Management Chapter 3

CHAPTER THREE
THE PLANNING FUNCTION
Objectives:
After studying this chapter, you would be able to:
1) Know the basic concepts and need for planning
2) Be acquainted with the major types of plans and planning process
4) Be familiar with various planning techniques
2.1. Concepts and Need for Planning
Goals and plans have become general concepts in our society. A goal is a desired future state that
the organization attempts to realize. Goals are important because organizations exist for a
purpose and goals define and state that purpose. A plan is a blueprint for goal achievement
and specifies the necessary resource allocations, schedules, tasks, and other actions. Goals
specify future ends; plans specify today’s means. The word planning usually incorporates both
ideas; it means determining the organization’s goals and defining the means for achieving them.
Purpose of Goals and Plans
The complexity of today’s environment and uncertainty about the future overwhelm many
managers and cause them to focus on operational issues and short-term results rather than long-
term goals and plans. However, planning generally positively affects a company’s performance.
In addition to improving financial and operational performance, developing explicit goals and
plans at each level is important because of the external and internal messages they send. These
messages go to both external and internal audiences and provide important benefits for the
organization:
Legitimacy: An organization’s mission describes what the organization stands for and its reason
for existence. It symbolizes legitimacy to external audiences such as investors, customers,
suppliers, and the local community. The mission helps them look on the company in a favorable
light.
Source of motivation and commitment: Goals and plans facilitate employees’ identification
with the organization and help motivate them by reducing uncertainty and clarifying what
they should accomplish. At Boeing, the manufacturing department has a goal of moving a plane,
once the wings and landing gear are attached, along the assembly line and out the door in only
five days. Managers are revising processes and procedures, mechanics are coming up with
innovative machine adjustments, and assembly line workers are trying new techniques to

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meet this ambitious goal. Lack of a clear goal can damage employee motivation and
commitment because people don’t understand what they’re working toward. Whereas a goal
provides the “why” of an organization or subunit’s existence, a plan tells the “how.” A plan lets
employees know what actions to undertake to achieve the goal.
Resource allocation: Goals help managers decide where they need to allocate resources, such
as employees, money, and equipment.
Guides to action: Goals and plans provide a sense of direction. They focus attention on specific
targets and direct employee efforts toward important outcomes.
Rationale(beqi meknyat) for decisions: Through goal setting and planning, managers learn what
the organization is trying to accomplish. They can make decisions to ensure that internal
policies, roles, performance, structure, products, and expenditures will be made in accordance
with desired outcomes. Decisions throughout the organization will be in alignment with the
plan.
Standard of performance: Because goals define desired outcomes for the organization, they also
serve as performance criteria. They provide a standard of assessment. If an organization wishes
to grow by 15 percent, and actual growth is 17 percent, managers will have exceeded their
prescribed standard.
Importance of Planning
Planning has a lot of importance, the following are the majors
 Planning offset change and uncertainty
 Planning facilitate coordination
 Planning focuses on the attainment of objectives
 Planning helps in control
 Planning economizes operation
 Planning leads to effectiveness
2.2. Levels of Goals and Plans
Organizational Mission
At the top of the goal hierarchy is the mission—the organization’s reason for existence. The
mission describes the organization’s values, aspirations, and reason for being. A well-defined
mission is the basis for development of all subsequent goals and plans. Without a clear
mission, goals and plans may be developed haphazardly and not take the organization in the
direction it needs to go.

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The formal mission statement is a broadly stated definition of purpose that distinguishes the
organization from others of a similar type. A well-designed mission statement can enhance
employee motivation and organizational performance. The content of a mission statement
often focuses on the market and customers and identifies desired fields of endeavor. Some
mission statements describe company characteristics such as corporate values, product quality,
location of facilities, and attitude toward employees. Mission statements often reveal the
company’s philosophy as well as purpose.
Examples of mission statement
1. A pharmaceutical company. “Our company’s mission is to extend and enhance human
life by providing the highest quality pharmaceutical and related health care products”.
2. A mail box service providing company stated as “making business worldwide thought our
service and distributing networks delivering personalized and convenient business
solutions with world class customer service”
1. Strategic Goals
Broad statements describing where the organization wants to be in the future are called strategic
goals. They pertain to the organization as a whole rather than to specific divisions or
departments. Strategic goals are often called official goals, because they are the stated intentions
of what the organization wants to achieve.

