LIMITATIONS OF PLANNING:- Following are the limitations of planning:-

1. LIMITATIONS OF PLANNING:-Following are the limitations of planning:- • LACK OF ACCURATE INFORMATION:-The reliability of a plan depends upon facts & information on which it is based. If reliable information & dependable data are not available, planning is sure to lose its importance. • LACK OF ACCURATE FORECAST:-Planning concerns future activity & its quality will be determined by the quality of forecast of future events. No manager can predict completely & accurately the events of future, the plans may cause problems in operation. • COMPLEX PROCESS:-Planning is a complex & expensive process. It demands serious thinking, hard work & time. Some managers do not like to undergo such a complicated process as they like short-cuts. Such planning may not yield the desired results. • RIGIDITIES:- Planning may result in internal inflexibilities. By limiting individual freedom, planning may stifle initiative & personal development. Rigidities appear from managers negligence to revise the plan, policies & procedures.

2. 5. LACK OF SPECIFIC GOALS:-Qualitative objectives like social responsibility, management development, quality of work life, etc are often expressed. Planning cannot be effective unless goals are specific & clear. • 6.LACK OF PLANNING SKILLS:-Planning is an art & takes a special type of person to plan. Not everyone is capable of planning & solving organizational problems. A planner should not only have skill, but also intelligence & vision for long range planning & must have ability to forecast. • RESISTANCE TO CHANGE:-Resistance to change is another r factor which puts limits on planning. It is commonly experienced in the business world. Sometimes, planners themselves do not like change & they do not think it is good & necessary to bring changes as it will create resistance on the part of workers. This attitude makes the planning process ineffective.

3. TYPES OF PLANNING:-Big organizations use hundreds of plans.Some are of very important; others are not. Some are in effect for long periods; others are short-lived. In studying these plans, we will find it helpful to classify the various types of plans that a company may use. Basically, plans my be classified on the bases of duration, specificity & organizational level. DURATION OF PLANS:-Some plans are made for long-term use whereas others are made for short-term purposes. Long-range planning sets long-term goals for the enterprise & then proceeds to formulate specific plans for achieving these goals. It involves an attempt to anticipate, analyze & make decisions about basic problems & issues which have significance reaching well beyond the present operating of the enterprise. Short-range planning, on the other hand, is concerned with the determination of short-term activities. Short-range planning relates to a short period. Operational plans are generally related to short periods, administrative plans related to medium terms & strategic plans to long-terms. SPECIFICITY OF PLANS:- Plans may be classified according to how general or specific they are. Single-use plans are predetermined. A budget, for example is a single-use of plan. It becomes disused whenever the time period for which it was prepared expires.

4. LEVELS OF PLANS:- Plans are formulated at various levels in an organization. On this basis they may be classified as strategic, administrative & operational. TOP-LEVEL OR STRATEGIC PLANNING:- In strategic or overall planning, the top level management determines the general objectives of the enterprise. Strategic planning is concerned with solving long-term problems associated with external, environmental influences. It helps to solve these questions like: What business are we in? What business should we be in? Where will be in ten years if continue doing what we are now doing? For example, firms in garment industry cannot plan not more than 4-5 years, would like to be with where it is now & where it will be if it does nothing is called the “PLANNING GAP”. Strategic planning is primary concerned with closing that gap. MIDDLE-LEVEL OR FUNCTIONAL PLANNING:- It is also known as “ADMINISTRATIVE PLANNING” which is concerned with structuring the organizational resources to achieve maximum performance. Every functional unit e.g. production, finance, marketing, etc. has its separate administrative plans to put its goals into effect. In other words, administrative plans concentrate on polices dealing with the major functions of the organization. They serve the bases of operational or tactical plans.

5. LOWER-LEVEL OR TACTICAL PLANNING:- It is also known as “OPERATIONAL PLANNING” . It is done by lower level managers to put the administrative plans into effect. It is concerned with the efficient day-to-day use of resources given to a department manager. Such managers work with a one-year operating budget. For example, a sales manager may be required to develop an operational plan to sell a certain number of items within a specific period. • DIFFERENCE BETWEEN STRATEGIC & TACTICAL PLANNING:- • Strategic planning is concerned with decisions that have long-lasting effects. For example, next week’s production planning is more tactical & less strategic than planning a new plant. Strategic planning is concerned with longest time period & tactical planning is concerned with shortest time period. Both types of planning are important. • Strategic planning has a board scope; tactical planning has a narrow scope. Other things being equal, planning at corporate level is generally more strategic than planning at any organizational level below it. • Tactical planning selects means to pursue specified goals. The goals are supplied by the higher level of management in an organization. Strategic planning is concerned with both determining the goals & selecting the means to achieve them. Strategic planning is concerned with ends as well as means.

6. PROCESS OF PLANNING:-Planning is an intellectual process which the managers carry out for the efficient management of the organization. The nature of this exercise will differ from one organization to another & from one managerial level to another. Following are the general stages that should be followed:- • ESTABLISHMENT OF OBJECTIVES:- The first step in planning is the determination of objectives. Objectives provide direction to various activities in the enterprise. Planning is not useful unless it is related to certain objectives. The establishment of objectives can be very important than objectives themselves since their establishment emphasizes how various people & units fit into the overall organization framework. This process can be used to motivate individuals to achieve objectives which they helped to establish. • ASSESSMENT OF ENVIRONMENT:- Sufficient information must be collected in order to make the plans & sub-plans. Necessary information includes critical assessment of the current status of the organization together a forward look at the environment that is anticipated. The collection & forecasting of information should be done in terms of external & internal environment. The assessment of external environment should include consideration of competition now & in future, government policies, social values, political conditions, internal environment may consider the strong & weak points of the organization.

