Planning Notes Final 1

MG 61 - Principles of Management
Unit II PLANNING
Department Mechanical Engineering, Annai Vailankanni College of Engineering
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Contents 1. Nature and purpose of planning The contribution of planning to purpose and objectives The primacy of planning The pervasiveness of planning The efficiency of plans
2. Types of planning Purpose, mission and objectives Strategies and policies Procedures and rules Programs Budget
3. Steps in planning Awareness op opportunities Setting objectives Developing performance Identifying alternative courses of action Evaluating alternative courses Selecting a course Formulating derivative plan Numbrising plans by making budgets
4. The Planning process 5. Management by objectives (MBO) Benefits of MBO
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Weaknesses of MBO
6. Decision making Rational decision making Steps in decision making
7. Quantitative & qualitative factors 8. Managerial analysis
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Nature and purpose of Planning It is the basic function of management. Planning means looking ahead and chalking out future courses of action to be followed & deciding in advance the most appropriate course of actions for achievement of predetermined goals. It is a preparatory step. It is a systematic activity which determines when, how and who is going to perform a specific job. It is an exercise in problem solving & decision making. It is rightly said Well plan is half done. Thus, planning is a systematic thinking about ways & means for accomplishment of predetermined goals.
Planning is necessary to ensure proper utilization of human & non-human resources. It is all pervasive, it is an intellectual activity and it also helps in avoiding confusion, uncertainties, risks, wastages etc. According to Urwick, Planning is a mental predisposition to do things in orderly way, to think before acting and to act in the light of facts rather than guesses. Planning is deciding best alternative among others to perform different managerial functions in order to achieve predetermined goals. According to Koontz & ODonell, Planning is deciding in advance what to do, how to do and who is to do it. Planning bridges the gap between where we are to, where we want to go. It makes possible things to occur which would not otherwise occur. business.
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Types of Plans Plans commit individuals, departments, organizations, and the resources of each to specific actions for the future. Effectively designed organizational goals fit into a hierarchy so that the achievement of goals at low levels permits the attainment of high-level goals. This process is called a means-ends chain because low-level goals lead to accomplishment of high-level goals. Three major types of plans can help managers achieve their organization's goals: strategic, tactical, and operational. Operational plans lead to the achievement of tactical plans, which in turn lead to the attainment of strategic plans. In addition to these three types of plans, managers should also develop a contingency plan in case their original plans fail. Operational plans The specific results expected from departments, work groups, and individuals are the operational goals. These goals are precise and measurable. Process 150 sales applications each week or Publish 20 books this quarter are examples of operational goals. An operational plan is one that a manager uses to accomplish his or her job responsibilities. Supervisors, team leaders, and facilitators develop operational plans to support tactical plans (see the next section). Operational plans can be a single-use plan or an ongoing plan. 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. A budget is also a single-use plan because it predicts sources and amounts of income and how much they are used for a specific project. Continuing or ongoing 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: Purpose or Missions The mission or purpose (terms used interchangeably in this book) identifies the basic function or task of an enterprise or agency, or of any part of it. Every kind of organized operation has, or at least should have if it is to be meaningful, purposes or missions. In every social system, enterprises have a basic function or task, which is assigned to them by society. The purpose of a business is generally the production and distribution of goods and services. The purpose of a state highway department is the design, building and operation of a system of state highways. The purpose of the courts is the interpretation of laws and their application. The purpose of a university is teaching, research, consultancy and training. Some writers distinguish between purposes and missions. While a business, for example, may have a social purpose of producing and distributing goods and services, it can accomplish this by fulfilling a mission of producing certain lines of products. The mission of an oil company, such as Reliance, is to search for oil and to produce, refine and market petroleum and a wide variety of petroleum products, ranging from diesel fuel to chemicals. The mission of the Indian Institute of Technology, Chennai is to emerge as a world class institution that provides intellectual leadership in chosen fields of technology and management. with sustainable competitive advantage. The mission of Indian Institute of Management, Ahmedabad is to professionalize Indian manageDepartment Mechanical Engineering, Annai Vailankanni College of Engineering
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ment through teaching, research, training, institution building and consulting. It also aims to professionalize some of the vital sectors of India's economy, such as agriculture, education, health, transportation, population control, energy and public administration. The mission of NASA is to send Red Rover to Mars and find out if there were any water traces on the red planet. Hallmark, which has expanded its business beyond greeting cards, defines its mission as "the social expression business. Objectives: Objectives are very basic to the organisation and they are defined as ends which the management seeks to achieve by its operations.They serve as a guide for overall business planning. Strategy: strategy is a comprehensive plan for accomplishing an organisation objectives. This comprehensive plan will include three dimensions, (a) determining long term objectives, (b) adopting a particular course of action, and (c) allocating resources necessary to achieve the objective 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. (They are guides to managerial action and decisions in the implementation of strategy.) 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.( (Procedures are routine steps on how to carry out activities. Procedures are specified steps to be followed in particular circumstances. Method: Methods provide the prescribed ways or manner in which a task has to be performed considering the objective. It deals with a task comprising one step of a procedure and specifies how this step is to be performed.
