SKR ENGINEERING COLLEGE MG6851-PRINCIPLES OF MANAGEMENT

UNIT II
PLANNING
Planning is the most basic of all the management functions. There is no choice
between planning and no planning. The choice is only with the regard to the method
and techniques used to plan.
DEFINITION
According to Koontz O’Donnell - "Planning is deciding in advance what to do,
how to do it, when to do it and who is to do it. It is the selection among the
alternatives of future course of action for the enterprise as a whole and each
department within it.
NATURE AND PURPOSE OF PLANNING
Nature of Planning
1. Planning is goal-oriented: Every plan must contribute in some positive way
towards the accomplishment of group objectives. Planning has no meaning without
being related to goals.
2. Planning is primary function of management:
The functions of management are broadly classified as planning, organization,
direction and control. It is thus the first function of management at all levels. Since
planning is involved at all managerial functions, it is rightly called as an essence of
management.
3. Planning focuses on objectives:
Planning is a process to determine the objectives or goals of an enterprise. It lays
down the means to achieve these objectives. The purpose of every plan is to
contribute in the achievement of objectives of an enterprise.

4. Planning is a function of all managers:

Every manager must plan. A manager at a higher level has to devote more time to
planning as compared to persons at the lower level. So the President or Managing
director in a company devotes more time to planning than the supervisor.

5. Planning as an intellectual process:

Planning is a mental work basically concerned with thinking before doing. It is an
intellectual process and involves creative thinking and imagination. Wherever
planning is done, all activities are orderly undertaken as per plans rather than on the
basis of guess work. Planning lays down a course of action to be followed on the
basis of facts and considered estimates, keeping in view the objectives, goals and
purpose of an enterprise.

6. Planning as a continuous process:

Planning is a continuous and permanent process and has no end. A manager makes
new plans and also modifies the old plans in the light of information received from
the persons who are concerned with the execution of plans. It is a never ending
process.
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7. Planning is dynamic (flexible):
Planning is a dynamic function in the sense that the changes and modifications are
continuously done in the planned course of action on account of changes in business
environment. As factors affecting the business are not within the control of
management, necessary changes are made as and when they take place. If
modifications cannot be included in plans it is said to be bad planning.

8. Planning secures efficiency, economy and accuracy:

A pre- requisite of planning is that it should lead to the attainment of objectives at the
least cost. It should also help in the optimum utilization of available human and
physical resources by securing efficiency, economy and accuracy in the business
enterprises. Planning is also economical because it brings down the cost to the
minimum.

9. Planning involves forecasting:

Planning largely depends upon accurate business forecasting. The scientific
techniques of forecasting help in projecting the present trends into future. ‘It is a kind
of future picture wherein proximate events are outlined with some distinctness while
remote events appear progressively less distinct.”

10. Planning and linking factors:

A plan should be formulated in the light of limiting factors which may be any one of
five M’s viz., men, money, machines, materials and management.

11. Planning is realistic:

A plan always outlines the results to be attained and as such it is realistic in nature.

Purpose of Planning
1. To manage by objectives: All the activities of an organization are designed to
achieve certain specified objectives. However, planning makes the objectives more
concrete by focusing attention on them.
2. To offset uncertainty and change: Future is always full of uncertainties and
changes. Planning foresees the future and makes the necessary provisions for it.
3. To secure economy in operation: Planning involves, the selection of most
profitable course of action that would lead to the best result at the minimum costs. 4.
To help in co-ordination: Co-ordination is, indeed, the essence of management,
the planning is the base of it. Without planning it is not possible to co-ordinate the
different activities of an organization.
5. To make control effective: The controlling function of management relates to the
comparison of the planned performance with the actual performance. In the absence
of plans, a management will have no standards for controlling other's performance.
4. To increase organizational effectiveness: Mere efficiency in the organization is
not important; it should also lead to productivity and effectiveness. Planning enables
the manager to measure the organizational effectiveness in the context of the stated
objectives and take further actions in this direction.

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SKR ENGINEERING COLLEGE MG6851-PRINCIPLES OF MANAGEMENT
PLANNING PROCESS
Planning is a process which embraces a number of steps to be taken. Planning is an
intellectual exercise and a conscious determination of courses of action. Therefore, it
requires courses of action. The planning process is valid for one organization and for
one plan, may not be valid for other organizations or for all types of plans, because
various factors that go into planning process may differ from organization to
organization or from plan to plan. For example, planning process for a large
organization may not be the same for a small organization. However, the major steps
involved in the planning process of a major organization or enterprise are as follows:

Establishing objectives
The first and primary step in planning process is the establishment of planning
objectives or goals. Definite objectives, in fact, speak categorically about what is to
be done, where to place the initial emphasis and the things to be accomplished by
the network of policies, procedures, budgets and programmes, the lack of which
would invariably result in either faulty or ineffective planning. It needs mentioning in
this connection that objectives must be understandable and rational to make
planning effective. Because the major objective, in all enterprise, needs be translated
into derivative objective, accomplishment of enterprise objective needs a concrete
endeavor of all the departments.
Establishment of Planning Premises
Planning premises are assumptions about the future understanding of the expected
situations. These are the conditions under which planning activities are to be
undertaken. These premises may be internal or external. Internal premises are
internal variables that affect the planning. These include organizational polices,
various resources and the ability of the organization to withstand the environmental
pressure. External premises include all factors in task environment like political,
social technological, competitors’ plans and actions, government policies, market
conditions. Both internal factors should be considered in formulating plans. At the top
level mainly external premises are considered. As one moves downward, internal
premises gain importance.

Determining Alternative Courses

The next logical step in planning is to determine and evaluate alternative courses of
action. It may be mentioned that there can hardly be any occasion when there are no
alternatives. And it is most likely that alternatives properly assessed may prove
worthy and meaningful. As a matter of fact, it is imperative that alternative courses of
action must be developed before deciding upon the exact plan.

Evaluation of Alternatives
Having sought out the available alternatives along with their strong and weak points,
planners are required to evaluate the alternatives giving due weight-age to various
factors involved, for one alternative may appear to be most profitable involving heavy
cash outlay whereas the other less profitable but involve least risk. Likewise, another
course of action may be found contributing significantly to the company’s long-range
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objectives although immediate expectations are likely to go unfulfilled. Evidently,
evaluation of alternative is a must to arrive at a decision. Otherwise, it would be
difficult to choose the best course of action in the perspective of company needs and
resources as well as objectives laid down.
Selecting a Course of Action
The fifth step in planning is selecting a course of action from among alternatives. In
fact, it is the point of decision-making-deciding upon the plan to be adopted for
accomplishing the enterprise objectives.

Formulating Derivative Plans

To make any planning process complete the final step is to formulate derivative
plans to give effect to and support the basic plan. For example, if Indian Airlines
decide to run Jumbo Jets between Delhi an Patna, obliviously, a number of
derivative plans have to be framed to support the decision, e.g., a staffing plan,
operating plans for fuelling, maintenance, stores purchase, etc. In other words, plans
do not accomplish themselves. They require to be broken down into supporting
plans. Each manager and department of the organization is to contribute to the
accomplishment of the master plan on the basis of the derivative plans.

Establishing Sequence of Activities

Timing an sequence of activities are determined after formulating basic and
derivative plans, so that plans may be put into action. Timing is an essential
consideration in planning. It gives practical shape and concrete form to the
programmers. The starting and finishing times are fixed for each piece of work, so as
to indicate when the within what time that work is to be commenced and completed.
Bad timing of programmers results in their failure. To maintain a symmetry of
performance and a smooth flow of work, the sequence of operation shaped be
arranged carefully by giving priorities to some work in preference to others. Under
sequence it should be decided as to who will don what and at what time.
Feedback or Follow-up Action
Formulating plans and chalking out of programmers are not sufficient, unless follow-
up action is provided to see that plans so prepared and programmers chalked out
are being carried out in accordance with the plan and to see whether these are not
kept in cold storage. It is also required to see whether the plan is working well in the
present situation. If conditions have changed, the plan current plan has become
outdated or inoperative it should be replaced by another plan. A regular follow-up is
necessary and desirable from effective implementation and accomplishment of tasks
assigned.The plan should be communicated to all persons concerned in the
organization. Its objectives and course of action must be clearly defined leaving no
ambiguity in the minds of those who are responsible for its execution. Planning is
effective only when the persons involved work in a team spirit and all are committed
to the objectives, policies, programmers, strategies envisaged in the plan.

Types of Planning
Operational Planning
“Operational plans are about how things need to happen,” motivational leadership
speaker Mack Story said at LinkedIn. “Guidelines of how to accomplish the mission

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are set.”This type of planning typically describes the day-to-day running of the
company. Operational plans are often described as single use plans or ongoing
plans. Single use plans are created for events and activities with a single occurrence
(such as a single marketing campaign). Ongoing plans include policies for
approaching problems, rules for specific regulations and procedures for a step-by-
step process for accomplishing particular objectives.

