Planning Standing Plans: Policies: A policy is a general guideline for decision making. It sets up the boundaries around the decisions. Policies deal with “how to do” the work. These provide a framework within which decisions are to be made by the management. According to George R. Terry: “Policy is a verbal , written or implied overall guide, setting up boundaries that supply the general limits and direction in which managerial action will take place”. Eg. Personnel policy, recruitment policy, price policy, advertisement policy. Say, the personnel policy of a company is to recruit through the employment exchanges.
Objectives and policies both guide thinking and action. Objectives are the end-points of planning while policies channelise decisions to these end points. Procedures: Policies are carried out by more detailed guidelines called “procedures”. A procedure is a detailed set of instructions for performing a sequence of actions involved in doing a certain piece of work. Difference between policies and procedures: 1. Policies are general guidelines to both thinking and action for people at higher level. Procedures are general guides to action for people at lower level. 2.
Policies fulfil objectives. Procedures show the way of implementing policies. 3. Policies are generally broad and allow some discretion. Procedures are specific and lay down the sequence of definite acts. Methods: A method is a prescribed way in which one specific step of the procedure has to be performed. For performing a particular step, there could be multiple methods. The organisation must select a method which is efficient and effective. Rules: Rules are detailed and recorded instructions that a specific action must or must not be performed in a given situation. Eg. 1.
In case of a fire-alarm, all the employees have to vacate the building immediately. Eg. 2. The personal computer needs to be switched off before the employees leave the office premises. Single Use Plans: Programmes: Programmes are precise plans or definite steps in a proper sequence which need to be taken to discharge a given task. Eg. A bank can have a programme of opening 5 new branches. The essential ingredients of a programme are “ time phasing” and “budgeting”. This means that specific dates should be laid down for the completion of each successive phase of the programme.
In addition , a provision should be made in the budget for financing the Programme. Budgets: According to the Institute of Costs and Works Accountants , London, a budget is “a financial and/or quantitative statement prepared prior to a definite period of time of the policy to be pursued during that period, for the purpose of obtaining a given objective”. Hence they are: – Future statements – Result oriented – In numerical terms. Eg. Sales budget, production budget, cash budget etc. Since the budgets are expressed in numerical terms, they help in measuring performance and taking controlling action.
Steps in Planning Process: 1. Establishing Verifiable Goals or Set of Goals to be achieved: The first important step in the planning process is to set up the objectives or goals of the organisation. The type of goals depends on the philosophy of the organisation, values of its management and potential ability of the organisation. 2. Establishing Planning Premises The second step is to establish a planning premise ie. Certain assumptions about the future on the basis of which the plan will be formulated.
Planning premise provide certain pertinent facts such as population trends, the general economic conditions, production costs and prices, probable competitive behaviour etc. The planning premises can be • Internal and external • Tangible and intangible • Controllable and uncontrollable Premises may exist inside the company or outside. Internal premises include sales forecast, capital investment on machines, skills of employees, beliefs, behaviour etc. External premises may include general business and economic environment, technological changes, population growth, govt. ontrol, political conditions, socio-economic conditions. Tangible premises are the ones that can be denoted in numerical terms Eg. Population growth, industry demand, capital investment etc. Intangible premise are ones which cannot be measured in quantitative terms eg. Political conditions, socio-economic conditions etc. Controllable factors are the ones which can be controlled and cannot easily upset a well thought-out plan of the organisation. Eg. Top-management skills, company’s advertising policy. 3. Deciding the Planning Period
Once the top-management has decided the basic long term goals and planning premises, the next task is to decide the period of the plans. The period of planning vary from a time of a year to as long as a decade. In each case however, there is a logic in selecting a particular time range of planning. Companies generally base their period on a future that can be anticipated. Other factors which influence their choice are: a) Lead time in development and commercialisation of the product b) Time required to recover capital investment- pay back period c) Length of commitments already made 4.
Finding Alternative Courses of Action The fourth step is to search for and examine alternative courses of action. For eg. Technical know-how can be secured engaging a foreign technician or by training the staff abroad. Similarly, products may be sold directly to the consumers by the company’s salesmen or through exclusive agencies. 5. Evaluating and Selecting a Course of Action The next step would be to evaluate which alternative course would be more feasible, profitable and with the least possible negative consequences. The idea is to evaluate the plans on the basis of lowest cost and the highest profits. . Developing Derivative Plans Once the plan has been formulated, its broad goals must be translated into day-to-day operations of the organisation. Middle and lower-level managers must draw up appropriate plans, programmes and budgets for their sub-units. These are described as derivative plans. In developing these derivative plans, lower-level managers take steps similar to those taken by upper-level managers- selecting realistic goals , assessing their sub-units’ particular strengths and weaknesses and analysing those parts of the environment that can affect them. . Measuring and Controlling Progress Obviously, the most critical part of any plan is to monitor its progress. Based on the same, the managers a) take whatever remedial actions to make the plan work b) Change the original plan if it is unrealistic Decision Making Decision Making is the process of selecting a course of action from among alternatives. It is the core of planning. We have already read about decision making in the previous topic. Decision making includes: 1) Premising 2) Identifying alternatives 3) Evaluating alternatives 4) Choosing an alternative
Rationality of Decision Making People acting or deciding rationally are attempting to reach some goal that cannot be attained without action. • They must have a clear understanding about alternative courses by which a goal can be reached under existing circumstances and limitations, • They also must have the information and the ability to analyse and evaluate the alternatives in the light of the goal sought. • They must have the desire to come to the best solution by selecting the alternative that most effectively satisfies goal achievement.
