to, an objective.
Policies help decide Issues before they become problems, make it unnecessary to analyze
the same situation every time it comes up, and unify other plans, thus permitting managers
to delegate authority and still maintain control over what their subordinates do
5. Procedures
Procedures are plans that establish a required metl10d of handling future activities. They
are chronological sequences of required actions. They are guides to action, ratl1er than to
thinking, and they detail the exact manner in which certain activities must be
accomplished. Procedures often cut across department lines.
For example, in a manufacturing company, the procedure for handling orders will almost
certainly involve the sales department (for the original order), tl1e finance department (for
acknowledgment of receipt of funds and for customer credit approval), the accounting
department (for recording the transaction), and production department (for the order to.
produce goods or authority to release them from stock), and traffic department (for
determination of shipping means and route).
A few examples illustrate the relationship between procedures and policies. The company
policy may grant employees vacations; procedures established to implement this policy will
provide for scheduling vacations to avoid disruption of work, setting methods and rates of
vacation pay, maintaining records to assure each employee of a vacation, and spelling out
the means for applying for a vacation.
6. Rules
Rules spell out specific required actions or nonactions allowing no discretion. They are
usually the simplest type of plan. "No smoking" is a rule that allows no deviation from a
stated course of action. The essence of a rule is that is reflects a managerial decision that
some certain action must-or must not-be taken. Be sure you can distinguish rules from
policies. The purpose of policies is to guide decision making by marking off areas in which
managers can use their discretion. Rules allow no discretion in their application.
7. Programs
Programs are a complex of goals, policies, procedures, rules, task assignments, steps to be
taken, resources to be employed, and other elements necessary to carry out a given course
of action; they are ordinarily supported by budgets. They may be as major as an airline's
program to acquire a $400 million fleet of jets or the 5-year program to improve the status
and quality of its thousands of supervisors, or they may be as minor as a program
formulated by a single supervisor to improve the morale of workers in the partsmanufacturing department of a farm machinery company.
8. Budget
A budget is a statement of expected results expressed in numerical terms. It may be called
a "numberized" program. In fact, the financial operating budget is often called a profit
plan. Budget may be expressed in term financial terms of labor-hours unit of product, or
machine hours etc.
ADVANTAGES OF PLANNING
The following advantages can be achieved by an efficient system of planning:
(I) Reduction of Uncertainty. Future is always full of uncertainties. A business
organization has to function in these uncertainties. It can operate successfully if it is able to

BINAYAK ACADEMY, Gandhi Nagar 1st Line, Berhampur

predict the uncertainties. Some of the uncertainties can be predicted by undertaking
systematic forecasting. Thus, planning helps in foreseeing uncertainties which may be
caused by changes in technology, fashion. and taste of people, Government rules and
regulations, etc.
(II) Concentration on Objectives. It is a basic characteristic of planning that it is related
to the organizational objectives. All the operations are planned to achieve the
organizational objectives. Planning facilitates the achievement of objectives by focusing
attention on them. It requires the clear definition of objectives so that the most appropriate
alternative courses of action are chosen.
(III) Coordination. Good plans unify the inter-departmental activity and clearly lay down
the area of freedom in the development of various sub-plans. Various departments work in
accordance with the overall plans of the organization. Thus, there is harmony in the
organization, and duplication of efforts and conflict of jurisdiction are avoided.
(IV) Economy in Operation. Planning ensures economical operations because of
emphasis on efficiency. Since planning involves the selection of the best possible courses of
action, it is implied that best results would be achieved at the least possible cost.
(V) Facilitation of Control. Planning and control are inseparable in the sense that
unplanned action cannot be controlled because control involves keeping activities on the
predetermined course by rectifying deviations from plans. Planning helps control by
furnishing standards of performance.
(VI) Encouragement to Innovation. Planning helps innovative and creative thinking
among the managers because many new ideas come to the mind of a manager when he is
planning. It creates a forward-looking attitude among the managers.
(VIII) Increase in Competitive Strength. Effective planning gives a competitive edge to
the enterprise over other enterprises that do not have planning or have ineffective
planning. This is because planning may involve expansion of capacity, changes in work
methods, changes in quality, anticipation of tastes and fashion of people and technological
changes, etc.
LIMITATIONS OF PLANNING
The limitations of planning are as under:
1. Lack of Accurate Information. The reliability of a plan depends upon facts and
information on which it is based. If reliable information and dependable data are not
available, planning is sure to lose much of its relevance.
2. Lack of Accurate Forecasts. Planning concerns future activity and its quality will be
determined by the quality of forecast of future events. As no manager can predict
completely and accurately the events of future, the plans may pose problems in operation.
This problem is further increased by problems in formulating accurate premises. Many
times, managers may not be aware about the various conditions within which they have to
formulate their plans.
3. Complex Process. Planning is a complex and expensive process. It demands serious
thinking, tremendous hard work and time. Some managers do not like to undergo such a
complicated process as they prefer short-cuts. Such planning may not yield the desired
results.
4. Rigidities. Planning may result in internal inflexibilities and procedural rigidities. By
limiting individual freedom, planning may stifle initiative and personal development.
Rigidities appear from managers' negligence to revise the plan, particularly policies and
procedures.