2. Tactical Goals
Tactical plans are designed to help execute the major strategic plans and to accomplish a
specific part of the company’s strategy. Tactical plans typically have a shorter time horizon
than strategic plans—over the next year or so. The word tactical originally comes from the
military. In a business or nonprofit organization, tactical plans define what major departments
and organizational subunits will do to implement the organization’s strategic plan.
3. Operational Goals
Operational plans are developed at the lower levels of the organization to specify action steps
toward achieving operational goals and to support tactical plans. The operational plan is the
department manager’s tool for daily and weekly operations. Goals are stated in quantitative

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terms, and the department plan describes how goals will be achieved. Operational planning
specifies plans for department managers, supervisors, and individual employees.
Schedules are an important component of operational planning. Schedules define precise time
frames for the completion of each operational goal required for the organization’s tactical and
strategic goals. Operational planning also must be coordinated with the budget, because
resources must be allocated for desired activities. The following picture depicts levels of goals.

Alignment of Goals
Effectively designed organizational goals are aligned into a hierarchy; that is, the achievement
of goals at low levels permits the attainment of high-level goals, also called a means-ends chain.
Operational goals lead to the achievement of tactical goals, which, in turn, lead to the
attainment of strategic goals. Organizational performance is an outcome of how well these
interdependent elements are aligned, so that individuals, teams, departments, and so forth
are working in concert to attain specific goals that ultimately help the organization fulfill its
mission.
Strategic goals are traditionally considered the responsibility of top management, tactical goals
that of middle management, and operational goals that of first-line supervisors and workers.
Today, some companies are pushing greater involvement of all employees in goal setting and
planning at each level. Microsoft, facing greater competition and new threats from the shifting
technological and economic environment, developed a new goal-setting process that emphasizes
individual commitments and alignment of goals. The following picture illustrates levels of goals.

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Characteristics of Effective Goals

To ensure goal-setting benefits for the organization, certain characteristics and guidelines should
be adopted. These characteristics pertain to organizational goals at the strategic, tactical, and
operational levels:
Specific, measurable, attainable, realistic and time bound (SMART)
 Cover key result areas
 Challenging but achievable
 Realistic -under acceptable frame of reference
 Defined time period
 Linked to rewards
2.3. Planning process

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It is very difficult to specify a fixed process of planning for all organizations because of their
differences in risk, complexity and environment. The process of planning suggests some
important steps to make planning effective. A manager must have the knowledge of each step of
making planning process:-
1. Awareness of Opportunities (Assessment of External and Internal Environment)
All managers should take a preliminary look at possible future opportunities. Setting realistic
objectives depends on this awareness (SWOT- analysis, strength, weakness, opportunity and
threats). Planning at start requires a realistic diagnosis of the opportunity situation. A manager
must be aware of the opportunities in the light of:
 Market,  Customer Orientation,
 Competition,  Organization's Strength and
Weaknesses.
2. Establishing Objectives
In fact the first step in the planning process is the “determination of organizational objectives”.
Specify the expected results and indicate the end point what is to be done. The objectives should
be clearly specified and measurable.
3. Developing Premises
Planning premises are factors which affect the organizational functioning including forecasts,
applicable basic policies, and existing company plans
4. Determining Alternative Courses:
There are several alternatives for any plan. Management should try to find out these alternatives.
5. Evaluating Alternative Courses:
After seeking out alternative courses, the next step is to evaluate alternatives in the light of
objectives and premises.
6. Selecting the best Course: Selection of the best alternative course of action. Planners
have to select the course of action which the organization will pursue. Managers have to
select the most feasible plan.
7. Formulation of Derivative Plans:
Are plans for departments, units, activities, etc.? These plans required to support the basic plan.
Derivative plan includes, policies, procedures, methods, rules, etc.
2.4. Types of Plans