OPERATIONAL PLANNING

Standing plans Single use plans

Rules

Mission or purpose Programmers

Objectives Budgets

Strategies Methods

Projects
Policies

Procedures
Standing plans are usually made once and retain their value over a period of years
while undergoing periodic revisions and updates. The following are examples of
ongoing plans.
i) Mission:
. The mission is a statement that reflects the basic purpose and focus of the
organization which normally remain unchanged. The mission of the company is the
answer of the question: why does the organization exists? Properly crafted mission
statements serve as filters to separate what is important from what is not, clearly
state which markets will be served and how, and communicate a sense of intended
direction to the entire organization. Mission of Ford: “we are a global, diverse family
with a proud inheritance, providing exceptional products and services”.
ii) Objectives or goals
Both goal and objective can be defined as statements that reflect the end towards
which the organization is aiming to achieve. However, there are significant
differences between the two. A goal is an abstract and general umbrella statement,
under which specific objectives can be clustered. Objectives are statements that
describe—in precise, measurable, and obtainable terms which reflect the desired
organization’s outcomes.
iii) Strategies: Strategy is the determination of the basic long term objectives of an
organization and the adoption of action and collection of action and allocation of
resources necessary to achieve these goals. Strategic planning begins with an
organization's mission. Strategic plans look ahead over the next two, three, five, or
even more years to move the organization from where it currently is to where it
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wants to be. Requiring multilevel involvement, these plans demand harmony among
all levels of management within the organization. Top-level management develops
the directional objectives for the entire organization, while lower levels of
management develop compatible objectives and plans to achieve them. Top
management's strategic plan for the entire organization becomes the framework and
sets dimensions for the lower level planning.
Policy: A policy provides a broad guideline for managers to follow when dealing with
important areas of decision making. Policies are general statements that explain how
a manager should attempt to handle routine management responsibilities. Typical
human resources policies, for example, address such matters as employee hiring,
terminations, performance appraisals, pay increases, and discipline.
Procedure: A procedure is a set of step-by-step directions that explains how
activities or tasks are to be carried out.
 Most organizations have procedures for purchasing supplies and equipment,
for example. This procedure usually begins with a supervisor completing a
purchasing requisition.
 The requisition is then sent to the next level of management for approval. The
approved requisition is forwarded to the purchasing department.
 Depending on the amount of the request, the purchasing department may
place an order, or they may need to secure quotations and/or bids for several
vendors before placing the order. By defining the steps to be taken and the
order in which they are to be done, procedures provide a standardized way of
responding to a repetitive problem.
Rule:
A rule is an explicit statement that tells an employee what he or she can and cannot
do. Rules are “do” and “don't” statements put into place to promote the safety of
employees and the uniform treatment and behavior of employees. For example,
rules about tardiness and absenteeism permit supervisors to make discipline
decisions rapidly and with a high degree of fairness.
i) Single-use plans apply to activities that do not recur or repeat. A one-time
occurrence, such as a special sales program, is a single-use plan because it deals
with the who, what, where, how, and how much of an activity.
 Programme: Programme consists of an ordered list of events to be followed
to execute a project.
 Budget: A budget predicts sources and amounts of income and how much
they are used for a specific project.

Program

Programmers are an in-depth statement that outlines a company’s policies, rules,

objectives, procedures etc. These programmers are important in the implementation
of all types of plan. They create a link between the company’s objectives, procedures
and rules.
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Primary programmers are made at the top level of management. To support the
primary program all managers will make other programs at the middle and lower
levels of management.

Methods

Methods prescribe the ways in which in which specific tasks of a procedure must be
performed. Also, methods are very specific and detailed instructions on how the
employees must perform every task of the planned procedure. So managers form
methods to formalize routine jobs.

Methods are very important types of plan for an organization. They help in the
following ways

 Give clear instructions to the employees, removes any confusion

 Ensures uniformity in the actions of the employees
 Standardizes the routine jobs
 Acts as an overall guide for the employees and the managers

Budget

A budget is a statement of expected results the managers expect from the company.
Budgets are also a quantitative statement, so they are expressed in numerical terms.
A budget quantifies the forecast or future of the organization.

There are many types of budgets that managers make. There is the obvious financial
budget that forecasts the profit of the company. Then there are operational budgets
generally prepared by lower-level managers. Cash budgets monitor the cash inflows
and outflows of the company.

Projects

 A project is a particular job that needs to be done in connection with a general

program. So a single step in a program is set up as a project.
 A project has a distinct object and clear-cut termination.
 “Projects have the same characteristics as programs but are generally
narrower in scope and less complex. Projects are frequently created to
support or complement a program.”

Strategic planning

“Strategic plans are all about why things need to happen,” Story said. “It’s big
picture, long-term thinking. It starts at the highest level with defining a mission and
casting a vision.”

Strategic planning includes a high-level overview of the entire business. It’s the
foundational basis of the organization and will dictate long-term decisions. The scope
of strategic planning can be anywhere from the next two years to the next 10 years.
Important components of a strategic plan are vision, mission and values.

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Tactical Planning
“Tactical plans are about what is going to happen,” Story said. “Basically at the
tactical level, there are many focused, specific, and short-term plans, where the
actual work is being done, that support the high-level strategic plans.”
Tactical planning supports strategic planning. It includes tactics that the organization
plans to use to achieve what’s outlined in the strategic plan. Often, the scope is less
than one year and breaks down the strategic plan into actionable chunks. Tactical
planning is different from operational planning in that tactical plans ask specific
questions about what needs to happen to accomplish a strategic goal; operational
plans ask how the organization will generally do something to accomplish the
company’s mission.
Contingency Planning
Contingency plans are made when something unexpected happens or when
something needs to be changed. Business experts sometimes refer to these plans
as a special type of planning.
Contingency planning can be helpful in circumstances that call for a change.
Although managers should anticipate changes when engaged in any of the primary
types of planning, contingency planning is essential in moments when changes can’t
be foreseen. As the business world becomes more complicated, contingency
planning becomes more important to engage in and understand.
OBJECTIVES
Objectives may be defined as the goals which an organization 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 program."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.
 All objectives are interconnected and mutually supportive.
 Objectives may be short-range, medium-range and long-range.
 Objectives may be constructed into a hierarchy.
Advantages of Objectives
 Clear definition of objectives encourages unified planning.
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 Objectives provide motivation to people in the organization.
 When the work is goal-oriented, unproductive tasks can be avoided.
 Objectives provide standards which aid in the control of human efforts in an
organization.
 Objectives serve to identify the organization 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 organization, policies, personnel, leadership as well as managerial
control.
PROCESS OF SETTING OBJECTIVES
Objectives are the keystone of management planning. It is the most important task of
management. Objectives are required to be set in every area which directly and
vitally effects the survival and prosperity of the business. In the setting of objectives,
the following points should be borne in mind.
 Objectives are required to be set by management in every area which directly
and vitally affects the survival and prosperity of the business.
 The objectives to be set in various areas have to be identified.
 While setting the objectives, the past performance must be reviewed, since
past performance indicates what the organization will be able to accomplish in
future.
 The objectives should be set in realistic terms i.e., the objectives to be set
should be reasonable and capable of attainment.
 Objectives must be consistent with one and other.
 Objectives must be set in clear-cut terms.
 For the successful accomplishment of the objectives, there should be effective
communication.
 Objectives should cover the main features of the job.
 Objectives must be clearly specified in writing.
 The list of objectives should not be too long. Wherever it is possible, some
objectives should be combined to make the list reasonable.
 Objectives must set by considering the various factors affecting their
achievement.
 Objectives should be verifiable.
 Objectives should clearly indicate the organizational mission.
 Objectives should start with the word “to” and be followed by an action.
 Objectives should be periodically reviewed.
MANAGEMENT BY OBJECTIVES (MBO)
MBO was first popularized by Peter Ducker in 1954 in his book 'The practice of
Management’. It is a process of agreeing within an organization so that management
and employees buy into the objectives and understand what they are. It has a
precise and written description objectives ahead, timelines for their motoring and
achievement. The employees and manager agree to what the employee will attempt
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to achieve in a period ahead and the employee will accept and buy into the
objectives.
Definition
“MBO is a process whereby the superior and the mangers of an organization jointly
identify its common goals, define each individual’s major area of responsibility in
terms of results expected of him, and use these measures as guides for operating
the unit and assessing the contribution of each of its members.”
Features of MBO-MBO are concerned with goal setting and planning for individual
managers and their units. The essence of MBO is a process of joint goal setting
between a supervisor and a subordinate.
1. Managers work with their subordinates to establish the performance goals
that are consistent with their higher organizational objectives.
2. MBO focuses attention on appropriate goals and plans.
3. MBO facilitates control through the periodic development and subsequent
evaluation of individual goals and plans.
4. MBO is not merely a technique but a philosophy to management. A technique
is applicable only in specified areas but a philosophy or approach guides and
influences every aspect of management. MBO is an approach which includes
various techniques of better management.
5. In this approach various objectives of the organization and of individuals are
collectively decided by superiors and subordinates. These objectives become
the targets which are to be achieved by various persons in the organization.
The review of objectives is also done collectively.
6. The corporate, departmental and individual objectives are used as a yardstick
to measure performance. A comparison of targets and actual results will
enable managers to judge the performance of subordinates and top level will
similarly assess the performance of managers.
7. MBO provides for a regular review of performance. This review is normally
held once in a year. It emphasizes initiative and active role by the manager
who is responsible for achieving the objectives. The review is future oriented
and provides a basis for planning and corrective actions.
8. The objectives in MBO provide guidelines for appropriate system and
procedures. The degree of delegation of authority, fixation of responsibility,
allocation of resources etc. can be decided on the basis of objectives of
various individuals. These objectives also become a basis of reward and
punishment in the organization.

Steps in MBO:

1. Determining Organizational Goals

The entire development of an organization depends on the set goals. A goal is the
most critical and necessary factor behind the effectiveness and efficiency of an
organization, so it is important to effectively manage set goals either single or many
of different kinds. Prior to start working on the set goals, the managers should
determine organizational goals with the aim to create a potential management that
must be capable of handling different kinds of goals easily. Determining goals don’t
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mean creating goals, as the preliminary goals are set by the top level supervisors on
the basis of in-depth analysis and judgment about what should be accomplished and
how to do so in a certain period.

2. Determining Employees’ Objectives

After determining the organizational goals, the next thing to do is to know the
individual’s goals or more clearly employees’ goals. It is the responsibility of the
manager to ask employees about what goals they can accomplish within a specific
time period and what resources will they use to achieve the goal. Also, if needed,
then managers and employees can classify the goals from the most important to the
least one in order to make the goal achieving process more easily and in favor of the
organization.