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5. Lack of Specific Goals. Qualitative objectives like social responsibility, management
development, quality of work life, etc. are often expressed in vague generalizations which
defy proper evaluation. Once these objectives conflict with quantifiable ones, managers
tend to ignore them totally. Planning cannot be effective unless goals are specific, clear and
actionable.
6. Lack of Planning Skills. A plan can be no better than the competence of the planner
who does the planning. Planning is an art and takes a special type of person to plan. Not
every one is capable of planning and solving organizational problems. A planner must
possess not only skill, but also intelligence and breadth of vision, and, for long-range
planning, must have the ability to forecast.
7. Resistance to Change. Resistance to change is another factor, which puts limits on
planning. It is a commonly experienced phenomenon in the business world. Sometimes,
planners themselves do not like change and, on other occasions, they do not think it
desirable to bring change as it will create resistance on the part of the workers. This
attitude makes the planning process ineffective.
8. Lack of Participation. People who are not involved in the formulation of plans may
tend to resist the plans at their implementation stage. Plans imposed from above often lead
to resentment and resistance among those forced to implement them.
9. Psychological Factors. Psychological factors also limit the effectiveness of planning.
Some people consider present more important than future because present is certain. Such
persons are psychologically opposed to planning. But it should not be forgotten that
dynamic managers always look ahead. LpJ)g-range well-being of the enterprise cannot be
achieve~ unless proper planning is done.
10. External Factors. The planners are often confronted with external forces.
MBO- (Management by Objective)
Neither the term management nor the term objectives is new. What is new about these
terms is a distinct philosophy of management built around these terms; and popularized as
management by objectives (or MBO). The credit for developing this philosophy of MBO
could be bestowed upon Peter F. Drucker' However, some authorities object to it; as
according to them, nobody could be the originator of a philosophy of management which
utilizes terms like management and objectives'. In fact, formation of groups for attainment
of objectives through the agency of management is an ages old phenomenon.
MBO might be defined as follows:
MBO is a distinct philosophy of managing any business enterprise in which (under a shortterm management-programme) objectives for subordinates are worked out through a
process of mutual consultation between subordinates and concerned superiors, in verifiable
terms; and such objectives subsequently becoming standards of control for measuring
performance of individuals against these.
MBO Process

Corporate
Objectives

Departmental
Objectives

Target for
individual
subordinates

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Counseling of
subordinates

Performance
review

Establishment
of checkpoints

Fig: The Process of MBO

(I) Preliminary setting of objectives at the top management level Top management
usually gives a start to launching of scheme of MBO; by identifying the fundamental
objectives of the enterprise as a guide to superiors and subordinates throughout the
organization for setting their own objectives.
(II) Clarification of organizational roles As a background step to MBO, each role in the
organization is clarified; so that each organizational role is somebody's clear responsibility.
(III) Setting individual objectives
Superiors and subordinates throughout the enterprise determine their individual objectives
through a process of mutual consultation. Such setting of individual objectives is the core
aspects of MBO.
(IV) Matching goals with resources
To D1ake MBO scheme realistic, goals of individuals are compared to the resources
available for their implementation. At this stage, objectives might be revised suitably, in
view of limitations of resources.
(V) Recycling objectives
Recycling or reshuffling objectives under MBO is done to take care of the interconnection
among related objectives. i.e. objectives of individuals in one department may not be
inconsistent with related objectives of subordinates, in other departments.
(VI) Performance appraisal
As a final step of MBO, performance of people is judged against objectives (which now
become standards of control) determined for them, initially.
ADVANTAGES OF MBO
(I) Overall improvement in organizational performance provided, a scheme of MBO is
appropriately designed in a 'tailor-made' system; it is likely to lead to an overall
improvement in the organizational performance.
(II) Specific Planning Because of numerical expression of objectives under MBO, planning
becomes more specific Subordinates better appreciate as to what exactly is expected of
them.
(III) Elicits commitment perhaps the biggest advance of MBO is that it is a great
motivational device. It elicits commitment to objectives on the part of subordinates; as
subordinates feel achieving those targets which they have determined for themselves.
(IV) Better controlling MBO leads to better controlling in two senses
(a) Controlling is immediate; as standards of controlling are the objectives themselves.
(b) There is least or no resistance to controlling; because objectives (i.e. standards of
controlling) are determined by subordinates themselves in consultation with superiors.
LIMITATIONS OF MBO