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Managers use strategic, tactical, and operational goals to direct employees and resources toward
achieving specific outcomes that enable the organization to perform efficiently and effectively.
Managers use a number of planning approaches. Among the most popular is management by
objectives, single-use plans, standing plans, and contingency plans.
2.4.1. Management by Objectives
Management by objectives (MBO) is a method whereby managers and employees define goals
for every department, project, and person and use them to monitor subsequent performance. Four
major activities must occur in order for MBO to be successful:
1. Set goals. This step is the most difficult in MBO. Setting goals involves employees at all
levels and looks beyond day-to-day activities to answer the question “What are we trying
to accomplish?” A good goal should be concrete(yetechebete) and realistic, provide a
specific target and time frame, and assign responsibility. Goals may be quantitative or
qualitative. Quantitative goals are described in numerical terms, such as “Salesperson
Jones will obtain 16 new accounts in December.” Qualitative goals use statements such
as “Marketing will reduce complaints by improving customer service next year.” Goals
should be jointly derived. Mutual agreement between employee and supervisor
creates the strongest commitment to achieving goals.
2. Develop action plans. An action plan defines the course of action needed to achieve the
stated goals. Action plans are made for both individuals and departments.
3. Review progress. A periodic progress review is important to ensure that action plans are
working. These reviews can occur informally between managers and subordinates,
where the organization may wish to conduct three-, six-, or nine month reviews during
the year. This periodic checkup allows managers and employees to see whether they are
on target or whether corrective action is needed. Managers and employees should not
be locked into predefined behavior and must be willing to take whatever steps are
necessary to produce meaningful results. The point of MBO is to achieve goals. The
action plan can be changed whenever goals are not being met.
4. Appraise(mamezazen)overall performance. The final step in MBO is to carefully
evaluate whether annual goals have been achieved for both individuals and departments.
Success or failure to achieve goals can become part of the performance appraisal
system and the designation of salary increases and other rewards. The appraisal of

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departmental and overall corporate performance shapes goals for the next year. The
MBO cycle repeats itself on an annual basis.
Benefits of MBO
 Manager and employee efforts are focused on activities that will lead to goal attainment.
 Performance can be improved at all company levels.
 Employees are motivated.
 Departmental and individual goals are aligned with company goals.
Problems with MBO
 Constant change prevents MBO from taking hold.
 An environment of poor employer-employee relations reduces MBO effectiveness.
 Strategic goals may be displaced by operational goals.
 Mechanistic organizations and values that discourage participation can harm the MBO
process.
 Too much paperwork saps MBO energy.
2.4.2. Single-Use and Standing Plans
Single-use plans are developed to achieve a set of goals that are not likely to be repeated in the
future. Standing plans are ongoing plans that provide guidance for tasks performed repeatedly
within the organization. Single-use plans typically include both programs and projects. The
primary standing plans are organizational policies, rules, and procedures. Standing plans
generally pertain to such matters as employee illness, absences, smoking, discipline, hiring, and
dismissal.
Single use plans Standing plans
Program Policy
• Plans for attaining a one-time organizational • Broad in scope—general guide to action
goal • Based on organization’s overall
• Major undertaking that may take several goals/strategic plan
years to complete • Defines boundaries within which to make
• Large in scope; may be associated with decisions
several projects Examples: Sexual harassment policies Internet
Examples: Building a new headquarters and e-mail usage policies
Converting all paper files to digital

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Project Rule
• Also a set of plans for attaining a onetime • Narrow in scope
goal • Describes how a specific action is to be
• Smaller in scope and complexity than a performed
program; shorter in horizon • May apply to specific setting
• Often one part of a larger program Examples: No eating rule in areas of company
Example: Renovating the office Setting up a where employees are visible to the public
company intranet
Procedure
• Sometimes called a standard operating procedure
• Defines a precise series of steps to attain certain goals
Ex: Procedures for issuing refunds, Procedures for handling employee
grievances