3. Constant Monitoring Progress and Performance

The process of MBO is not just set for providing additional effectiveness to managers
across the organization, but it is also equally important for constantly monitoring the
progress and performance of the employees. There are certain things stated below
that can help managers to monitor performance and progress.

 Checking less-effective or ineffective programs by performing a comparison of

performance with already prepared objectives.
 Using ZBB (Zero Based Budgeting)
 For measuring plans and individuals, implementing MBO concepts
 Defining short and long term plans and objectives
 Installing efficient and effective controls
 Eventually, composing completely sound structure of the organization with all
things at appropriate places such as responsibilities, decision making and so
on.

4. Performance Evaluation

As per the basic concept of MBO, the performance evaluation comes under the
responsibility of concerned managers and is made by their participation. Keep in the
mind, performance evaluation is one the most important factors of the organization
that can help operating certain objectives smoothly.

5. Providing Feedback

The psychologically influential factor of MBO is constantly providing feedback to

employees regarding their performance and individual goals, so that they can
monitor, correct and extra improve their skills and mistakes. Mostly, the feedback is
provided in periodic meetings where supervisors and their subordinates review the
performance and progress towards achievement of goals. At one point, feedback
helps individuals know their weakness. While on the other hand, it also motivates
already potential individuals to enhance and develop their performance additionally.

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6. The Performance Appraisal

Performance appraisals are the final step of the process of Management by

Objectives. By definition, a day by day review of the employee’s performance across
the organization can be called as performance appraisal.

Advantages
 Motivation – Involving employees in the whole process of goal setting and
increasing employee empowerment. This increases employee job satisfaction
and commitment.
 Better communication and Coordination – Frequent reviews and interactions
between superiors and subordinates help to maintain harmonious
relationships within the organization and also to solve many problems.
 Clarity of goals
 Subordinates have a higher commitment to objectives they set themselves
than those imposed on them by another person.
 Managers can ensure that objectives of the subordinates are linked to the
organization's objectives.

Limitations
There are several limitations to the assumptive base underlying the impact of
managing by objectives, including:
 It over-emphasizes the setting of goals over the working of a plan as a driver
of outcomes.
 It underemphasizes the importance of the environment or context in which the
goals are set. That context includes everything from the availability and
quality of resources, to relative buy-in by leadership and stake-holders.
 Companies evaluated their employees by comparing them with the "ideal"
employee. Trait appraisal only looks at what employees should be, not at
what they should do. When this approach is not properly set, agreed and
managed by organizations, self-centered employees might be prone to distort
results, falsely representing achievement of targets that were set in a short-
term, narrow fashion. In this case, managing by objectives would be
counterproductive.
POLICIES
Policies are general statements or understandings that guide managers’ thinking in
decision making. They usually do not require action but are intended to guide
managers in their commitment to the decision they ultimately make. The first step in
the process of policy formulation, as shown in the diagram below, is to capture the
values or principles that will guide the rest of the process and form the basis on
which to produce a statement of issues. The statement of issues involves identifying
the opportunities and constraints affecting the local housing market, and is to be
produced by thoroughly analyzing the housing market. The kit provides the user with

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access to a housing data base to facilitate this analysis. The statement of issues will
provide the basis for the formulation of a set of housing goals and objectives,
designed to address the problems identified and to exploit the opportunities which
present themselves. The next step is to identify and analyze the various policy
options which can be applied to achieve the set of goals and objectives. The options
available to each local government will depend on local circumstances as much as
the broader context and each local authority will have to develop its own unique
approach to addressing the housing needs of its residents. An implementation
program for realizing the policy recommendations must then be prepared,
addressing budgetary and programming requirements, and allocating roles and
responsibilities. Finally, the implementation of the housing strategy needs to be
systematically monitored and evaluated against the stated goals and objectives, and
the various components of the strategy modified or strengthened, as required. At
each step of the way, each component of the strategy needs to be discussed and
debated, and a public consultation process engaged in. The extent of consultation
and the participants involved will vary with each step.
Essentials of Policy Formulation
 A policy should be definite, positive and clear. It should be understood by
everyone in the organization.
 A policy should be translatable into the practices.
 A policy should be flexible and at the same time have a high degree of
permanency.
 A policy should be formulated to cover all reasonable anticipatable conditions.
 A policy should be founded upon facts and sound judgment.
 A policy should conform to economic principles, statutes and regulations.
 A policy should be a general statement of the established rule.
 They provide guides to thinking and action and provide support to the
subordinates.
 They delimit the area within which a decision is to be made.
 They save time and effort by pre-deciding problems and
 They permit delegation of authority to mangers at the lower levels.

Policy formulation process: creating policies for the organization is an integral part
of the process of planning. In order to ensure that the operations of the organization
run smoothly, proper policies have to be formulated by the managers. However, a
comprehensive process is involved in creating the most suitable policies for an
organization. Therefore, the below mentioned process needs to be followed by the
managers while creating policies for their organization:-

1. Identifying the policy area: first of all the managers are required to identify the
particular field for which they are going to formulate the policy. At the same time, the
managers are also required to consider the objectives as well as the demands of the
organization. For example, when the managers are formulating policy related with
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marketing, they should keep in mind the expectations and the thrust areas of
marketing for the organization. In the same way, the scope of the policy formulated
by them depends on the area that such policy is going to cover. Therefore, it is a
very important that first of all the managers identify the particular area that is going to
be covered by the policy that they’re going to create.

2. Identifying various alternative policies: while creating a policy for the

organization, the managers should identify all the policy alternatives that are
available to them in a particular case. The available alternatives can be decided with
the help of analyzing the external as well as internal environment of the organization.
While the internal environment of the organization can help in describing the
strengths and weaknesses of the organization, the external environment can help in
identifying the opportunities and threats that are being faced by the organization.
Therefore the alternative selected by the managers should be capable of ensuring
that the policy formulated by the managers can achieve its objectives.

3. Assessing the alternatives: the various alternatives that are available to the
managers need to be evaluated, keeping in mind the goals of the organization. The
managers should evaluate how these alternatives can contribute towards the
achievement of its goals by the organization. Therefore the factors like resource
requirements, costs and benefits provided by each alternative have to be carefully
examined by the managers. In the same way, while creating a policy, the managers
should also evaluate the impact of different alternatives on the environment of the
organization.

4. Selecting the most appropriate policy: after the managers have carefully
examined all the available alternatives, they should select the alternative that is most
appropriate for their organization. In this regard, it needs to be noted that selecting a
policy for the organization involves a long-term commitment. Therefore if the
managers feel that a particular alternative may not be satisfactory, then they should
work to find out other alternatives.

5. Testing a policy: before implementing a policy in the organization, the managers

should first implement the policy on a trial basis. This can help the managers in
evaluating if the policy selected by them can achieve the objectives for which it was
created. At the same time, when the policy has been implemented on a trial basis,
valuable suggestions may be received from other members of the organization
regarding the policy. These suggestions can help in introducing the necessary
changes in the policy due to which it becomes even more effective. Therefore it is
very important that the policy implemented in the organization should achieve the
goals due to which it was implemented otherwise the managers should consider the
implementation of a new policy.

6. Implementation of the policy: If it has been found during the trial period that the
policy will prove to be successful in achieving its objectives, the policy should be
implemented in the organization. However, it is very important that such a policy
should be explained in detail to all the persons who are responsible for implementing
the policy. For this purpose, a detailed discussion can also be held regarding the
probable implications as well as the impact of different provisions of the policy.
Therefore if the policy has been properly communicated to the employees, the
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employees will be aware of the purpose and objective behind the policy and it will
also help in the proper implementation of the policy.

PLANNING PREMISES
The process of planning is based upon estimates of future. Though past guides the
plans in present, plans are made to achieve the goals in future. Therefore, forecast
of future events leads to efficient plans. Since future events are not known
accurately, assumption is made about these events. These events may be known
conditions (changes in the tax laws as announced in the budget) or anticipated
events which may or may not happen (entry of competitor in the same market with
the same product).Though these assumptions are primarily based on scientific
analysis and models, managers also use their intuition and judgement to make
assumptions about future events. Identifying the factors (assumptions) that affect
plans is called premising and the methods used for making premises are called
forecasting. The forecast or the assumptions about future which provide a base for
planning in present are known as planning premises. They are “the anticipated
environment in which plans are expected to operate. They include assumptions or
forecasts of the future and known conditions that will affect the operation of plans.
The estimates about future markets, consumer preferences, political and economic
environment are the planning premises on which business plans are developed but if
plans are made and their efficiency is judged in terms of future market demands,
revenues and costs, they are mere expectations of plans. Such plans provide
planning premise for other plans.
Process of Planning Premises:
Wrong premises can lead to failure of plans.
Since environmental factors affect business plans (also non-business plans)
to a great extent, premises must be developed rationally and scientifically
through the following process:
1. Selection of the premises:
Though there are innumerable factors in the environment, all of them do not affect
operations of the business enterprise. Top managers should select the premises
which have direct impact on developing organizational plans. There are many factors
that affect business decisions, some of which are general in nature while others are
selective. The general factors affect all the firms alike but specific factors affect
different firms differently. While developing premises, organizations should focus
more on specific factors (or its micro environment) as they have immediate impact
on making the plans.
In order to analyse the factors that affect developing the premises, two factors
have to be taken into account:
I. The probability of impact of factors:
If represents whether the factors under study affect or do not affect the planning
premises.