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(I) Failure of teach philosophy of MBO
It is rather different for management to teach the philosophy of MBO to rank and file
organization; because of the technical processes involved in making a scheme of MBO. One
must expect success of a scheme; basics of which are not fully comprehended by people.
(II) Tug-.of-war phenomenon
Setting of objectives under MBO creates a sort of 'tug-of-war' situation among superiors and
subordinates. Subordinates prefer objectives to be set on a lower side; superiors would like
mO~1 work to be assigned to subordinates. In fact, the dominating party-whether the
superior or the subordinate-will have a major impact on the determination of objectives. As
such, realistic goal setting under MBO may be a rarity.
(III) Over-emphasis on short-run goals
Under MBO, there is an over emphasis on short-run goals to the exclusion of long-run goal
which might be critical for the survival and growth of the enterprise.
(IV) Over-quantification of management
Because of the need to quantify objectives under MBO, qualitative aspects of managing
may completely overlooked.
(v) Wastage of time
MBO involves wastage of a lot of valuable time of managers in joint consultations; and they
left with little time for efficiently discharging their jobs.

Decision Making
Decision-making is an essential aspect of modern management. It is a primary function of
management. A manager's major job is sound/rational decision-making. He takes hundreds
of decisions consciously and subconsciously. Decision-making is the key part of manager's
activities. Decisions are important as they determine both managerial and organizational
actions. A decision may be defined as "a course of action which is consciously chosen from
among a set of alternatives to achieve a desired result." It represents a well-balanced
judgment and a commitment to action.
It is rightly said that the first important function of management is to take decisions on
problems and situations. Decision-making pervades all managerial actions. It is a
continuous process. Decision-making is an indispensable component of the management
process itself.
Means and ends are linked together through decision-making. To decide means to come to
some definite conclusion for follow-up action. Decision is a choice from among a set of
alternatives. The word 'decision' is derived from the Latin words deciso which means 'a
cutting away or a cutting off or in a practical sense' to come to a conclusion. Decisions are
made to achieve goals through suitable follow-up actions. Decision-making is a process by
which a decision (course of action) is taken. Decision-making lies embedded in the process
of management.
According to Peter Drucker, "Whatever a manager does, he does through decision-making".
A manager has to take a decision before acting or before preparing a plan for execution.
Moreover, his ability is very often judged by the quality of decisions he takes. Thus,
management is always a decision-making process. It is a part of every managerial function.

BINAYAK ACADEMY, Gandhi Nagar 1st Line, Berhampur

This is because action is not possible unless a firm decision is taken about a business
problem or situation.
This clearly suggests that decision-making is necessary in planning, organising, directing,
controlling and staffing. For example, in planning alternative plans are prepared to meet
different possible situations. Out of such alternative plans, the best one (i.e., plan which
most appropriate under the available business environment) is to be selected. Here, the
planner has to take correct decision. This suggests that decision-making is the core of
planning function. In the same way, decisions are required to be taken while performing
other functions of management such as organising, directing, staffing, etc. This suggests
the importance of decision-making in the whole process of management.
The effectiveness of management depends on the quality of decision-making. In this sense,
management is rightly described as decision-making process. According to R. C. Davis,
"management is a decision-making process." Decision-making is an intellectual process
which involves selection of one course of action out of many alternatives. Decision-making
will be followed by second function of management called planning. The other elements
which follow planning are many such as organising, directing, coordinating, controlling and
motivating.
Decision-making has priority over planning function. According to Peter Drucker, it is the top
management which is responsible for all strategic decisions such as the objectives of the
business, capital expenditure decisions as well as such operating decisions as training of
manpower and so on. Without such decisions, no action can take place and naturally the
resources would remain idle and unproductive. The managerial decisions should be correct
to the maximum extent possible. For this, scientific decision-making is essential.
Definitions of Decision-making
1.