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 (Rules are specific statements that inform what is to be done. They do not allow for any flexibility or discretion). Programme: Programmes are detailed statements about a project which outlines the objectives, policies, procedures, rules, tasks, human and physical resources required and the budget to implement any course of action.
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Budget: It is a plan which quantifies future facts and figures. It is a fundamental planning instrument in many organisations.
Strategic plans A strategic plan is an outline of steps designed with the goals of the entire organization as a whole in mind, rather than with the goals of specific divisions or departments. 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 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. Tactical plans A tactical plan is concerned with what the lower level units within each division must do, how they must do it, and who is in charge at each level. Tactics are the means needed to activate a strategy and make it work. Tactical plans are concerned with shorter time frames and narrower scopes than are strategic plans. These plans usually span one year or less because they are considered short-term goals. Long-term goals, on the other hand, can take several years or more to accomplish. Normally, it is the middle manager's responsibility to take the broad strategic plan and identify specific tactical actions. Contingency plans Intelligent and successful management depends upon a constant pursuit of adaptation, flexibility, and mastery of changing conditions. Strong management requires a keeping all options open approach at all times that's where contingency planning comes in.
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Contingency planning involves identifying alternative courses of action that can be implemented if and when the original plan proves inadequate because of changing circumstances. Keep in mind that events beyond a manager's control may cause even the most carefully prepared alternative future scenarios to go awry. Unexpected problems and events frequently occur. When they do, managers may need to change their plans. Anticipating change during the planning process is best in case things don't go as expected. Management can then develop alternatives to the existing plan and ready them for use when and if circumstances make these alternatives appropriate. Steps in Planning Function/ Planning function of management involves following steps:1. Establishment of objectives a. Planning requires a systematic approach. b. Planning starts with the setting of goals and objectives to be achieved. c. Objectives provide a rationale for undertaking various activities as well as indicate direction of efforts. d. Moreover objectives focus the attention of managers on the end results to be achieved. e. As a matter of fact, objectives provide nucleus to the planning process. Therefore, objectives should be stated in a clear, precise and unambiguous language. Otherwise the activities undertaken are bound to be ineffective. f. As far as possible, objectives should be stated in quantitative terms. For example, Number of men working, wages given, units produced, etc. But such an objective cannot be stated in quantitative terms like performance of quality control manager, effectiveness of personnel manager. g. Such goals should be specified in qualitative terms. Hence objectives should be practical, acceptable, workable and achievable 2. Establishment of Planning Premises a. Certain assumptions about the future on the basis of which the plan will be ultimately formulated. b. Planning premises are vital to the success of planning as they supply pertinent facts, and information relating to the future such as population trends, the general ~omic conditions, production costs and prices, probable competitive behaviour, ca.m.tal and material availability. governmental control and so on. c. Establishment of planning premises is concerned with determining where one tends to deviate from the actual plans and causes of such deviations. d. It is to find out what obstacles are there in the way of business during the course of operations. Planning premises can be variously classified as under: (a) Internal and external premises. (b) Tangible and intangible premises. (c) Controllable and non-controllable premises. (a) Internal and external premises. Internal includes capital investment policy, management labour relations, philosophy of management, etc. Whereas external includes socio- economic, political and economical changes. Internal premises are controllable whereas external are non- controllable. (b) Tangible and intangible premises Some of the planning premises may be tangible while some others may be intangible.