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This probability can be high, medium or low.
II. The degree of impact of factors:
Given the factors which have the probability of developing planning premises, it
represents the degree to which these factors affect the planning premises. This can
also be high, medium or low.
Based on these two broad factors, nine different combinations can be formed
which broadly result into four categories:
1. Critical factors
2. High priority factors
3. Factors to be watched
4. Low priority factors
1. Critical factors:
These are the factors with:
 strategic decisions.
 Communication.
 Innovation.
 Project Management.
 Culture.
 Conclusion
2. High priority factors:
Though these factors are not as important as critical factors, they rank high in priority
in developing the planning premises.
These are the factors with:
(i) Medium probability of impact,
and High degree of impact
(ii) High/Medium probability of impact,
and Medium degree of impact
These factors also must be thoroughly analysed by managers as they significantly
affect the making of planning premises.
3. Factors to be watched: These are the factors with:
(i) Low probability of impact, and
(ii) High degree of impact.
Thus, while these factors may not affect the planning premises, but if they affect,
their degree of impact is high. A close watch must be kept on these factors so that
their impact may not be ignored.
4. Low priority factors:
These factors rank low in priority in affecting the planning premises as either their
probability of impact is low or the degree of impact is low.

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These are the factors with:
(i) Low probability of impact, and Medium degree of impact
(ii) High/Medium/Low probability of impact, and Low degree of impact.
These factors do not significantly affect making of the planning premises and,
therefore, do not require extensive scanning by managers.The factors covered under
various categories are not generic and determination of these factors depends upon
the judgement of managers, nature and size of the organisation and nature of
environment in which the organisations are operating.
Development of alternative premises:

Since factors affecting organisational plans cannot be perfectly predicted, managers

should develop alternative premises i.e., plans under different sets of assumptions
about the future events. This helps in developing contingent plans. Contingent plans
are the alternative plans for alternative premises. Since the premises keep changing,
some slowly and some fast, to keep pace with such changes, alternative plans must
be developed.
As developing too many plans is costly in terms of time and money, the
following factors should be considered in developing contingent plans:
(a) They should be made for those factors which are important for corporate
decisions like economic factors, competitors’ policies, consumers’ tastes etc.
They should be made in the order of priority of factors like:
(i) Critical factors,
(ii) High priority factors,
(iii) To be watched factors,
(iv) Low priority factors
(b) They should be made on the basis of cost-benefit analysis, that is, the alternative
whose cost seems to be more than its benefits should be dropped out.
(c) Though maximum details should be covered in each contingency plan, all the
plans cannot cover extensive information. Contents or details should depend on the
order of priority of plans. Important plans made for critical factors should cover
maximum information while plans for low priority factors should not contain extensive
details as the degree of their impact on organisational plans is low.
(d) Collecting details or information about the factors that affect the premises is
based on forecasting techniques. The choice of technique (simple or complex)
depends upon the need of the organisation, resources, the period in which
information is collected, the sample size, to what degree is the sample
representative of the general population etc.Every technique has costs and benefits
and a thorough cost-benefit analysis should be undertaken before adopting a
specific technique of forecasting. In some cases, this information is available through
secondary sources like published journals, magazines and information agencies.
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The relevance of such information should be considered before using it for
development of premises.
3. Verification of premises:
Planning staff at different levels of different departments makes plans according to
their judgment. These premises are then sent to top executives for their approval.
The premises which involve both staff and line managers are more consistent than
those that are developed by executives alone.
4. Communication of premises:
After the premises are developed, they are supported by budgets and programmes
and communicated to all those concerned with development of plans at different
levels in different departments. Planning premises are contained in documents like
environmental threat and opportunity profile (ETOP) and communicated to managers
concerned. The premises, thus, help to develop sound plans followed by strategies,
policies, procedures etc. which further help in effective implementation of plans.
Types of Planning Premises:
Different types of planning premises are:
1. Internal and External premises,
2. Controllable, Semi-controllable and Non-controllable premises, and
3. Tangible and Intangible premises.
1. Internal and external Premises:
Internal premises originate from factors within the enterprise. They relate to
premises about the company’s internal policies and programmes, capital budgeting
proposals, sales forecasts, personnel forecasts (skills and abilities of personnel) etc.
These premises may be strengths or weaknesses of the organisation.Strength
represents a positive attitude which provides strategic advantage to the company
over competitors and weakness is a limitation or constraint that provides strategic
disadvantage. Managers analyze their strengths and weaknesses through corporate
analysis and when corporate analysis (internal) is combined with environmental
analysis (external), it is called SWOT analysis (Strength, Weaknesses,
Opportunities, Strengths).
External premises originate from factors outside the organization. These are the
indirect-action environmental factors (social, political, technological etc.) which affect
the organization. They are also non-controllable premises beyond the control of the
organization. The external environmental factors represent opportunity or threat to
the organisation.Opportunity is a favorable environmental condition which helps the
organization to improve its operational efficiency and threat creates risk for the
company.
It is the environmental challenge that weakens the organization’s competitive
strength. This is done through SWOT analysis. It identifies environmental variables
which help to formulate plans and policies.
2. Controllable, semi-controllable and non-controllable premises:
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Controllable premises are within the control of a business enterprise, such as, men,
money, materials, policies, procedures, programmes etc. They can be controlled by
a business enterprise to ensure better sales of products. Such premises are usually
internal to the business.
Semi-controllable premises are those which can be partially controlled by a business
enterprise like, labour position in the market, prices of the product, market share of
the company etc.
For instance, increase or decrease in the price of the product is neither totally
controllable nor non-controllable by the managers.
The extent to which prices can be increased or decreased depends upon market
sentiments, prices charged by competitors, cost structure of the company etc. Thus,
change in prices can be controlled but subject to constraints of the variables that
affect the price of the product. Similar is the case with change in wages paid to the
labor or labor turnover (labor turnover is greatly affected by the wages offered by
other companies.
Non-controllable premises lie beyond the control of the business enterprise. Wars,
natural calamities and external environmental factors (economic policies, taxations
laws, political climate etc.) are the non-controllable premises. These premises are
usually external to the business.
3. Tangible and intangible premises:
Tangible premises can be estimated in quantitative terms like, production units, cost
per unit etc. For example, production forecast and sales forecast can be expressed
in monetary terms. How many units of product A can be sold in a year and,
therefore, produced, how much raw material is needed for production can be
estimated in units and monetary terms.
Intangible premises cannot be quantified, for example, goodwill of the firm,
employer-employee relationships, leadership qualities of the managers, motivational
factors that affect employees’ performance etc. Though the planning premises have
been classified as above, this classification is not mutually exclusive.
External premises can also be tangible (rate of inflation) or intangible (value system
of the society). Therefore, various types of planning premises have to be viewed in
the context in which they need to be used in making the plans.
STRATEGIC MANAGEMENT
Strategic Management is all about identification and description of the strategies that
managers can carry so as to achieve better performance and a competitive
advantage for their organization. An organization is said to have competitive
advantage if its profitability is higher than the average profitability for all companies
in its industry. Strategic management can also be defined as a bundle of decisions
and acts which a manager undertakes and which decides the result of the firm’s
performance. The manager must have a thorough knowledge and analysis of the
general and competitive organizational environment so as to take right decisions.
They should conduct a SWOT Analysis (Strengths, Weaknesses, Opportunities, and
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Threats), i.e., they should make best possible utilization of strengths, minimize the
organizational weaknesses, make use of arising opportunities from the business
environment and shouldn’t ignore the threats. Strategic management is nothing but
planning for both predictable as well as unfeasible contingencies. It is applicable to
both small as well as large organizations as even the smallest organization face
competition and, by formulating and implementing appropriate strategies, they can
attain sustainable competitive advantage. It is a way in which strategists set the
objectives and proceed about attaining them. It deals with making and implementing
decisions about future direction of an organization. It helps us to identify the direction
in which an organization is moving. Strategic management is a continuous process
that evaluates and controls the business and the industries in which an organization
is involved; evaluates its competitors and sets goals and strategies to meet all
existing and potential competitors; and then reevaluates strategies on a regular
basis to determine how it has been implemented and whether it was successful or
does it needs replacement. Strategic Management gives a broader perspective to
the employees of an organization and they can better understand how their job fits
into the entire organizational plan and how it is co-related to other organizational
members. It is nothing but the art of managing employees in a manner which
maximizes the ability of achieving business objectives. The employees become
more trustworthy, more committed and more satisfied as they can co-relate
themselves very well with each organizational task. They can understand the
reaction of environmental changes on the organization and the probable response of
the organization with the help of strategic management. Thus the employees can
judge the impact of such changes on their own job and can effectively face the
changes. The managers and employees must do appropriate things in appropriate
manner. They need to be both effective as well as efficient.
One of the major role of strategic management is to incorporate various functional
areas of the organization completely, as well as, to ensure these functional areas
harmonize and get together well. Another role of strategic management is to keep a
continuous eye on the goals and objectives of the organization.
According to Koontz and O' Donnell, "Strategies must often denote a general
programme of action and deployment of emphasis and resources to attain
comprehensive objectives”. Strategies are plans made in the light of the plans of the
competitors because a modern business institution operates in a competitive
environment. They are a useful framework for guiding enterprise thinking and action.
A perfect strategy can be built only on perfect
knowledge of the plans of others in the industry. This may be done by the
management of a firm putting itself in the place of a rival firm and trying to estimate
their plans.
Characteristics of Strategy
• It is the right combination of different factors.
• It relates the business organization to the environment.