7. 3.PREMISING & FORECASTING:- It is important to identify the assumptionson which the plans will be based. Assumptions denote the expected environment in the future & are known as “PLANNING PREMISES”. Again forecasting is important in premising. It helps in making realistic assumptions about sales, costs, prices, products, technological developments, etc in the future. The assumption s along with the future forecasts provide a basis for the plans. Since future environments are so complex & uncertain, it would to be realistic to make assumptions in great details are about every environment factor. It is advisable to limit premising to those factors which are critical or strategic to the planning process. 4. REVIEW OF KEY FACTORS:- There is always the possibility of existence of certain limitations that could affect the ability of the work-group to reach its objectives. An intelligent manager must make plans anticipating the conditions or limitations that might restrict the smooth operation of the plans. Key are power, machinery, finance & labor availability. These are some of the important areas which must be given due weight-age while making plans. A good planner must consider combinations of all possible limitations & make provision for them. 5. DEVELOPMENT OF ALTERNATIVE PLANS:- Determining the alternative courses of action is an important step in planning process . There is hardly any plan for which alternatives do not exist. Without resorting to a search for which

8. alternatives a planner is likely to be guided by his limited imagination. Generally, there are several alternatives for any problem. A manager should try to screen out the most viable alternative so that he has a small number of alternatives for final selection. This will help in the thorough analysis of the alternatives so developed.. 6. EVALUATION OF ALTERNATIVE PLANS:- After selecting the few viable alternatives, they should be evaluated with the help of a number of parameters which are related to planning premises & objectives. Each of the alternatives is to be examined in relation to the following 2 tests:- (i). To what extent is it in conformity with the basic or corporate objective of the enterprise? (ii). To what extent each of these plans satisfies the cost, speed, quality & rate of return on investment requirements? The evaluation of various alternatives will help in knowing which of them offers greatest choice of success in reaching the desired objective. Sometimes, it may not be possible to analyze the alternatives properly due to a number of complexities. The planner should take the help of various quantitative techniques of OPERATION RESEARCH like probability theory, game theory, linear programming, etc.

9. 7. SELECTION OF SUITABLE PLAN:- The purpose of evaluating the alternative courses of action is to select the most suitable course of action which will achieve organizational objectives. Techniques of decision making are applied to choose a particular course of action. This may lead to the conclusion that no one course of action is sufficient. So the management may decide to select 2 or more alternatives & combine them to have the most feasible plan. While selecting the plan, the following factors should be kept in mind:- (i). The plan should be logical & practical. (ii). The plan should be flexible & capable of being modified. (iii). The plan should be specific rather than general. (iv). The plan should be acceptable to the operating personnel. (v). The resources required for the implementation of the plan should be made available. 8. LAYING DOWN OF DERIVATIVE PLANS:- Basic organizational plans cannot be used effectively unless they are supportive by derivative or sub-plans. The derivative plans are developed within the framework of the overall planning. For example, an airline decides to use a fleet of new planes, it will by the development of a host of derivative plans dealing with the employment & training of various types of personnel, the acquisition of spare parts, the installation of

10. maintenance facilities, scheduling, advertising, financing & insurance. The • important derivative plans used in business include policies, procedures, projects, • methods, budgets, rules, etc. They help in achieving the overall organizational • goals. • REQUIREMENT OF AN EFFECTIVE PLANS:- An effective plan should have the following characteristic features:- • A PLAN SHOULD BE SPECIFIC:- The more specific a plan is, the less chance there is for it to be misinterpreted. Objectives should be clearly defined. The means for carrying out the plan should also be indicated. • 2. A PLAN SHOULD BE COMPLETE & INTEGRATED:- A plan is said to be complete when it is comprehensive enough to cover all actions expected from the individuals & selections of undertaking as a whole. It is said to be an integrated one when various administrative plans are so welded into one another that the whole undertaking operates at the peak of its efficiency. • 3. A PLAN SHOULD BE LOGICAL:- The more facts it is based on, the better it is. If facts are not avoidable, reasonable assumptions may be made about the future.

11. 4. A PLAN SHOULD BE FLEXIBLE:- No plan is infallible nor can it cover all possible contingencies. Conditions under which a plan will be most effective change as do the variables & factors on which the plan is formulated. Therefore, it is essential to introduce some flexibility in every plan. • A PLAN SHOULD BE CAPABLE OF BEING CONTROLLED:- Effective planning business activities depends upon the ability to foresee with accuracy the nature & requirements of future events relating to industry in general & the business undertaking in particular. Therefore, the plan must be distinguish between controllable & uncontrollable future environment for better administrative control.

12. MANAGEMENT BY OJECTIVES DEFINITION & NATURE OF OBJECTIVES:- Objectives are desired state of affairs which an organization attempts to realize. They are the end points towards which the activities of the enterprise are aimed. They provide direction to various activities. They serve as a benchmark for measuring the efficiency & effectiveness of the enterprise. Objectives make every human activity purposeful. Objectives tell about the future of the organization. They help to set down guide lines for group activity. Objectives serve as standards for measuring the performance of various people working in the organization & overall effectiveness & efficiency of the organization. Following are the features of objectives:- MAJOR & DERIVATIVE OBJECTIVES:- Big enterprises have both major & derivative objectives. Major objectives are set for the whole organization. They are broader in scope & used throughout the enterprises. They are also known as PRIMARY OBJECTIVES of the enterprise. Derivative objectives are derived from the major objectives of the enterprise. Every department has specific objectives in order to contribute to the major goals of the enterprise. They are also known as DEPARTMENTAL OBJECTIVES.