Thus, a decision is rational if appropriate means are chosen to reach the desired ends. People seldom achieve complete rationality, particularly in managing. • Since no one can make decisions affecting the past, decisions must operate for the future, and the future almost invariably involves uncertainties. • It is difficult to recognize all the alternatives that might be followed to reach a goal, this is particularly true when decisions involves opportunities to do something that has not been done before
Some people hold that managers are completely rational; others believe that managers are completely irrational and still others believe that they exercise limited rationality. These three types of views on decision-making are based on three models of man: economic man, administrative man and social man. Economic man Model: This is the earliest model of man developed by classical economists. They believed that man is completely rational in decisions. He always selects the alternative which gives him the greatest advantage.
He makes his search for the alternatives in a planned and orderly logical manner. The process of rational decision making involves: 1. Recognising the problem 2. Deciding the priorities among the problems 3. Diagnosing the problem 4. Developing alternative solutions or courses of action 5. Measuring and comparing the consequences of the alternative solutions 6. Converting the decisions into effective action and follow-up of the action These steps portray how decisions “should” be made and not how decisions are “actually” made.
When we look into the model it makes certain unrealistic assumptions. • Gather “all” necessary information • Mentally store this information • Accurately recall all information any time he likes • Do a series of complex calculations • Rank all consequences on the basis of merit Thus, fully rational decision-making is an infrequent decision-making mode. Administrative Man Model A more realistic description of decision making behaviour is based on the administrative man model which was developed by Herbert Simon.
Simon’s administrative man model uses only “limited rationality” in his decisions because his information processing skills are limited. The decision making behaviour of this man is summarised as follows: 1. In choosing between alternatives, the administrative man, not having the ability to “maximise” ie. find the best alternative ; attempts to “satisfice” ie. look for the one which is “good enough” 2. Because an administrative man satisfice , rather than maximises, his search for alternatives is sequential or incremental. He can search for alternatives one by one in a sequence.
If the first alternative doesnot work only then does he look for the next. As soon as he finds an alternative, he stops his search. 3. An administrative man’s search for alternatives is guided by experience. He uses heuristics to reduce the area of his search to manageable limits. In other words, he looks for solutions into those areas which have a past record of yielding satisfying results. Simon’s administrative man model (also known as bounded rationality) involves following eight steps: 1. set the goal to be pursued or define the problem to be solved 2.
Establish appropriate criteria to judge the acceptability of the solution 3. Use heuristics to narrow down the field of search and identify a feasible solution 4. If no feasible solution is identified, then lower the criteria to judge the acceptability of a solution and begin the search afresh , repeating step 3 5. If a feasible solution is identified , evaluate to determine acceptability 6. If the solution is found acceptable, implement it. 7. If the solution is found unacceptable, initiate search for a new solution, repeat steps 3-5. . Following implementation, evaluate the degree of difficulty with which the goal was or was not attained and raise or lower the criteria to judge the acceptability of the solution accordingly for future decisions of this type Boulding also agrees with this concept of Simon. But he says that a man settles for a good enough decision not because he lacks information or computational skills but because he is unable to do anything else. A manger is obliged to feel satisfied with the third best decision because the second best comes too late and the best never comes at all.
Social Man Model This model has been developed by classical psychologists. Freud, in particular, says that man being a bundle of feelings, emotions and instincts is guided by unconscious desires. He is also subject to social pressures and influences. Obviously such a person is unable to make rational management decisions. The well known experiment by Solomon Asch , demonstates that this world is full of irrational conformists. His study utilised several groups of seven to nine subjects each. They were told that their task was to compare the lengths of lines.
All except one of the subjects in each group had pre-arranged with the lengths of lines. All except one of the subjects in each group had pre-arranged with the experimenter to give clearly wrong answers on twelve of the eighteen line-judgement trials. About 37% of the 123 naive subjects yielded to the group pressures and gave incorrect answers to the twelve test questions. In other words, strong social pressures can force managers to choose wrong alternatives. In all such cases, their decisions cannot be termed as organisationally rational though they might be personally rational, being oriented to their personal goals.