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• It is an action to meet a particular challenge, to solve particular problems or to
attain desired objectives.
• Strategy is a means to an end and not an end in itself.
• It is formulated at the top management level.
• It involves assumption of certain calculated risks.
1. Input to the Organization: Various Inputs (People, Capital, Management and
Technical skills, others) including goals input of claimants (Employees, Consumers,
Suppliers, Stockholders, Government, Community and others)need to be elaborated.
2. Industry Analysis:
Formulation of strategy requires the evaluation of the attractiveness of an industry by
analyzing the external environment. The focus should be on the kind of compaction
within an industry, the possibility of new firms entering the market, the availability of
substitute products or services, the bargaining positions of the suppliers, and buyers
or customers.
3. Enterprise Profile: Enterprise profile is usually the starting point for determining
where the company is and where it should go. Top managers determine the basic
purpose of the enterprise and clarify the firm’s geographic orientation.
4. Orientation, Values, and Vision of Executives: The enterprise profile is shaped
by people, especially executives, and their orientation and values are important for
formulation the strategy. They set the organizational climate, and they determine the
direction of the firm though their vision. Consequently, their values, their preferences,
and their attitudes toward risk have to be carefully examined because they have an
impact on the strategy.
5. Mission (Purpose), Major Objectives, and Strategic Intent: Mission or Purpose
is the answer to the question: What is our business? The major Objectives are the
end points towards which the activates of the enterprise are directed. Strategic intent
is the commitment (obsession) to win in the competitive environment, not only at the
top-level but also throughout the organization.
6. Present and Future External Environment: The present and future external
environment must be assessed in terms of threats and opportunities.

7. Internal Environment: Internal Environment should be audited and evaluated

with respect to its resources and its weaknesses, and strengths in research and
development, production, operation, procurement, marketing and products and
services. Other internal factors include, human resources and financial resources as
well as the company image, the organization structure and climate, the planning and
control system, and relations with customers.
8. Development of Alternative Strategies: Strategic alternatives are developed on
the basis of an analysis of the external and internal environment. Strategies may be
specialize or concentrate. Alternatively, a firm may diversify, extending the operation
into new and profitable markets. Other examples of possible strategies are joint

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ventures, and strategic alliances which may be an appropriate strategy for some
firms.
9. Evaluation and Choice of Strategies: Strategic choices must be considered in
the light of the risk involved in a particular decision. Some profitable opportunities
may not be pursued because a failure in a risky venture could result in bankruptcy of
the firm. Another critical element in choosing a strategy is timing. Even the best
product may fail if it is introduced to the market at an inappropriate time.
10. Medium/Short Range Planning, Implementation through Reengineering the
Organization Structure, Leadership and Control: Implementation of the Strategy
often requires reengineering the organization, staffing the organization structure and
providing leadership. Controls must also be installed monitoring performance against
plans.
11. Consistency Testing and Contingency Planning: The last key aspect of the
strategic planning process is the testing for consistency and preparing for
contingency plans.
Planning tools and techniques for strategic management
One of the most fundamental aspects of starting and managing a business is
formulating the company's overall mission and goals. Strategic planning is the
process of creating a mission, objectives and then creating and implementing
strategies to fulfill the mission and work toward objectives. Business managers often
use a variety of management tools and techniques to aid in making strategic
planning decisions.
Market Research
Market research is the process of gathering information about a certain market, such
as the preferences of potential customers, the presence of competitors and the
current state of the market. Market research is an essential strategic planning tool
because insight into the needs of customers can help managers create a mission,
goals and strategies that better fulfill those needs.
Cost-Benefit Analysis
A cost-benefit analysis is a common type of strategic decision-making tool that
consists of assessing the costs and potential benefits associated with different
courses of action and choosing the course of action that results in the greatest net
benefit. For example, if managers expect that a certain project would cost $100,000
and result in a $110,000 benefit while a second project would cost $90,000 and
result in a $105,000 benefit, managers would pursue the second project, as it is
expected to produce a net benefit that is $5,000 greater than the other project.
SWOT Analysis
A SWOT analysis is a strategic planning tool that consists of assessing the strengths
and weaknesses of a business and the threats and opportunities a business faces. A
SWOT analysis can help managers take advantage of company strengths and
implement strategies to reduce weaknesses or turn them into strengths. Assessing
external threats and opportunities can aid in the strategic decision-making process,
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as it allows managers to plan for things like the presence of new competitors or the
impact of new government regulations.
Feasibility Study
A feasibility study or feasibility analysis is a business-planning tool that involves
assessing whether a certain project or goal can actually be created or achieved and
whether the project can make a profit.
A feasibility analysis can help entrepreneurs in the beginning planning stages of
launching a company decide whether to pursue a certain opportunity or not. For
example, if an inventor creates a new type of television display technology that is
expensive to produce and does not provide significant benefits over existing
technologies, a feasibility study might reveal that products that use the technology
would be too expensive to attract customers, making a business based on selling the
product unfeasible.
TYPES OF STRATEGIES
According to Michel Porter, the strategies can be classified into three types. They are
a) Cost leadership strategy
b) Differentiation strategy
c) Focus strategy
The following table illustrates Porter's generic strategies:
a) Cost Leadership Strategy
This generic strategy calls for being the low cost producer in an industry for a given
level of quality. The firm sells its products either at average industry prices to earn a
profit higher than that of rivals, or below the average industry prices to gain market
share. In the event ofa price war, the firm can maintain some profitability while the
competition suffers losses. Even without a price war, as the industry matures and
prices decline, the firms that can produce more cheaplywill remain profitable for a
longer period of time. The cost leadership strategy usually targets a broad market.
Some of the ways that firms acquire cost advantages are by improving process
efficiencies, gaining unique access to a large source of lower cost materials, making
optimal outsourcing and vertical integration decisions, or avoiding some costs
altogether. If competing firms are unable to lower their costs by a similar amount, the
firm may be able to sustain a competitive advantage based on cost leadership.
Firms that succeed in cost leadership often have the following internal strengths:
• Access to the capital required to make a significant investment in production
assets; this investment represents a barrier to entry that many firms may not
overcome.
• Skill in designing products for efficient manufacturing, for example, having a small
component count to shorten the assembly process.
• High level of expertise in manufacturing process engineering.
• Efficient distribution channels.

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Each generic strategy has its risks, including the low-cost strategy. For example,
other firms may be able to lower their costs as well. As technology improves, the
competition may be able to leapfrog the production capabilities, thus eliminating the
competitive advantage. Additionally, several firms following a focus strategy and
targeting various narrow markets may be able to achieve an even lower cost within
their segments and as a group gain significant market share.
b) Differentiation Strategy
A differentiation strategy calls for the development of a product or service that offers
unique attributes that are valued by customers and that customers perceive to be
better than or different from the products of the competition. The value added by the
uniqueness of the product may allow the firm to charge a premium price for it. The
firm hopes that the higher price will more than cover the extra costs incurred in
offering the unique product. Because of the product's unique attributes, if suppliers
increase their prices the firm may be able to pass along the costs to its customers
who cannot find substitute products easily.
Firms that succeed in a differentiation strategy often have the following internal
strengths:
• Access to leading scientific research.
• Highly skilled and creative product development team.
• Strong sales team with the ability to successfully communicate the perceived
strengths of the product.
• Corporate reputation for quality and innovation.
The risks associated with a differentiation strategy include imitation by competitors
and changes in customer tastes. Additionally, various firms pursuing focus strategies
may be able to achieve even greater differentiation in their market segments.
c) Focus Strategy
The focus strategy concentrates on a narrow segment and within that segment
attempts to achieve either a cost advantage or differentiation. The premise is that the
needs of the group can be better serviced by focusing entirely on it. A firm using a
focus strategy often enjoys a high degree of customer loyalty, and this entrenched
loyalty discourages other firms from competing directly.
Because of their narrow market focus, firms pursuing a focus strategy have lower
volumes and therefore less bargaining power with their suppliers. However, firms
pursuing a differentiation focused strategy may be able to pass higher costs on to
customers since close substitute products do not exist. Firms that succeed in a focus
strategy are able to tailor a broad range of product development strengths to a
relatively narrow market segment that they know very well. Some risks of focus
strategies include imitation and changes in the target segments.
Furthermore, it may be fairly easy for a broad-market cost leader to adapt its product
in order to compete directly. Finally, other focusers may be able to carve out sub-
segments that they can serve even better.

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A Combination of Generic Strategies
These generic strategies are not necessarily compatible with one another. If a firm
attempts to achieve an advantage on all fronts, in this attempt it may achieve no
advantage at all. For example, if a firm differentiates itself by supplying very high
quality products, it risks undermining that quality if it seeks to become a cost leader.
Even if the quality did not suffer, the firm would risk projecting a confusing image.
For this reason, Michael Porter argued that to be successful over the long-term, a
firm must select only one of these three generic strategies. Otherwise, with more
than one single generic strategy the firm will be "stuck in the middle" and will not
achieve a competitive advantage. Porter argued that firms that are able to succeed
at multiple strategies often do so by creating separate business units for each
strategy. By separating the strategies into different units having different policies and
even different cultures, a corporation is less likely to become "stuck in the middle."
However, there exists a viewpoint that a single generic strategy is not always best
because within the same product customers often seek multi-dimensional
satisfactions such as a combination of quality, style, convenience, and price. There
have been cases in which high quality producers faithfully followed a single strategy
and then suffered greatly when another firm entered the market with a lower-quality
product that better met the overall needs of the customers.
PLANNING TOOLS AND TECHNIQUES
In all organizations, managers plan their future course of action based on some
predictions about the future. It is carried out in two steps such as techniques for
assessing the environment and techniques for allocating resources.
TECHNIQUES FOR ACESSING THE ENVIRONMENT
Environmental Scanning

In any business organization, there is an internal and external environment. They

comprise all the factors that can affect the business of a company in any way. And
they also present opportunities for the business to grow and threats that may harm
the business. So these environments need constant monitoring. This is where
environmental scanning comes into the picture.
Environmental scanning meaning is the gathering of information from organizations
internal and external environments, and careful monitoring of these environments to
identify future threats and opportunities. It is the analyses of all factors that may
affect the future of the organization.
Now that we know the environmental scanning meaning, let us see the purpose. The
purpose of this process of environmental scanning is to provide the entrepreneur
with a roadmap to the changes likely to happen in the future. So this way they can
adapt the business to overcome the threats and capitalize on the opportunities
coming their way.
Forecasting
In preparing plans for the future, the management authority has to make some
predictions about what is likely to happen in the future. It shows that the managers
know something of future happenings even before things actually happen.