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Tangible premises are those which can be quantitatively measured while intangible premises are those which being qualitative in character cannot be so measured. Population growth, industry demand, capital and resources invested in the organisation are all tangible premises whose quantitative measurement is possible. On the other hand, political stability, sociological factors, business and economic environment, attitudes, philosophies and behaviour of the owners of the organisation are all intangible premises whose quantitative measurement is not possible. (c) Controllable and non-controllable premises While some of the planning premises may be controllable, some others are noncontrollable. Because of the presence of uncontrollable factors, there is Deed -kr the organisation to review the plans periodically in accordance with current developments. Some of the examples of uncontrollable factors are strikes, wars, natural calamities-, emergency, legislation, etc. Controllable factors are those which can be controlled and normally cannot upset wellthought out calculations of the organisation regarding the plan. Some of the examples of controllable factors are: the company's advertising policy, competence of management members, skill of the labour force, availability of resources in terms of capital and labour, attitude and behaviour of the owners of the organisation, etc. 3. Deciding the planning period Once upper-level managers have-selected the basic longterm goals and the planning premises, the next task is to decide the period of the plan. Businesses vary considerably in their planning periods. In some instances plans are made for a year only while in others they span decades. In each case, however, there is always some logic in selecting a particular time range for planning. Companies generally base their period on a future that can reasonably be anticipated. Other factors which influence the choice of a period are as follows: (a) lead time in development and commercialization of a new product; (b) time required to recover capital investments or the pay-back period; and (c) length of commitments already made. a) Lead time in development and commercialization of a new product For example, a heavy engineering company planning to start a new project should have a planning period of, say, five years with one or two years for conception, engineering and development and as many more years for production and sales. On the contrary, a small manufacturer of spare parts who can commercialize his idea in a year or so need make annual plans only. (b) Time required to recover capital investments or the pay-back period These are the number of years over which the investment outlay will be recovered or paid back from the cash inflow if the estimates turn out to be correct. If a machine costs Rs 10 lakh and
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generates cash inflow of Rs 2 lakh a year, it has a pay-back period of five years. Therefore, the plan should also be for at least five years. (C) Length of commitments already made The plan period should, as far as possible, be long enough to enable the fulfillment of commitments already made. For example, if a company has agreed to supply goods to the buyers for five years or has agreed to work out mines for ten years it need also plan for the same period to fulfill its commitments. However, if the length of commitment can somehow be reduced, the plan period can also be reduced. Thus, if the company can grant sub-lease of its mines to other parties, then it can reduce its plan period also. 4. Choice of alternative course of action a. When forecast are available and premises are established, a number of alternative course of actions have to be considered. b. For this purpose, each and every alternative will be evaluated by weighing its pros and cons in the light of resources available and requirements of the organization. c. The merits, demerits as well as the consequences of each alternative must be examined before the choice is being made. d. After objective and scientific evaluation, the best alternative is chosen. The planners should take help of various quantitative techniques to judge the stability of an alternative 5. Formulation of derivative plans a. Derivative plans are the sub plans or secondary plans which help in the achievement of main plan. b. Secondary plans will flow from the basic plan. These are meant to support and expediate the achievement of basic plans. c. These detail plans include policies, procedures, rules, programmes, budgets, schedules, etc. For example, if profit maximization is the main aim of the enterprise, derivative plans will include sales maximization, production maximization, and cost minimization. d. Derivative plans indicate time schedule and sequence of accomplishing various tasks. 5. Securing Co-operation a. After the plans have been determined, it is necessary rather advisable to take subordinates or those who have to implement these plans into confidence. b. The purposes behind taking them into confidence are :a. Subordinates may feel motivated since they are involved in decision making process. b. The organization may be able to get valuable suggestions and improvement in formulation as well as implementation of plans. c. Also the employees will be more interested in the execution of these plans. 6. Follow up/Appraisal of plans a. After choosing a particular course of action, it is put into action. b. After the selected plan is implemented, it is important to appraise its effectiveness. c. This is done on the basis of feedback or information received from departments or persons concerned. d. This enables the management to correct deviations or modify the plan. e. This step establishes a link between planning and controlling function.
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The follow up must go side by side the implementation of plans so that in the light of observations made, future plans can be made more realistic. 7. Measuring and Controlling the Progress Obviously, it is foolish to let a plan run its course without monitoring its progress. Hence the process of controlling is a critical part of any plan. Managers need to check the progress of their plans so that they can (a) take whatever remedial action is necessary to make the plan work, or (b) change the original plan if it is unrealistic. A manager's plans are directed at achieving goals. But a planning effort encounters the following limitations: 1. Planning is an expensive and time-consuming process. It involves significant amounts of money, energy and also risk, without any assurance of the fulfillment of the organisation's objectives. In view of this, many organisations, particularly the smaller ones, are usually unable to afford a formal planning programme. 2. Planning sometimes restricts the or animation to the most rational. and risk-free opportunities It curbs the initiative of the manager an forces him to operate within the limits set by it. Sometimes planning may cause delay in decision-making. In an emergency when there is need for the manager to take a quick decision, he may be bogged down by rules and procedures. 3. The scope of planning is said to be limited in the case of organisations with rapidly changing situations. It is claimed that for industries producing. fashionable articles or for industries engaged in the publication of textbooks, working on a day-to-day basis is more economical than a planned basis . 4. Flexibility of planning cannot be maintained when there are unforeseen changes in the environment, such as a business recession, change in government policy, crop failure, etc. When such events take place, the original plan loses jts value and there IS need to draw up a fresh plan. 8. Numberizing Plans by Budgeting a. After decisions are made and plans are set, the final step is to express them in terms of budgets. b. The overall budgets of an enterprise represent the sum total of income and expenses, with resultant profit or surplus, and budgets of major balance sheet items such as cash and capital expenditures. c. Each department or program of a business or other enterprise can have its own budgets, usually of expenses and capital expenditures, which tie into the overall budget. d. If done well, budgets become a means of adding together the various plans and also set important standards against which planning progress can be measured.