2.4.3. Contingency Plans

When organizations are operating in a highly uncertain environment or dealing with long time
horizons, sometimes planning can seem like a waste of time. In fact, strict plans may even hinder
rather than help an organization’s performance in the face of rapid technological, social,
economic, or other environmental change. In these cases, managers can develop multiple future
alternatives to help them form more flexible plans.
Contingency plans define company responses to be taken in the case of emergencies, setbacks,
or unexpected conditions. To develop contingency plans, managers identify important factors in
the environment, such as possible economic downturns, declining markets, increases in cost of
supplies, new technological developments, or safety accidents.
2.4. DECISION MAKING
2. 4.1. Meaning of Decision Making
Decision making is a rational choice or selection of one alternative form among a set of
alternatives. Features of decision making:
 Is a process of selection and the aim is to select the best alternative.
 It involves also commitment of time, efforts and resources.
 Is aimed at achieving certain goals, involves the evaluation of available alternatives

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Decision Making: is defined as the process of selecting or choosing based on some criteria, the
best course of action from a number of alternatives. Because managers are continually
confronted with opportunities and problems, they must constantly analyze the effect of
different decisions on their organizations and select the alternative that will move the firm
toward its stated objectives.
2.4.2. Types of Decisions
Several authors believe that there are two types of decisions: programmed & non-programmed
decisions. However, there also other classifications of decisions;
i. Programmed and Non-Programmed
ii. Organizational and Personal Decisions
iii. Individual and Group Decisions
1. Programmed and Non-programmed Decisions
 Programmed Decisions
These decisions are "programmable" because specific procedure can be worked out to resolve
them based on experience in similar situations.
Once a standard procedure has been established, it can be used to treat all like situations.
They usually involve an organization's every day operational and administrative activities.
Generally these decisions:
 are concerned with routine matters arising out of the functioning of the organization.
 taken on the basis of established guidelines, procedures and rules.
 taken by the lower or middle level managers.
For example: hiring new employees, purchasing input materials
 Non-programmed Decisions
These decisions are used to solve nonrecurring(tedegagami yalhone) problems. No well-
established procedure exists for handling them, primarily because managers do not have
experience to draw upon. In contrast to programmed decisions, available data are usually
incomplete. Non programmable decisions are commonly found at the middle and top levels of
management and often are related to an organization's policy-making activities such as
whether to add a product to the existing product line, to reorganize the company, or to acquire
another firm
Generally they are:

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 non-repetitive in nature.
 they have a fundamental effect on the organization.
 taken by top management and middle management.
For example: selection of product and location, adoption of new technology, and launching
of a new product.
2. Organizational and Personal Decisions
Organizational decision:
This is a decision when an individual or concerned group that has official authority, takes any
decision because of formal authority. Such decisions affect the organizational functioning
directly.
Personal decisions: When a manager, as an individual, can take decisions about himself. These
normally affect the personal life of an individual. Example: When a manager makes any
decision about his child education.
3. Individual and group decision
Individual decisions
 When a decision is made by an individual in the organization
 This may involve any manager from top executives to the first line
Group or collective decisions
 Generally, group decisions are those taken by a group of persons in an organization
Example:- a committee decision, Board of directors makes decisions.
1. Decision making situations
1. Decisions under certainty: - decisions made in which the external conditions are identified
and very predictable /whenever there is complete data & information.
 all the information the decision maker needs is fully available
2. Decisions under risk: - those decisions in which probabilities can be assigned to the
expected outcomes of each alternative.
 decision has clear-cut goals
 Partial good information is available
 future outcomes associated with each alternative are subject to chance.
3. Decisions under uncertainty:- it is a case where neither there is complete data nor
probabilities can be assigned to the surrounding conditions. Some conditions that are

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uncontrollable by management face decision makers include competition, government

regulations, technological advances, the overall economy, and the social and cultural
tendencies of society.
 managers know which goals they wish to achieve.
 information about alternatives and future events is incomplete.
 managers may have to come up with creative approaches to alternatives.
The following picture depicts the possibility of failure for decisions made under different
situations.

Organizational
Problem

Low Possibility of Failure High

Certainty Risk Uncertainty

Programmed Nonprogrammed
Decisions Decisions

Problem
Solution
2.4.3. Rational decision making model
These choices are made based on the following seven-step. The decision making process begins
by determining a problem exists; that is, there is an unsatisfactory condition.
1. Define the problem
2. Identify the causes
3. Develop alternatives solutions
4. Evaluate the alternatives
5. Select the best alternative
6. Implement the solution

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7. Verify whether the solution is correct

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