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Forecasting provides them this knowledge. Forecasting is the process of estimating
the relevant events of future, based on the analysis of their past and present
behavior. The future cannot be probed unless one knows how the events have
occurred in the past and how they are occurring presently. The past and present
analysis of events provides the base helpful for collecting information about their
future occurrence. Thus, forecasting may be defined as the process of assessing the
future normally using calculations and projections that take account of the past
performance, current trends, and anticipated changes in the foreseeable period
ahead.

Whenever the managers plan business operations and organisational set-up for the
years ahead, they have to take into account the past, the present and the prevailing
economic, political and social conditions. Forecasting provides a logical basis for
determining in advance the nature of future business operations and the basis for
managerial decisions about the material, personnel and other requirements.

1. Forecasting relates to future events.

2. Forecasting is needed for planning process because it devises the future course
of action.

3. It defines the probability of happening of future events. Therefore, the happening

of future events can be precise only to a certain extent.

4. Forecasting is made by analyzing the past and present factors which are relevant
for the functioning of an organization.

5. The analysis of various factors may require the use of statistical and mathematical
tools and techniques.

Techniques of Forecasting:

There are a number of techniques through which forecasts can be made. No

technique can universally apply in similar business situations. These techniques,
singly or in combination, are used depending upon the business situations when they
have to be used.

The techniques of forecasting generally fall into two categories:

1. Qualitative Techniques:

A qualitative forecasting technique relies on individual or group judgment. When

quantitative data are not available, the use of ‘informed experts’ can be made.
Sometimes the opinions of many “experts” are analysed to predict some future
occurrences.

Four approaches are used in this category:

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i. Panel of Executive Opinion:

It is also called as a jury-of-expert-opinion approach. It consists of combining and

averaging top management’s views about the future event. In this approach,
generally the executives from different areas such as sales, production, finance,
purchasing are brought together. Thus, a varied range of management viewpoints
can be considered. Forecasts can be prepared quickly without elaborate data.

ii. Historical Analogy:

This method is most commonly used. It is based on the belief that future trends will
develop in the same direction as past trends. It assumes that the future will remain
as in the recent past. Hence, past trends are plotted on a graph or chart to show the
curve.

Three forms of this method are in use:

(a) Taking the current years’ actual performance as base for future prediction;

(b) Increasing certain percentages with the last year’s actual performance to predict
the future events; and

(c) Averaging the actual performance of the previous few years.

iii. Delphi Technique:

This is another judgmental technique. It polls a panel of experts and gathers their
opinions on specific topics. The forecasting unit decides the experts whose opinions
it wants to know. Each expert does not know who the others are. The experts make
their forecasts and the coordinator summarizes their responses. Here, the experts
express their views independently without knowledge of the responses of other
experts.

On the basis of anonymous votes, a pattern of response to future events can be

determined. His technique is used to reduce the “crowd effect” or “group think” in
which everyone agrees with “the experts” when all are in the same room.

iv. Market Survey:

Another type of qualitative forecast is the market survey. In this approach, the
forecaster can poll, in person or by questionnaire, customers or clients about
expected future behaviour. For example- people can be asked about their probable
future purchases of cars. This method is effective if the right people are sampled in
enough numbers. It asks a set of “experts”—consumers or potential consumers—
what they will do.

2. Time Series Techniques of Forecasting:

These techniques are based on the assumption that the “past is a good predictor of
the future.” These prove useful when lot of historical data are available and when
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stable trends axe apparent. These techniques identify a pattern representing a
combination of trend, seasonal, and cyclical factors based on historical data. These
methods try to identify the “best-fit” line by eliminating the effect of random
fluctuations.

Quantitative Techniques:

Quantitative techniques are known as statistical techniques. They focus entirely on

patterns and on historical data. In this technique the data of past performance of a
product or product line are used and analysed to establish a trend or rate of change
which may show an increasing or decreasing tendency.

Following are the important quantitative techniques used for the purpose of
forecasting:

(i) Business Barometers Method:

This is also called Index Number Method. Just as Barometer is used to measure the
atmospheric pressure similarly in business Index numbers are used to measure the
state of economy between two or more periods. When used in conjunction with one
another or combined with one or more index numbers, provide an indication of the
direction in which the economy is heading.

For example—a rise in the amount of investment may bring an upswing in the
economy. It may reflect higher employment and income opportunity after some
period.

Thus, with the help of business activity index numbers, it becomes easy to forecast
the future course of action projecting the expected change in related activities within
a lag of some period. This lag period though difficult to predict precisely, gives some
advance signals for likely change in future.

The forecasts should bear in mind that such barometers (index numbers) have their
own limitations and precautions should be taken in their use. These barometers may
be used only when general trend may reject the business of the forecasts. It has
been advised that different index numbers should be prepared for different activities.

(ii) Trend Analysis Method:

This is also known as ‘Time Series Analysis’. This analysis involves trend, seasonal
variations, cyclical variations and irregular or random variations. This technique is
used when data are available for a long period of time and the trend is clearly visible
and stable. It is based on the assumption that past trend will continue in future. This
is considered valid for short term projection. In this different formulas are used to fit
the trend.

(iii) Extrapolation Method:

Extrapolation method is based Time series, because it believes that the behaviour of
the series in the past will continue in future also and on this basis future is predicted.
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This method slightly differs from trend analysis method. Under it, effects of various
components of the time series are not separated, but are taken in their totality. It
assumes that the effect of these factors is of a constant and stable pattern and would
also continue to be so in future.

(iv) Regression Analysis Method:

In this method two or more inter-related series are used to disclose the relationship
between the two variables. A number of variables affect a business phenomenon
simultaneously in economic and business situation. This analysis helps in isolating
the effects of various factors to a great extent.

For example- there is a positive relationship between sales expenditure and sales
profit. It is possible here to estimate sales on the basis of expenditure on sales
(independent variable) and also profits on the basis of projected sales, provided
other things remain the same.

(v) Economic Input Output Model Method:

This is also known as “End Use Technique.” The technique is based on the
hypothesis of various sectors of the economy industry which are inter-related. Such
inter-relationship is known as coefficient in mathematical terms. For example—
Cement requirements of a country may be well predicted on the basis of its rate of
usage by various sectors of economy, say industry, etc. and by adjusting this rate on
the basis of how the various sectors behave in future.

DECISION MAKING
The word decision has been derived from the Latin word "decidere" which means
"cutting off". Thus, decision involves cutting off of alternatives between those that are
desirable and those that are not desirable.
In the words of George R. Terry, "Decision-making is the selection based on some
criteria from two or more possible alternatives".
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 judgemental 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
1. Organizational and Personal Decisions: when a particular decision has been
taken by a person as an executive of an organization, such decision can be
considered as an organizational decision. The impact of such decision can be felt on
the working of the entire organization. The power of taking an organizational decision
can also be delegated by a superior to the subordinates. On the other hand, an
executive can also take a decision that is related with himself. Such decisions are
known as personal decisions. Generally the effect of these decisions is on the
personal life of the decision-maker. At the same time, the authority of taking such
decision cannot be delegated to others.

2. Routine and Strategic Decisions: The routine decisions have to be made

periodically and therefore there are certain established procedures, policies and
rules regarding these decisions. The routine decisions have to be made regarding
the day-to-day affairs of the organization. For the purpose of making these decisions,
fresh information or discretion is not required. The routine decisions are generally
taken by the middle or the lower level management of the organization. On the other
hand, the strategic decisions are related with significant matters and therefore they
have to be taken by the top-level management of the organization. These strategic
decisions are related with policy matters and therefore, different alternatives have to
be developed and analyzed. The strategic decisions have an impact on the
organizational structure, objectives, finances and the working conditions etc. The
strategic decisions are basic and the effect of these decisions can be felt for a long
time.

3. Programmed and Non-programmed Decisions: The programmed decisions are

of a routine nature and no specific procedure has to be followed for taking these
decisions. The effect of these decisions is short-term and these decisions are taken
by the lower level management of the organization. For example, the decision to
make routine purchases or to grant a leave can be described as programmed
decisions.

4. Policy and Operating Decisions: The policy decisions are used for deciding the
basic policies related with the organization. These decisions are taken by the top
management of the organization. The policies that have been decided by the top
management also act as the basis for the operating decisions. No decision can be
taken that goes beyond the policy framework. In this way, the policy decisions are
very important and their impact is also long-term.

On the other hand, the operating decisions are less significant. These are related
with the day-to-day operations of the organization. The operative decisions are taken
while keeping in view the policies that have been decided by the organization. The
operative decisions are taken by the middle and the lower level management
because in these decisions, real execution and supervision is also involved. For
example, the decision to grant bonus to the employees of the organization can be
described as a policy decision but once this decision has been made, the exact
amount that is going to be paid to each employee will be an operated decision.

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5. Individual and Group Decisions: The classification of decisions as individual
and group decisions is based on the number of persons that are involved in the
process of making the decision. Therefore if only one person has taken the decision,
it can be described as an individual decision. Such decisions are generally taken by
the owners of small businesses. Even in case of large organizations, it is possible
that the major decisions may be taken by one person alone. Generally the individual
decisions are also programming decisions. But when a group of persons is involved
in taking the decision, it is described as a group decision. For example, the decision
taken by the board of the company can be described as a group decision. Generally
group decisions are very significant for the organization and they are related with
policy matters. As a result, these decisions have to be taken by the group after
comprehensive discussions by the persons who have the responsibility to take the
decision. However, a major problem that is present in case of group decisions is the
problem of delay.