13. TIME DIMENSION OF OBJECTIVES:- Objectives may be long term & short term. Since a business enterprise is a continuous process it must have both long term & short term objectives. Short term objectives are for a short period of time like up to 1 year & long term objectives are to be followed in long run. • NETWORK OF OBJECTIVES:- The basic idea of network is that objectives exists for every department & activity in the organization & they are interconnected & mutually supportive. Managers have to pay special attention to this characteristics otherwise the result would be that different people would be found pursuing their individual objectives without bothering about the impact of their actions on others. This is a difficult job because a network of programs that is guided by specific goals require co-operation & co-ordination among managers so that the components can mesh together properly. • CONCEPT OF MANAGEMENT BY OBJECTIVES (MBO):- The concept of • MBO was first used by Peter Drucker in 1954. Drucker suggested that the • manager should devote attention to the establishment of goals so that the • subordinates may exercise self-control in pursuing those goals. This technique is

14. known as GOAL SETTING APPROACH or MANAGING BY OBJECTIVES. It • was called “WORK PLANNING & REVIEW “ by General Electric Co. of USA. • MBO is a way of thinking about management. It is not a technique or principle of management but a way of managing a system of goal oriented management. It is a system of performing managerial functions in a logical & effective manner. It is not a set of rules or a series of procedures, but a way of making management effective. The MBO philosophy is built upon the assumptions of goal clarity , role clarity, periodic feedback, participation & improvement. • FEATURES OF MBO:- Following are the features of MBO:- • MBO represents a comprehensive management philosophy. It is not merely tool of measuring performance, but an overall system of management. • MBO emphasizes participative approach to management. The goals are determined by managers in consultation with their subordinates. MBO is not merely a meeting of minds, but joint authorship of goals & their joint implementation. • MBO focuses on goals at each level of the organization. The goals are tangible, verifiable & measurable.

15. MBO concentrates on key result areas. It translates the abstract philosophy of • management into concrete plans. • 5. MBO is a system that allows management to attain maximum results from available resources by focusing on goals. It allows the subordinate plenty of room to take initiative & use creativity in decision making. • STEPS USED IN MBO:- Following are the steps which are used in MBO:- • DEFINING OVERALL CORPORATE OBJECTIVES:- The first step in MBO is to define the corporate objectives. These objectives are broad & general. They involve such basic questions as what return should be aimed for? How products are to be sold & in what markets? They are basically concerned with survival, growth & profit. It should be carefully noted that it is the specific objectives not general objectives which are of importance for MBO. These objectives form the basis of long term planning & help to provide a sense of unity, harmony & accomplishment that is essential for co-operative efforts. The determination of overall objectives is the primary responsibility of the top management. • SETTING DEPARTMENTAL GOALS:- After the overall corporate objectives have been established, the next step is to set sub-goals for each unit or sub-unit so that each division or department knows what it has to achieve & within what specified period. These sub-goals shall be performance targets

16. for each unit. They effectively contribute towards the accomplishment of overall objectives. Care has to be taken to see that there is no inconsistency between overall objectives of the organization & specific goals of its units. THE PROCESS OF MBO TARGETS FOR INDIVIDUAL SUBORDINATE CORPORATE OBJECTIVES DEPARTMENTAL OBJECTIVES PERFORMANCE REVIEW ESTABLISHMENT OF CHECK POINTS COUNSELLING OF SUBORDINATES • SETTING OF TARGETS FOR INDIVIDUALS:- Targets must be set for each organizational position by the superior in consultation with the subordinate executives. MBO is a participate approach so the subordinate must play an active part in determining targets for himself. Checkpoints or standards of performance for evaluating the progress of subordinate must also be set. The standards should be defined quantitatively, if possible & the subordinate must understand them fully. This practice should be followed by every superior for

17. each of his subordinates & it should lead to key result analysis as targets or goals • are represented in terms of results. • 4. ESTABLISHING CHECKPOINTS:- MBO ensure periodic meetings between the superior & the subordinate to review the progress towards the accomplishment of targets of the subordinate. For this the superior must establish checkpoints or standards of performance for evaluating the performance of the subordinate. • REVIEW OF PERFORMANCE:- While informal performance appraisal of a subordinate is immediate superior almost everyday, formal appraisal at periodic intervals, usually once or twice a year, does ensure that through evaluation of manager’s performance is being done at least once or twice a year when the achievements are carefully analyzed against the background of prevailing circumstances & given objectives. The design format of the “Performance Review Form” will depend on the nature of the enterprise. The performance of every subordinate is evaluated in terms of standards or end-results clearly agreed between the superior & subordinate. Under MBO, the superior does not evaluate the individual concerned, but his performance. Moreover the performance review is aimed at assisting the subordinate to improve his performance in the future. It also helps in setting fresh goals for the next period.

18. EMPLOYEE COUNSELING:- Under MBO, performance appraisal is meant to improve performance & not suggesting rewards or punishments. It is the responsibility of the superior to suggest ways to remove deficiencies in the performance of the subordinate & make plan for training of the subordinate. At this stage, the superior offers counseling to the subordinate not only on the work problems but also his personal problems. This will improve understanding between the 2 & help in setting mutually agreed goals for the future. • USE OF MBO:- The important benefits of MBO are as follows:- • BETTER PLANNING:- MBO helps in setting the goals & targets of both superiors & subordinates. Such mutual goal setting improves goal clarity & results in realistic plans to which the people become committed. • BETTER ORGANIZATION:- When the goals for each individuals are set by MBO. The organization charts & manuals should be suitably amended to depict the change brought by the introduction of MBO. The job descriptions of various jobs must define their objectives, responsibility & authority. They must clearly lay down the relationship with other job positions in the organization. • SELF-CONTROL:- MBO serves as a means of organization control. There is a greater sense of identification by the enterprise wherein controls are

19. reckoned as tools of “Self Control” rather than devices to be used against managers. • 4. HIGHER PRODUCTIVITY:- There is an improvement in productivity as management team concentrates on the important task of reducing costs on less important matters. • 5. BETTER APPRAISAL OF PERFORMANCE:- The process of defining the results expected establishes accurate criteria for appraisal of performance. Clear understanding of responsibilities or criteria of evaluation intensifies accountability. MBO provides an objective measuring instrument for the evaluation of actual performance. Appraisal is result-oriented & not trait-oriented. An individual can evaluate himself the results of his own performance. • EXECUTIVE DEVELOPMENT:- MBO emphasizes long term viewpoint of the executives. MBO is a tool of self development of the executives. That is the individual acquires knowledge & skills on the job as a by-product of his meeting performance requirements. Opportunities for learning & experimenting are natural ingredients in the goal setting process.