The Oxford Dictionary defines the term decision-making as "the action of carrying out
or carrying into effect".

2.

According to Trewatha & Newport, "Decision-making involves the selection of a

course of action from among two or more possible alternatives in order to arrive at a
solution for a given problem".

Characteristics of Decision Making

1.

Decision making implies choice: Decision making is choosing from among two or
more alternative courses of action. Thus, it is the process of selection of one solution
out of many available. For any business problem, alternative solutions are available.
Managers have to consider these alternatives and select the best one for actual
execution. Here, planners/ decision-makers have to consider the business environment
available and select the promising alternative plan to deal with the business problem
effectively. It is rightly said that "Decision-making is fundamentally choosing between
the alternatives". In decision-making, various alternatives are to be considered
critically and the best one is to be selected. Here, the available business environment
also needs careful consideration. The alternative selected may be correct or may not
be correct. This will be decided in the future, as per the results available from the
decision already taken. In short, decision-making is fundamentally a process of
choosing between the alternatives (two or more) available. Moreover, in the decisionmaking process, information is collected; alternative solutions are decided and
considered critically in order to find out the best solution among the available. Every
problem can be solved by different methods. These are the alternatives and a
decision-maker has to select one alternative which he considers as most appropriate.
This clearly suggests that decision-making is basically/fundamentally choosing
between the alternatives. The alternatives may be two or more. Out of such

10

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alternatives, the most suitable is to be selected for actual use. The manager needs
capacity to select the best alternative. The benefits of correct decision-making will be
available only when the best alternative is selected for actual use.
2.

Continuous activity/process: Decision-making is a continuous and dynamic process. It

pervades all organizational activity. Managers have to take decisions on various policy
and administrative matters. It is a never ending activity in business management.

3.

Mental/intellectual activity: Decision-making is a mental as well as intellectual

activity/process and requires knowledge, skills, experience and maturity on the part of
decision-maker. It is essentially a human activity.

4.

Based on reliable information/feedback: Good decisions are always based on reliable

information. The quality of decision-making at all levels of the Organisation can be
improved with the support of an effective and efficient management information
system (MIS).

5.

Goal oriented process: Decision-making aims at providing a solution to a given

problem/ difficulty before a business enterprise. It is a goal-oriented process and
provides solutions to problems faced by a business unit.

6.

Means and not the end: Decision-making is a means for solving a problem or for
achieving a target/objective and not the end in itself.

7.

Relates to specific problem: Decision-making is not identical with problem solving but
it has its roots in a problem itself.

8.

Time-consuming activity: Decision-making is a time-consuming activity as various

aspects need careful consideration before taking final decision. For decision makers,
various steps are required to be completed. This makes decision-making a time
consuming activity.

9.

Needs effective communication: Decision-taken needs to be communicated to all

concerned parties for suitable follow-up actions. Decisions taken will remain on paper
if they are not communicated to concerned persons. Following actions will not be
possible in the absence of effective communication.

10. Pervasive process: Decision-making process is all pervasive. This means managers
working at all levels have to take decisions on matters within their jurisdiction.
11. Responsible job: Decision-making is a responsible job as wrong decisions prove to be
too costly to the Organisation. Decision-makers should be matured, experienced,
knowledgeable and rational in their approach. Decision-making need not be treated as
routing and casual activity. It is a delicate and responsible job.
Advantages of Decision Making
1.

Decision making is the primary function of management: The functions of

management starts only when the top-level management takes strategic decisions.
Without decisions, actions will not be possible and the resources will not be put to use.
Thus decision-making is the primary function of management.

2.

Decision-making facilitates the entire management process: Decision-making creates

proper background for the first management activity called planning. Planning gives
concrete shape to broad decisions about business objectives taken by the top-level
management. In addition, decision-making is necessary while conducting other
management functions such as organising, staffing, coordinating and communicating.

3.