DECISION MAKING STEPS AND PROCESS

It is not possible to take a decision in isolation as every decision is impacted by the

past experiences and also by the present conditions and future expectations. At the
same time, once a decision has been taken, it is very difficult to reverse it. Therefore
it is important to discuss the problem and then take the appropriate decision after all
available alternatives have been considered. In this way, the steps that are involved
in the process of decision-making can be described as follows:

1. Defining the Problem: the first step that is related with the process of decision-
making is to find the real problem. There are many cases when it is not easy to find
the real problem. Therefore, the managers should see what the real reason behind
the trouble is and what can be the possible solutions to the problem. On the other
hand, if the problem is not defined correctly, the decision made for such a problem
will also be wrong and as a result, the money and efforts spent to find the decision
will be wasted. At the same time, new problems may also be created by the wrong
decision instead of solving the real problem.

Before a manager tries to define the problem, it is necessary that the manager
should identify the strategic or the critical factor of the problem. It has been
mentioned that the theory of strategic factor is necessary when it comes to the
application of the process of decision-making. It has also been emphasized that in
the process of decision-making, the analysis that has to be made by the manager is
in reality a search for strategic factors. These factors can be the basic cause of
obstacles due to which it had become difficult to find the proper solution to a
problem. On the other hand, when the problem has been properly defined by the
managers, then it becomes easy for the managers to solve the problem. Therefore,
the determination of the problem is the first step in the process of decision-making.

2. Analyzing the Problem: After a problem has been identified by the managers,
the next step in the process of decision-making is to analyze the problem. For this
purpose, the managers should gather all information related with the problem and
then they are required to decide if the information available to them is sufficient for
taking a decision. It has been generally seen that the managers do not have the
sufficient information for making a particular decision. For example in some cases, it
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may be too costly to get the required information. It has been said that for the
purpose of making a sound decision, it is not necessary that the managers should
have all the facts but it is very important that the managers should be aware of the
fact that sufficient information is not available to them so that they can be aware of
the level of risk that is involved in a particular decision and also the level of rigidity
and precision that can be adopted in the proposed course of action. In this way,
whatever information is available to the managers, it should be used for the purpose
of analyzing the problem. On the other hand, if sufficient information is not available
to the managers, then the level of risk related with the decision should be analyzed.

3. The Alternative Courses of Action Available: A number of solutions are

available in case of every problem. On the other hand, if only one solution would
have been available regarding a particular problem, there would have been no need
for making a decision. Therefore, it is the responsibility of the manager to make
efforts to discover that these are the alternatives that are available so that
satisfactory results can be achieved while making a decision. Unless several
alternatives have been developed by a manager, it is likely that the manager will not
be able to make the most appropriate decision. At the same time, it also needs to be
noted that even in most desperate situations, several alternatives can be available.
Therefore, it is very important that the managers evaluate all the alternatives that are
available to them and then make the most appropriate decision. Unless the
managers have developed all the possible alternatives, the most appropriate
decision cannot be made.

4. Evaluating the Alternatives: After all the available alternatives have been
identified by the managers, the next step in the process of decision-making is to
evaluate all the alternatives available and then to select the most appropriate one.
For this purpose, the managers have to consider the advantages and disadvantages
of various alternatives. For this purpose the pros and cons of each alternative has to
be evaluated. With the help of this process, the managers can foresee the risk that
may be involved in case of each alternative. The managers should evaluate each
alternative in terms of the time and money that has to be spent on them. This helps
the managers in selecting the alternative that is most economical. A decision is easy
to make when it becomes clear that the consequences of a particular alternative is
favorable as compared to the other alternatives. On the other hand, when several
alternatives are available that have similar advantages, it is difficult for the managers
to make their choice. Therefore in such cases, the managers can also combine two
or more alternatives. In the same way, there can be a situation where none of the
alternatives present before the managers can provide favorable consequences.
Therefore, in such a case, the manager may have to make a significant decision of
not accepting any of the alternatives available. At the same time, the manager may
also try to develop new alternatives.

5. Experience: All managers are aware of the significance of experience in making

decisions. The reason is that past experience in making decisions acts as a guide for
the managers. The problems and the difficulties that were faced by the managers in
the past, help the managers in taking steps in advance so that these problems are
not faced again. However, the managers should not blindly follow the past
experience. Therefore only if the circumstances in the past as well as at present are
exactly the same, only then the managers should select the alternatives from the
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past. On the other hand, if the two situations are different, the alternative selected in
the past may not be the most appropriate in present. Therefore, in such a case, the
same decision should not be made by the managers. While the managers rely on the
experience, they should also evaluate the situation that was present in the past or in
present and at the same time, the future effect of the decision should also be
evaluated. In this way, although the past experience can help the managers in
making a decision but it should not be the only factor on which the managers rely
upon.

6. Experimentation: Generally, in case of a scientific study, experimentation is

used. In this case, the different available alternatives are put in practice and
therefore the alternative that provides the best results is selected. But in case of
management, this type of experimentation cannot be relied upon by the managers.
The reason is that it will be very costly to put all the available alternatives to practice.
Still, this type of experimentation can be used in a limited way. Therefore whenever
any new product is launched in the market, the management may decide to launch
the product only in a limited area for the purpose of knowing the reaction of the
consumers. In the same way, if the management of the organization is willing to go
for a new setup, it may decide that the setup should first of all be applied in a
particular branch only. Therefore, the managers should always take their decisions
on the basis of the facts available to them as well as on the basis of the analysis of
results of such experimentation.

7: Taking the Decision and Following It: When the managers have evaluated the
various alternatives available to them, they can take a final decision. This decision
has to be communicated to all the persons who have the responsibility to take action
regarding the decision. For this purpose, the follow-up action taken by the managers
regarding a decision can show if the decision taken by them was based on any
wrong premises or facts. If this is the case, the managers can review the decision
and can also make the required changes. In this way, it is also very important that
the managers follow up the decision taken by them.The process of decision-making
involves selecting the most appropriate alternative out of the various alternatives that
are available to the managers. At the same time, the decision taken by the managers
at present will also have an effect on future. For this purpose, the decision-making
process involves the visualization of the conditions that may be present in future.
Therefore, it can be said that there is at least a certain amount of uncertainty present
in the decision-making process. Certain risks are related with the process of
decision-making and the conditions may also vary from certainty to complete
uncertainty. Due to this reason, the strategy of making decisions under different
conditions may also vary. Therefore the different conditions under which the
decisions have to be taken can be described as follows:-

1. Certainty:

When the certainty conditions are present, it can be reasonably expected by the
managers what is going to happen when a particular decision has been taken by
them. In this case, the required information is available and such information is also
a reliable. In the same way, the cause and effect relationship is also known. The
result is that the decisions taken by the managers under these situations at different
times provide the same results. In these situations, the managers use a deterministic
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model, and it is assumed that all the factors are exact and there is no role for
chance.

2. Risk: In a risk situation, although the factual information may be present but it can
be insufficient. Mostly the managers have to take business decisions under risk
situations. The reason is that the information available with the managers does not
provide answers to the overall questions regarding the outcome of the decision. The
manager is required to develop estimates regarding the likelihood of different events
taking place. These estimates can be based on past experiences or on the other
information or intelligence. Decision-making under these conditions can be improved
if the managers can estimate the objective chances of an outcome by using certain
methods like the mathematical models. On the other hand, the managers may also
use subjective probability that is based on their experience and judgment. For this
purpose, several tools are available to the managers that can help in taking
decisions under risk conditions.

3. Uncertainty: In case of uncertainty conditions, very little information is available to

the managers and the managers are not sure regarding the reliability of such
information. Due to the reason that the managers do not have proper information,
the managers should be aware of the fact that they are not in a position to predict the
events. It is not available to the managers to evaluate the interaction of different
variables for the purpose of making the decision. As a result, it becomes difficult to
take a decision on this uncertainty conditions. However, there are certain techniques
that can be used by the managers for making a better decision under uncertainty
conditions. For example, they may use decision trees, risk analysis and preference
theory for making the right decisions in uncertainty conditions.

RATIONAL DECISION MAKING MODEL

It is widely believed that the element of rationality should also be present in decision
making. In this regard, it is said that the decisions taken by the managers can be
effective if they are also rational. However, the meaning of the term rationality,
particularly in the context of decision-making, is not clear. The purpose of decision-
making is to achieve an objective. Rationality requires that the person making the
decision should be aware of the alternative courses of action that can be used to
achieve the objectives. Similarly, the person should have complete information and
also the ability to properly analyze the alternative courses of action available for
achieving the objective. At the same time, it is also required that there should be the
desire to find the appropriate solution and for this purpose the selected alternative
should be capable of achieving the objective. In this regard, rationality can be
described in terms of objective and intelligent action. In case of rationality, there is
also a behavioral nexus present between the ends and means. This means that if
the appropriate means have been selected for achieving the desired ends, the
decision can be described as a rational. However it is not possible that there can be
complete rationality in the process of decision-making, particularly in case of
management decisions. The decisions are made for future and therefore there is
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always a certain amount of uncertainty involved in it. In the same way, it is also very
difficult to identify the entire alternative that may be available to achieve the
objectives. This can be particularly true in cases where an opportunity may be
involved to do the things that have not been done earlier. Even the latest software
may not be able to properly evaluate all the available alternatives.

Rationality also has other limitations. These limitations are related with time,
information and also related with certainty. Therefore, although the managers want
to be rational while making a decision, they have to satisfy with limited rationality
only. The reality is that the managers cannot be totally rational while making a
decision. For example, sometimes the aversion to risk that is present among the
managers may interfere with the desire of the managers to select the possible
solution. In this way, the element of risk may also act as a limitation. A large number
of managers want to play it safe and therefore, they take risk only by remaining
within the limits of rationality and also, keeping in view the size and nature of the risk.