20. DIFFICULTIES IN IMPLEMENTATION OF MBO:- Following are the difficulties which are found in implementing of MBO:- • HESITATION TO CHANGE:- MBO appears to be simple, but it requires a lot of changes in traditional thinking & practices. The specialized functional classification, hierarchical structure, goal setting, trait-oriented appraisals, etc., are major impediments to the successful implementation of MBO, which requires hard work & patience on the part of managers. It successful use requires continuous education & training of supervisors & others in its implications. • LACK OF PARTICIPATION:- One of the major weakness often seen in MBO is poor planning of program prior to its implementation. Those concerned with the implementation of MBO must be well-trained. They must know how to involve all levels of management & obtain their support. • UNNECESSARY PAPER WORK:- MBO results in instruction booklets,training manuals, performance reports, etc. Subordinates have to fill in forms & submit detailed reports on their performance. This reduces the effectiveness of MBO. • LENGTHY PROCESS:- MBO needs a lot of time in setting measurable goals. In the beginning several meetings may have to be held to create confidence in the subordinates. The formal periodic reviews & final appraisal sessions also

21. take a lot of time. In this way the patience of those responsible for its • implementation is taxed. • 5. NEGLECT GOALS OF INDIVIDUALS:- MBO is concerned with the objectives of the organization & those of the individuals who work it out. But employees are motivated most when they se prospects of their own goals advanced through those of the organization. • HOW TO MAKE MBO EFFECTIVE?:- Following guidelines help to make effective implementation of MBO:- • TOP-LEVEL COMMITMENT:- Acceptance & enthusiasm among employees for an MBO program may quickly disappear unless the top management makes required efforts to keep the system alive & fully functioning. Managers who find it difficult to set & review objectives may revert to more traditional approaches. Top managers must be aware of those tendencies & provide regular support to keep the program a vital point of organizations operating procedures. • TRAINING OF MANAGERS:- For MBO to succeed managers must understand it & have the essential skills. They must be educated concerning the procedures & advantages of the system & the skills required. If manager

22. remain resistant, MBO program will not succeed. 3. CLARITY OF PURPOSE:- MBO may be used for different purpose e.g., long term planning, performance appraisal, productivity improvement, etc. The details of MBO program vary with the purpose for which it is used. Therefore, the purpose should be clearly defined before installing MBO program. 4. ENCOURAGEMENT OF PARTICIPATION:- Managers must understand that participation by subordinates in goal setting may imply some reallocation of power. They must be willing to take direct control over their subordinates & encourage them to play more active role in defining & achieving their own objectives. 5. DELEGATION OF AUTHORITY:- The subordinates who have accepted the challenging assignments through discussion with the superior must be given authority to accomplish their goals. MBO will not work if the manager is not willing to delegate sufficient authority to the subordinates as the subordinates will not be willing to accept new assignments & may even resist the setting of clearly defined goals. 6. OVERALL INTEGRATION:- MBO should b e treated as an isolated program. It must be integrated all the organization programs including human resource planning, human resource development, production control & financial planning.

23. MANAGEMENT BY EXCEPTION:- Management by exception is a useful principle of managerial control. It has important deviations (Exceptions from standards) of performance should be brought to the management’s attention. If actual performance is according to the planned performance – standards already laid down, it need to be brought to the attention of the concerned manager as no follow-up action is necessary. But if performance is lower than the standard, it should be reported to the manager. For example, if 15% defective units are tolerable, any deviation beyond this must be reported to the higher executives. The principle of management by exception must be practiced with the principle of critical control. Management should select key areas on which the performance of the whole organization depends & concentrates more on these areas. The exception principle refers to the size of deviations from the standards only in the critical control points or areas. Control by exception will consume managerial time, effort & talent & apply these in important areas. It is a technique of separating important information from the unimportant one. Only such information which is critical for management control should be submitted to the higher executives.

24. DECISION MAKING MODELS DEFINITION OF DECISION MAKING:- It is a human process. When a manager decides, he chooses a course which he thinks is the best. Decision making is a mixture of thinking, deciding & acting. An important executive decision is only one event in the process which requires a succession of activities & routine decisions all along the way. Decisions have a time duration. A manager takes time to collect facts & to weigh various alternatives. Moreover, after he decides, it takes still more time to carry out a decision & often it takes long before he can judge whether the decision was good or bad. It is also difficult to find out the effects of any single decision. Decision making, is the selection from alternatives of courses of action, is at the core of planning. It is an important step in planning even when done quickly & with little thought or when it influences action for only a few minutes. Decision making involves establishing goals, defining tasks, searching for alternatives & choice of the best alternative. A decision involves the act of choice & the alternative chosen out of the available alternatives. The process concerned with decisions is known as “Decision Making”. Decision making is a process of selection from a set of alternative courses of action which is thought to fulfill the objectives of the decision problem more satisfactorily than others. Decision making is an act

25. of choice where a manager selects a particular course of action fro the available alternatives in a given situation, the basic characteristics of decision making process are as follows:- • It is a human process involving to a great extent the application of intellectual abilities. • It is a process of choosing a course of action from among the alternative courses of action. • It is always related to situation. A manager my take one decision in a particular set of circumstances & another in a different set of circumstances. • Decision making involves a certain commitment of the organization for adopting a specific course of action. • Decision making in business is always related to its objectives. • Decisions are made by managers for solving problems, resolving fights or conflicts & tackling or handling various situations. • ORGANIZATIONAL CONTEXT OF DECISION MAKING:- Organizations are made of individuals & groups. Both formal groups e.g., work teams, committees & informal groups are supposed to take decisions to solve various problems. Decision making in groups is a collective process which is based on the olden concepts that 2 heads are better than one. In group decision making

26. the group members interact with each other, deliberately on the problem & arrive at some collective decision. The decision may be arrived through either consensus implies that all members must agree to the proposed decision, where majority vote implies that it is enough for majority of the group members to agree on the decision arrived at. • MERITS OF GROUP DECISION MAKING:- following are the advantages of group decision making:- • The knowledge base of the group is greater which can help in taking better decisions. • The group members have different specialties as in case of cross-functional teams. This will allow group to analyze the problem from different aspects. In such a situation, the decision is likely to be comprehensive in nature. • The input from the members of the group can eliminate the biases that are generally introduced in the process of individual decision making. It also reduces the unreliability of individual’s decision. • Group decision making helps the group members to take part in decision making. This can lead to better decision besides providing satisfaction to the participants.