Decision-making is a continuous managerial function: Managers working at all levels

will have to take decisions as regards the functions assigned to them. Continuous

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BINAYAK ACADEMY, Gandhi Nagar 1st Line, Berhampur

decision making is a must in the case of all managers/executives. Follow-up actions
are not possible unless decisions are taken.
4.

Decision-making is essential to face new problems and challenges: Decisions are

required to be taken regularly as new problems, difficulties and challenges develop
before a business enterprise. This may be due to changes in the external environment.
New products may come in the market, new competitors may enter the market and
government policies may change. All this leads to change in the environment around
the business unit. Such change leads to new problems and new decisions are needed.

5.

Decision-making is a delicate and responsible job: Managers have to take quick and
correct decisions while discharging their duties. In fact, they are paid for their skill,
maturity and capacity of decision-making. Management activities are possible only
when suitable decisions are taken. Correct decisions provide opportunities of growth
while wrong decisions lead to loss and instability to a business unit.

Steps Involved In Decision Making Process

Decision-making involves a number of steps which need to be taken in a logical manner.
This is treated as a rational or scientific 'decision-making process' which is lengthy and time
consuming. Such lengthy process needs to be followed in order to take
rational/scientific/result oriented decisions. Decision-making process prescribes some rules
and guidelines as to how a decision should be taken / made. This involves many steps
logically arranged. It was Peter Drucker who first strongly advocated the scientific method
of decision-making in his world famous book 'The Practice of Management' published in
1955. Drucker recommended the scientific method of decision-making which, according to
him, involves the following six steps:
1.Defining / Identifying the managerial problem,
2.Analyzing the problem,
3.Developing alternative solutions,
4.Selecting the best solution out of the available alternatives,
5.Converting the decision into action, and
6.Ensuring feedback for follow-up.
1.

Identifying the Problem: Identification of the real problem before a business

enterprise is the first step in the process of decision-making. It is rightly said that a problem
well-defined is a problem half-solved. Information relevant to the problem should be
gathered so that critical analysis of the problem is possible. This is how the problem can be
diagnosed. Clear distinction should be made between the problem and the symptoms which
may cloud the real issue. In brief, the manager should search the 'critical factor' at work. It
is the point at which the choice applies. Similarly, while diagnosing the real problem the
manager should consider causes and find out whether they are controllable or
uncontrollable.

2.

Analyzing the Problem: After defining the problem, the next step in the decisionmaking process is to analyze the problem in depth. This is necessary to classify the problem
in order to know who must take the decision and who must be informed about the decision
taken. Here, the following four factors should be kept in mind:
1.
2.
3.
4.

Futurity of the decision,

The scope of its impact,
Number of qualitative considerations involved, and
Uniqueness of the decision.

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3.

Collecting Relevant Data: After defining the problem and analyzing its nature, the
next step is to obtain the relevant information/ data about it. There is information flood in
the business world due to new developments in the field of information technology. All
available information should be utilised fully for analysis of the problem. This brings clarity
to all aspects of the problem.

4.

Developing Alternative Solutions: After the problem has been defined, diagnosed
on the basis of relevant information, the manager has to determine available alternative
courses of action that could be used to solve the problem at hand. Only realistic
alternatives should be considered. It is equally important to take into account time and cost
constraints and psychological barriers that will restrict that number of alternatives. If
necessary, group participation techniques may be used while developing alternative
solutions as depending on one solution is undesirable.

5.

Selecting the Best Solution: After preparing alternative solutions, the next step in
the decision-making process is to select an alternative that seems to be most rational for
solving the problem. The alternative thus selected must be communicated to those who are
likely to be affected by it. Acceptance of the decision by group members is always desirable
and useful for its effective implementation.

6.

Converting Decision into Action: After the selection of the best decision, the next
step is to convert the selected decision into an effective action. Without such action, the
decision will remain merely a declaration of good intentions. Here, the manager has to
convert 'his decision into 'their decision' through his leadership. For this, the subordinates
should be taken in confidence and they should be convinced about the correctness of the
decision. Thereafter, the manager has to take follow-up steps for the execution of decision
taken.

7.

Ensuring Feedback: Feedback is the last step in the decision-making process. Here,
the manager has to make built-in arrangements to ensure feedback for continuously testing
actual developments against the expectations. It is like checking the effectiveness of followup measures. Feedback is possible in the form of organised information, reports and
personal observations. Feed back is necessary to decide whether the decision already taken
should be continued or be modified in the light of changed conditions.

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