The Six-Step Rational Decision-Making Model

1. Define the problem.
2. Identify decision criteria
3. Weight the criteria
4. Generate alternatives
5. Rate each alternative on each criterion
6. Compute the optimal decision
1) Defining the problem
This is the initial step of the rational decision making process. First the problem is
identified and then defined to get a clear view of the situation.
2) Identify decision criteria
Once a decision maker has defined the problem, he or she needs to identify the
decision criteria that will be important in solving the problem. In this step, the
decision maker is determining what’s relevant in making the decision.
This step brings the decision maker’s interests, values, and personal preferences
into the process. Identifying criteria is important because what one person thinks is
relevant, another may not.
Also keep in mind that any factors not identified in this step are considered as
irrelevant to the decision maker.
3) Weight the criteria
The decision-maker weights the previously identified criteria in order to give them
correct priority in the decision.
4) Generate alternatives
The decision maker generates possible alternatives that could succeed in resolving
the problem.
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No attempt is made in this step to appraise these alternatives, only to list them.
5) Rate each alternative on each criterion
The decision maker must critically analyze and evaluate each one.
The strengths and weakness of each alternative become evident as they compared
with the criteria and weights established in second and third steps.
6) Compute the optimal decision Evaluating each alternative against the weighted
criteria and selecting the alternative with the highest total score.
DECISION MAKING UNDER VARIOUS CONDITIONS
The conditions for making decisions can be divided into three types. Namely a)
Certainty, b) Uncertainty and c) Risk Virtually all decisions are made in an
environment to at least some uncertainty However; the degree will vary from relative
certainty to great uncertainty. There are certain risks involved in making decisions.
a) Certainty:
In a situation involving certainty, people are reasonably sure about what will happen
when they make a decision. The information is available and is considered to be
reliable, and the cause and effect relationships are known.
b) Uncertainty
In a situation of uncertainty, on the other hand, people have only a meager
database, they do not know whether or not the data are reliable, and they are very
unsure about whether or not the situation may change. Moreover, they cannot
evaluate the interactions of the different variables. For example, a corporation that
decides to expand its Operation to an unfamiliar country may know little about the
country, culture, laws, economic environment, and politics. The political situation
may be volatile that even experts cannot predict a possible change in government.
c) Risk
In a situation with risks, factual information may exist, but it may be incomplete. To
improve decision making One may estimate the objective probability of an outcome
by using, for example, mathematical models On the other hand, subjective
probability, based on judgment and experience may be used All intelligent decision
makers dealing with uncertainty like to know the degree and nature of the risk they
are taking in choosing a course of action. One of the deficiencies in using the
traditional approaches of operations research for problem solving is that many of the
data used in model are merely estimates and others are based on probabilities. The
ordinary practice is to have staff specialists conic up with best estimates. Virtually
every decision is based on the interaction of a number of important variables, many
of which has e an element of uncertainty but, perhaps, a fairly high degree of
probability. Thus, the wisdom of launching a new product might depend on a number
of critical variables: the cost of introducing the product, the cost of producing it, the
capital investment that will he required, the price that can be set for the product, the
size of the potential market, and the share of the total market that it will represent.

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PART-A
1. Define planning. (NOV/DEC 2018)
Planning is the fundamental management function, which involves deciding
beforehand, what is to be done, when is it to be done, how it is to be done and who
is going to do it. It is an intellectual process which lays down an organization’s
objectives and develops various courses of action, by which the organization can
achieve those objectives. It chalks out exactly, how to attain a specific goal.

2. What is meant by intuitive decision making? [APRIL/MAY 2018]

Intuitive decision-making ability is also known as 'sixth sense' and involves being
able to gather information that other individuals may miss. It is the opposite
of rational decision making, which is when individuals use analytics, facts, and a
step-by-step process to come to a decision.
3. What are the objectives of planning? [NOV/DEC 2016]
Planning is a primary function of an organization.
 It is done to cope with uncertainty and change.
 It helps in facilitating control.
 It helps in coordination.
 Planning increases organizational effectiveness
4. List any four quantitative forecasting techniques.
a) Time series methods/analysis
 Simple moving average
 Weighted moving average
 Exponential smoothing
b) Econometric forecasting
 Correlation analysis
 Regression analysis
5. What is meant by policies? [NOV/DEC 2016]
A policy in Management is a general statement which is formulated by an
organization for the guidance of its personnel. The objectives are first formulated and
then policies are planned to achieve them. Policies are a mode of thought and the
principles underlying the activities of an organization or an institution.
6. Define “Strategic Management”. [NOV/DEC 2017] [APRIL/MAY 2019]
Strategic management is the management of an organization’s resources to achieve
its goals and objectives.
Strategic management involves setting objectives, analyzing the competitive
environment, analyzing the internal organization, evaluating strategies, and ensuring
that management rolls out the strategies across the organization.
IN OTHER WORDS: Strategic management is the ongoing planning, monitoring,
analysis and assessment of all that is necessary for an organization to meet its goals
and objectives.
DEPARTMENT OF CIVIL/IV/VIII/Mrs.R.ANLY SOWMIA PAGE
SKR ENGINEERING COLLEGE MG6851-PRINCIPLES OF MANAGEMENT
7. Distinguish between policies and rules. [NOV/DEC 2017]

8. Explain the Delphi method.

The Delphi Technique refers to the systematic forecasting method used to gather
opinions of the panel of experts on the problem being encountered, through the
questionnaires, often sent through mail. The experts can modify their answers in
accordance with the replies given by other panel members.
9. Mention the required reasons for the need of policies
 Achievement of Objectives of Organization:
 Uniformity and Consistency in Decisions:
 Help In Stability Of Organization:
 Encouragement to Decentralization:
 Help In Control
 Performance Evaluation:
 Help to Build Loyalty:
 Act as Guide to Management:
10. What are the various steps involved in planning process? [NOV/DEC 2018]
a) Identification of opportunities
b) Establishment of objectives
c) Developing planning premises
d) Identification of alternatives
e) Evaluation of alternatives
f) Selecting an alternative
g) Formulating derivatives plans
h) Establishing sequence of activities
11. What is meant by decision making?
“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”.
12. Define planning premises. [APRIL/MAY 2018]
DEPARTMENT OF CIVIL/IV/VIII/Mrs.R.ANLY SOWMIA PAGE
SKR ENGINEERING COLLEGE MG6851-PRINCIPLES OF MANAGEMENT
According to Dr.G.R.Terry,”planning premise are the assumptions providing a
background against which the estimated events affecting the planning will take
place”. The process of planning is based upon estimates and predictions of the future.
Though past guides the plans in present, plans achieve the goals in the future.
13. What are the advantages of planning?
 It helps in achieving objectives
 Better utilization of resources
 Economy in operation
 Effective control
 Coordination
14. State any four limitations of planning.
 Lack of accurate information
 Time and cost
 Inflexibility
 Delay during emergency period.
15. What are the advantages of objectives?
 Unified planning
 Defining an organization
 Direction
 Individual motivation
 Basis for decentralization
 Basis for control
 Co-ordination
16. List down the guidelines for objectives setting.
 Objective should cover the main features of the job.
 Objectives must be clearly specified in writing.
 The list of objectives should not be too long. Wherever it is possible, combine
some objectives to make the list reasonable.
 Objectives must set by considering the various factors affecting their
achievement.
17. What are the demands that should be met by the selective objectives?
 Objectives should be consistent with the values of the management in the
organization.
 Objectives should pin-point the organizational strengths and weakness.
 Objectives must satisfy the external environmental forces.
18. Define MBO? [Nov/Dec 2016]
Management by objectives (MBO) is a strategic management model that aims to
improve the performance of an organization by clearly defining objectives that are
agreed to by both management and employees. According to the theory, having a
say in goal setting and action plans encourages participation and commitment
among employees, as well as aligning objectives across the organization.
DEPARTMENT OF CIVIL/IV/VIII/Mrs.R.ANLY SOWMIA PAGE
SKR ENGINEERING COLLEGE MG6851-PRINCIPLES OF MANAGEMENT
19. Mention any four features of MBO.
 Goal Orientation
 Participation
 Finance
 Systems Approach
 Optimization of Resources
 Simplicity and Dynamism
20. What are the steps involved in MBO process?
The six steps involved in the process of MBO are determining organizational goals,
determining employees' objectives, constantly monitoring progress and performance,
performance evaluation, providing feedback and performance appraisal.
21. What is meant by strategy? [NOV/DEC 2019]
A business strategy is a set of guiding principles that, when communicated and
adopted in the organization, generates a desired pattern of decision making. As
such, a strategy is just one element of the overall strategic direction that leaders
must define for their organizations.
22. What are the techniques useful while evaluating alternatives?[NOV/DEC
2019]
 Marginal analysis
 Cost effectiveness analysis
PART-B
1. Discuss the steps in planning process with suitable illustration. [NOV/DEC 2019]
[APRIL/MAY 2017,2019]
2. Outline the process of MBO.[APRIL/MAY 2018]
3. Explain the various tools and techniques in strategic planning. [NOV/DEC 2019]
4. Discuss the eight steps of decision making process [APRIL/MAY
2017][NOV/DEC 2016,2018][APRIL/MAY 2019]
5. Briefly explain the classification or types of planning practice [NOV/DEC
2016,2017]
6. Is decision making rational process [NOV/DEC 2017]
7. Explain the steps involved in strategic management process
8. Discuss the nature and purpose of planning
9. Interpret the concept of strategic and operational planning
10. What are the different types of strategies?
11. Distinguish programmed and non-programmed decision.
12. What are the essentials of formulating policies?

DEPARTMENT OF CIVIL/IV/VIII/Mrs.R.ANLY SOWMIA PAGE