27. 5. Group decision making can be used as a training ground for new members to learn decision making & communication skills. Thus, it can serve as an instrument of human resources development. • DISADVANTAGES OF GROUP DECISION MAKING:- Following are the disadvantages of group decision making:- • Group decision making is a time consuming process. A group takes more time in watching a decision since there are too many opinions to be taken into a decision since there are too many opinions to be taken into consideration. The greater is the time taken in decision making. • Sometimes, the group leader or some member may dominate in the group deliberations which might result in taking a biased decision. • A group may make decisions that are simply a compromise between the various views held by individual members. This is particularly true when a group must make a decision on a controversial issues. • When there is conflict between the group goals & the organizational goals, the group decision is likely to be determine to the interests of the organization. • Group decision making may prove to be more risky than individual decision making. Since it is a collective decision, the group may be tempted to take more risk. Such a tendency is known as “Risk Shift”.

28. PROCESS OF DECISION MAKING:- Managers at all levels have to take decisions on various types of problems & matters in varying situations. Whatever maybe the nature of the problem there are certain basic steps which have to be involved in the process of decision making:- DECISION MAKING PROCESS CHART IDENTIFYING THE PROBLEM F E E D B A C K ANALYSIS OF THE PROBLEM SEARCH OF ALTERNATIVES EVALUATION OF ALTERNATIVES SELECTION OF BEST ALTERNATIVE IMPLEMENTATION OF DECISION

29. IDENTIFYING THE PROBLEM:- Understanding the situation that sets the stage for making decision by a manger is the first stage in decision making. Predetermined objectives, past acts & decisions, environmental considerations provide the structure of current decisions. Once the structure is laid, the decision makes can find out the real problem. Finding the real problem helps to understand the gap between what is & what is expected to happen, identifying the reasons for the gap & understanding the problem in relation to the objectives of the organization. Defining the problem is not an easy job. It takes a lot of time which indeed is worth spending. Care should be taken in defining the real problem. If proper care is not taken, what may appear at first sight to be the problem may ultimately turn out to be a mere symptom. Like a doctor who has to take into account all the symptoms before deciding the medicine to be given to the patient. A manger must also carefully find out the problem. In business, situational factors are very important. In one case, the cause of loosing money maybe high costs. Thus, there is not guarantee that symptoms will always lead to the same problem. So the manager should try to have an overall view of the situation to find the real problem. • ANALYSING THE PROBLEM:- After finding the problem, the next step will be to analysis the problem. Classification is necessary in order to know who should take the decision & who should be consulted in taking it. Without proper classification, the effectiveness of the decision maybe wrong. The

30. problem should be classified keeping in mind the following guidelines:- • The nature of the decision – whether it is strategic or routine. • The impact of decision on various business factors. • The future of the decision. • The time duration of the decision. • The limiting or strategic factor relevant to the decision. • SEARCH OF ALTERNATIVES:- The next stage is to search the alternatives. But the number of forces acting upon a given situation is so large & varied that it is better to follow the principle of limiting factor. In other words, management should limit itself to the discovery of those key factors which are critical or strategic to the decision involved. For example, while planning for expansion of the enterprise, availability of finance or trained staff during a short period of time might be the limiting factors. Discovery of limited factors plays a very important part in the process of decision making. But searching limited factors is not easy & decision makers have to use judicial wisdom & analytical ability in this matter. However, in any attempt to discover the strategic factors, management should not lose sight of the overall objectives of the enterprise. The limiting factors should be analyzed in the terms of their contribution to the accomplishment of organization objectives.

31. EVALUATION OF ALTERNATIVES:- After the alternatives are discovered, the next stage is to analyze & compare their importance. The decision maker should consider the element of risk involved in each of these & also the resources available for their use. He should weigh each of them from the view point of accomplishment of some common goals. Both tangible & intangible factors should be considered while evaluating different alternatives. Tangible factors like profits, time, money & rate of return on capital investment can be expressed numerically. Such factors maybe evaluated & compared by telling about their effects on income, expenses & cost structure of the enterprise. Management can afford to overlook intangible factors in situations where their effect on course of action is likely to be negligible. However factors like public relations are important & cannot be ignored. The analyst should, therefore, identify the relevant intangible factors. Sometimes, the decision maker is faced with a situation where 2 or more alternatives appear equally good. In that case, actual difference will be the deciding factor. SELECTION OF BEST ALTERNATIVES:- Defining the problem, identifying the alternatives & their analysis help the decision maker to determine the best solutions. In this matter the decision maker is guided by his knowledge & past experience. The criteria which maybe used for selecting the best alternatives are as follows:-

32. RISK:- A manager should weigh the risks of each course of action against the expected gains. As a matter of fact, risks are involved in all the alternatives. What matters the most is different types of risks in various alternatives. • ECONOMY OF EFFORT:- The best manager is one who can use the resources for the achievement of results with the minimum efforts. The decision to be taken should ensure the maximum possible economy of efforts, money & time. • SITUATION OR TIMING:- The choice of alternative depends upon the situation present at that particular time. If the situation has great requirement, the preferable alternative is one that saves the organization that something important is happening. If a long & regular effort is needed a slow start gathers appreciation approach. • LIMITATION OF RESOURCES:- In choosing the alternatives attention must be given to those factors that are limiting or strategic to the decision involved. The search for such is a never ending process. Discovery of the limiting factors lies on the basis of selection from the alternatives & planning & decision making. • IMPLEMENTATION OF DECISION:- Once the decision is made it has to be implemented. The decision maker needs to take into account variables like beliefs, attitudes & values of people in the organization. It helps to encourage

33. the subordinates to take part in decision making process so, that they feel committed & motivated to use the decision effectively. A t the same time, the decision maker should establish effective controls so that major deviations can be seen, analyzed & prevented. PARTICIPATION IN DECISION MAKING:- To make the subordinates committed to the decision, it is important that they are allowed to take part in the decision making process. The managers who discuss the problems with their subordinates & give them chance to ask questions & give suggestions, find more support for their decisions than the managers who don’t let the subordinates to take part. Now the question arises at what levels of the decision making process should the subordinates participate? The subordinates should not participate at the stage of finding the problem because the manager himself is not sure to whom the decision will affect. The stage where the subordinates should take part is the development of alternatives. They should be encouraged to suggest alternatives. The subordinates will feel committed to the decision.

34. MODELS OF DECISION MAKING:- Following are the 2 main models of decision making:- • NORMATIVE MODEL (RATIONAL ECONOMIC MAN):- In normative model study is done on rational economic man. A rational business decision is one which effectively & efficiently assures the attainment of aims for which the means are selected. It means that the decision maker as an economic being who tries to maximize the advantage by selecting the best solution to a problem. It is called “NORMATIVE APPROACH” because it is idealistic & scientific decision. It is based on following assumptions:- • The decision maker is systematic & logical in his thinking. • He is also scientific in his thinking because he tries to discover reality, never takes things for granted & accepts things after verification. • He is very objective; never allows himself to be pulled or pushed; controls his emotions carefully. • He is knowledgeable; he is in position to get full information on matters in which he is interested. • He is able to analyze his information intelligently. • He can clear & define goals to maximize his gains or minimize his pains or losses. He knows his priorities very well.

35. He moves purposefully to reach his goals. Thus, he chooses appropriate means & relates them clearly to his goals, because he is definite about his ends & means. Economic man model is normative, it describes how person should make a decision. In reality, people do not behave in an ideal manner. People seldom achieve complete rationality. Therefore, it describes prescriptive manner how a decision maker should behave. Complete rationality is not possible. In other words, rationality is bounded by several limitations. 2. ADMINISTRATIVE OR BEHAVIOURAL MODEL:- Administrative man is who takes decisions based as intuition & rational thinking. A person who depends much upon intuition is more subjective & a person who depends much upon logical thinking is more objective. The concept of bounded rationality explains the behavior of people, in practice. It recognizes that a person cannot be expected to have full knowledge & information & his capacity to perceive, retain & retrieve information is not unlimited. Human goals are multiple & conflicting. The traditional theory of completely rational & economic man cannot work in practice. Thus, in practice, managerial decision making is a sub-rational, fragmented & pragmatic activity. Absolute rationality is a super human & rare faculty. It is an ideal worthy to be aimed at but seldom reached. Managers can at best be rational. They are ordinary humans, though endowed with moderate intelligence & initiative. They are not all-knowing & all powerful. They have their own share of limitations – intellectual, emotional & physiological. Even if they can make very

36. objective decisions, several situational factors are likely to come in the way. The “real life” decision maker who makes decisions within bounded rationality is called “ADMINISTRATIVE MAN” as against the “economic man” representative of rational decision making. The administrative man seeks satisfying decisions which are satisfactory & sufficient for his practical purposes. He has a mixture of rational & emotional sentiments, economic & non-economic values. He is neither completely rational nor completely emotional. He no doubt likes to reach best decisions. He knows about desirability. He also about his limitations & the limitations imposed on him by the environment. He defines his problems in practical terms, collects as much information as possible, considers a feasible & familiar set of alternatives & chooses one of them. He may not engage in an exhaustive search process for information & for alternative courses. He may not follow a pre-determined, systematic, sequential decision making process. He is very flexible in his approach. He does not hesitate to adjust his goals & the means of attaining them in tune with the ground realities.

37. CONCEPT & NATURE OF CONTROL:- According to Henry Fayol ,”Control consists in verifying whether everything occurs in conformity with the plan adopted, the instructions issued & principles established”. Control helps to point out weaknesses & errors in order to rectify or to correct them & to prevent recurrence. It works on everything – things, people, actions. Control is a systematic effort by management to compare the performance with predetermined standards in order to determine whether the performance is in line with those standards & presumably in order to take any remedial action required to see that human & other resources are being used in most effective & efficient way possible in achieving corporate objectives. The modern concept of control system helps in providing historical record of what has happened to the business as a whole, but also pinpoints the reasons why it has happened & provides data that enable the chief executive or the department head to take corrective steps if he finds he is on the wrong track. Thus, managerial function of control uses measurement of actual performance, comparing it with the standards set by plans & correction of deviations to ensure attainment of objectives according to plans.

38. FEATURES OF CONTROL:- Managerial control has the following characteristics:- • MANGERIAL FUNCTIONS:- Control is an important function of every manager who is performing other managerial functions like planning, organizing, staffing & directing. It is, in fact, a follow-up action to other functions of management. Managers at all levels have to perform this function to contribute to the achievement of organizational objectives. • FORWARD LOOKING:- Control is linked with future & so is forward looking. A manager can take corrective action only in regard to future operations. Control is usually preventive as presence of controls tend to minimize wastages, losses & deviations from standards. • CONTINUOUS PROCESS:- Just like other functions of management, control is also a continuous activity. It involves constant analysis of standards, policies, procedures, etc. It also suggests corrective actions in various processes. It does not stop anywhere. A manager has to perform this function continuously along with other functions. In continuous process control is a never ending process.

39. DYNAMIC PROCESS:- Control is a dynamic process. It is flexible & not rigid. Control results in corrective actions which may lead to change in the performance of other functions of management. Since management is handling a business entity or unit which keeps on changing, managerial control is also dynamic. Management will be failing in its duty if its approach is not dynamic. • CORRECTIVE ACTION:- The purpose of control is achieved only when corrective action is taken on the basis of feedback information. It is the action which adjusts performance to predetermined standards whenever deviations occur. A good system of control facilitates timely action so that there is minimum waste of time & energy. • RELATIONSHIP BETWEEN CONTORL & PLANNING • 1. PLANNING & CONTROL ARE CLOSELY RELATED:- Once a plan becomes functioning & operational, control is necessary to measure progress, to uncover deviations from plans & to indicate corrective action. Planning may involve simple measures such as minor changes in techniques of leading. In other cases, control may result in setting new goals, forming new plans, changing the organization structure, improving staffing & making major changes in the techniques of directing & leading. The control cycle is an endless sequence or never ending sequence of establishing standards,

40. observing performance with standards & taking correct action to ensure the achievement of objectives. Control is always based on planning. It is also true that in a running enterprise planning depends upon controlling. Every manager uses certain standards for measuring & appraising performance which are laid down by planning. The control process, in turn may reveal or tell about the deficiency of plans & may lead to re-study the plan. It may also lead to setting new goals, improving staffing & making changes in the techniques of supervision, motivation & leadership. PLANNING PERFORMANCE CONTROL RELATIONSHIP BETWEEN PLANNING & CONTROL 2. PLANNING WITHOUT CONTROL IS MENAINGLESS & CONTROL WITHOUT PLANNING IS BLIND:- Planning is an empty exercise without controlling. A good plan will not bring any concrete result if the management is lacking in controlling. Planning finds the goals & determines the ways of achieving them. It is control which ensures attainment of goals by evaluating performance & taking corrective action. Control presupposes the existence of

41. standards with which the actual performance is compared. If the standards with which actual performance are not set in advance, the manager will have no idea of “what is control”. Thus, planning must be done before the actual operation. The experience gained in controlling will help to improve the process of planning. • CONTROL Vs CONTROLS:- Controls refer to measurements, information & other means of control whereas control is a process that guides activity towards some predetermined goals. Thus, control pertains to end whereas controls pertain to means. Peter Drucker has identified the following 4 points of distinction between controls & control:- • Controls refer to measurements & information & control refer to goals or direction. • Controls pertains to means & control to an end. • Controls deal with facts & past events, but control deals with expectations or future. • Controls are analytical in the sense that they are concerned with what was & what is. But control, on the other hand, is normative & concerned with what ought to be.

42. KINDS OF CONTROL:- Following are the kinds of control:- • HISTORICAL CONTROL:- It measures results after the happening of an event. It tells management to what extent objectives are actually accomplished. Financial & budgetary controls are examples of historical controls. Financial ratios measure efficiency of the firm in many areas. • PREDICTIVE CONTROL:- Also known as “FEED FORWARD CONTROL”, predictive control attempts to anticipate problems before they actually occur. For e.g., the policy on absenteeism maybe communicated to the new employees to check potential problems caused by absenteeism among new employees. To take another example, the cash budget for the coming year can predict inflow & outflow of cash relating to a firm . If shortage of cash is anticipated say, in July, a bank loan can be arranged well in advance. • CONCURRENT CONTROL:- It is also know as “REAL TIME” or “STEERING CONTROL”. It is concerned with the adjustment of performance before any major damage is done. For e.g., the navigator of a ship adjusts its movements continuously or the driver of a car adjusts its steering continuously depending upon the direction of destination, obstacles & other factors. In enables the production supervisor to take immediate corrective action before additional products of inferior quality are produced.

43. IMPORTANCE OF CONTROL:- Control is an important function of management. Without control, a manager cannot complete his job of managing. All other functions are the preparatory steps for getting the work done & controlling is concerned with making sure that there is proper execution of these functions. Control is necessary whenever a manager assigns duties & delegates authority to the subordinates. He must exercise control over the actions of his subordinates so as to ensure that the delegated authority is used properly. The advantages of control are as follows:- • Control brings order in the organization. Absence of control is dangerous for the organization. Control ensure business operations in the desired direction. • It helps in improving the performance of subordinates. • It helps in process of delegation. Authority can be safely transferred if effective controls exist in the organization. • It brings about better utilization of resources – human & material, & thus increases productivity & profit, & contributes to the progress of business. • Control increases the effectiveness of planning. In fact, controlling & planning go hand in hand. Control is the only means to ensure that the plans are being implemented. Control points out the shortcomings of not only planning, but also other functions of management such as organizing, staffing & directing.

44. 6. Control provides the basis for future action. It will reduce the chances of mistakes being repeated in future by suggesting preventive steps. • LIMITATIONS OF CONTROL:- Following are the limitations of control process:- • Measurable standards are essential to control; but many aspects of business, e.g., employee morale & public relations cannot be expressed in quantitative terms. • Control may stifle the initiative of subordinates & dampen their spirit. • The success of control depends on personal responsibility. But this cannot be fixed in all cases. • Control is an expensive process because sufficient attention has to be paid to observe the performance of the subordinates. This requires an expenditure of a lot of time & effort. • The effectiveness of controls depends on their acceptance by the subordinates. They may resist controls if they feel that these will reduce their freedom. Control also loses its importance when it is not possible to fix the accountability of the subordinates. • An enterprise cannot control the external factors such as government policy, technological changes, fashion changes, etc.

45. BUDGETARY CONTROL:- Budgetary control is the oldest technique of control which is still used by business enterprises. According to Walter W. Bigg , “the term budgetary control is applied to a system of management & accounting control by which all the operations & output are forecast as far ahead as possible & the actual results, when known, are compared with the budget estimates”. Budgetary control involves the use of budgets to plan, co-ordinate & control day-to-day operations of business in accordance with the overall objectives of business. WHAT IS A BUDGET? A budget is a kind of plan for a certain period of time. It is expressed in in physical & financial terms. Preparation of budget needs the same process as is required to make any other type of plan. A budget is made in advance & is based on scientific forecasts. Without efficient budgeting, it may not be possible to keep control over the expenditures. As a plan shows clearly the targets to be achieved in financial & physical terms. Budget constitutes a statement of expected or planned results (of any proposed course of action) in quantitative terms of specified future period (usually one accounting year). It may be expressed either financial or physical terms like machine-hours, man-hours, units of products or in any other numerical measurable term. There can be budgets of sales, production, materials, labor, manufacturing expenses, cash flows, capital expenditure, etc.

46. BUDGET AS A TOOL OF PLANNING & CONTROL:- Budgeting is a key to managerial process because it functions like planning, control & co-ordination of organized activity. One of the important virtues of framing a budget is that it forces the manager to plan the future operations of his unit. Budgets inject a sense of clarity, direction & purpose in the activities of various operating units within the organization. Budgets specify “what” is to be achieved, control involves action to monitor whether & how it is being achieved. Budgetary control is one of the most widely adopted conventional control tools to impart a measure of discipline & direction to enterprise activities & managerial performance. Budgetary control has implications not only on the goals of the organization but also on the motivation & behavior of the organizational members. Budgetary control provides a concrete frame of reference to the decision maker in his choice of activity. • KINDS OF BUDGETS:- Following are the kinds of budgets:- • SALES BUDGET:- The sales budget includes the forecast of total sales during a period. It can be in terms of money & quantities. The forecast not only relates to the to the total volume of sales but also its break-up product wise & area wise. The responsibility for making sales budget lies with the sales manager, who takes into account various factors like past sales figures & trend, salesmen’s estimates, general economic conditions, seasonal fluctuations, competition & government’s control.

47. 2. PRODUCTION BUDGET:- The production or operation budget includes a forecast of the output for a period analyzed according to products, manufacturing departments & periods of production. It is based on sales budget as it is the responsibility of the production department to schedule its production according to the sales forecast. It is prepared by the production manager by keeping the following things in mind:- • The sales budget. • Plan capacity. • Inventory Policy. • Availability of raw materials, labor, power, etc. • MATERIALS PROCUREMENT BUDGET:- Materials can be direct & indirect. The material procurement budget deals with direct materials for budgeted output. It is based on production budget. Materials required for a unit of production is determined & is multiplied by the budgeted output to get total quantity of direct materials required. Materials budget helps in the purchase of materials to produce a given volume of output during a particular period to meet the requirements of the customers during the period.

48. LABOR BUDGET:- It contains the estimates of direct labor requirements needed for carrying out the budgeted output. Labor of different grades required for a job or process is determined in terms of labor hours & is multiplied by wage rate per hour to determine the total expenses on direct labor for budgeted production. • FACTORY OVERHEAD BUDGET:- It contains the details of the fixed & variable overhead costs for the budget period. Fixed costs generally remain fixed. They do not change with the change in volume of production. Variable costs, change with the changes in the volume of production. Fixed costs can be determined on the basis of past data & likely changes in future. Variable costs for the budget period are determined on the basis of the volumes of production included in the production budget. • DISTRIBUTION OVERHEAD BUDGET:- It includes the estimates of all items of expenditure on production & distribution of finished goods. The costs are divided into fixed, variable & semi-variable categories. The various items of expenditure include sales, office rent, salaries, depreciation & miscellaneous expenses like advertising, commission, bad debts, traveling expenses, etc.

49. 7. ADMINISTRATIVE OVERHEAD BUDGET:- It contains the estimates of administration expenses like expenses on office operations including salaries to office personnel. Such expenses form an important part of the total cost of a product. Preparation of this budget helps in keeping the administrative costs in control. • 8. CASH BUDGET:- The cash budget gives detailed estimates of cash receipts & cash disbursements for the budgeted period. It is prepared to ensure cash is available in time for meeting the financial commitments & to use cash available in the best possible manner. • MASTER BUDGET:- The master budget is the summary budget incorporating its functional budgets. It is finally, approved, adopted & employed. Thus, master budget incorporates all functional budgets. It gives a picture of the proposed activities & anticipated results during the budget period. It is approved by the top management of the enterprise. • FIXED & FLEXIBLE BUDGETS:- A fixed budget is remains unchanged irrespective of the level of activity actually attained. The main purpose of fixed budget is to co-ordinate sectional activities to attain the objectives of the enterprise. It is prepared for a given level of production & does not take into account the changes in production. A flexible budget is prepared in a manner that it gives the budgeted cost for any level of activity . The flexible budget is

50. prepared after considering the fixed & variable elements of cost & the changes that maybe expected for each item at various levels of operations.11. PERFORMANCE BUDGETING:- It relates to greater efficiency specially in government work. Performance budgeting is therefore, looked upon as a budget based on functions, activities & projects& is linked to budgetary system based on objective classification of expenditure. It helps to focus attention on the work to be done, services to be rendered rather than resources to be spent. The main purpose of performance budgeting are:-(i). To review at every stage & at every level of the organization to measure progress towards the short-term & long-term.(ii). To inter-relate physical & financial aspects of every program, project or activity.(iii). To facilitate effective performance audit.(iv). To help assess the effects of decision making by the lower level, middle level & top managers.(v). To bring annual plans & budgets in line with the short & long-term plan objectives.A performance budget presents estimates of expenditure & earnings in terms of functions, programs, activities & projects. For e.g., in case of health ministry, the classification is for salaries, stationery, rent, transport, etc. But performance budgeting is introduced, the may in terms be in terms of family welfare (various schemes, targets, expenditure to be incurred), malaria