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Characteristics of Planning 1. Planning is goal-oriented. a. Planning is made to achieve desired objective of business. b. The goals established should have general acceptance otherwise individual efforts & energies will go misguided and misdirected. c. Planning identifies the action that would lead to desired goals quickly & economically. d. It provides sense of direction to various activities. E.g. Maruti Udhyog is trying to capture once again Indian Car Market by launching diesel models. 2. Planning is looking ahead. a. Planning is done for future. b. It requires peeping in future, analyzing it and predicting it. c. Thus planning is based on forecasting. d. A plan is a synthesis of forecast. e. It is a mental predisposition for things to happen in future. 3. Planning is an intellectual process. a. Planning is a mental exercise involving creative thinking, sound judgement and imagination. b. It is not a mere guesswork but a rotational thinking. c. A manager can prepare sound plans only if he has sound judgement, foresight and imagination. d. Planning is always based on goals, facts and considered estimates. 4. Planning involves choice & decision making. a. Planning essentially involves choice among various alternatives.
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Therefore, if there is only one possible course of action, there is no need planning because there is no choice. c. Thus, decision making is an integral part of planning. d. A manager is surrounded by no. of alternatives. He has to pick the best depending upon requirements & resources of the enterprises. Planning is the primary function of management / Primacy of Planning. a. Planning lays foundation for other functions of management. b. It serves as a guide for organizing, staffing, directing and controlling. c. All the functions of management are performed within the framework of plans laid out. d. Therefore planning is the basic or fundamental function of management. Planning is a Continuous Process. a. Planning is a never ending function due to the dynamic business environment. b. Plans are also prepared for specific period f time and at the end of that period, plans are subjected to revaluation and review in the light of new requirements and changing conditions. c. Planning never comes into end till the enterprise exists issues, problems may keep cropping up and they have to be tackled by planning effectively. Planning is all Pervasive. a. It is required at all levels of management and in all departments of enterprise. b. Of course, the scope of planning may differ from one level to another. c. The top level may be more concerned about planning the organization as a whole whereas the middle level may be more specific in departmental plans and the lower level plans implementation of the same. Planning is designed for efficiency. a. Planning leads to accompishment of objectives at the minimum possible cost. b. It avoids wastage of resources and ensures adequate and optimum utilization of resources. c. A plan is worthless or useless if it does not value the cost incurred on it. d. Therefore planning must lead to saving of time, effort and money. e. Planning leads to proper utilization of men, money, materials, methods and machines. Planning is Flexible. a. Planning is done for the future. b. Since future is unpredictable, planning must provide enough room to cope with the changes in customers demand, competition, govt. policies etc. c. Under changed circumstances, the original plan of action must be revised and updated to male it more practical. Advantages of Planning Planning facilitates management by objectives. a. Planning begins with determination of objectives. b. It highlights the purposes for which various activities are to be undertaken. c. In fact, it makes objectives more clear and specific. d. Planning helps in focusing the attention of employees on the objectives or goals of enterprise. e. Without planning an organization has no guide.
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Planning compels manager to prepare a Blue-print of the courses of action to be followed for accomplishment of objectives. g. Therefore, planning brings order and rationality into the organization. Planning minimizes uncertainties. a. Business is full of uncertainties. b. There are risks of various types due to uncertainties. c. Planning helps in reducing uncertainties of future as it involves anticipation of future events. d. Although future cannot be predicted with cent percent accuracy but planning helps management to anticipate future and prepare for risks by necessary provisions to meet unexpected turn of events. e. Therefore with the help of planning, uncertainties can be forecasted which helps in preparing standbys as a result, uncertainties are minimized to a great extent. Planning facilitates co-ordination. a. Planning revolves around organizational goals. b. All activities are directed towards common goals. c. There is an integrated effort throughout the enterprise in various departments and groups. d. It avoids duplication of efforts. In other words, it leads to better co-ordination. e. It helps in finding out problems of work performance and aims at rectifying the same. Planning improves employees moral. a. Planning creates an atmosphere of order and discipline in organization. b. Employees know in advance what is expected of them and therefore conformity can be achieved easily. c. This encourages employees to show their best and also earn reward for the same. d. Planning creates a healthy attitude towards work environment which helps in boosting employees moral and efficiency. Planning helps in achieving economies. a. Effective planning secures economy since it leads to orderly allocation of resources to various operations. b. It also facilitates optimum utilization of resources which brings economy in operations. c. It also avoids wastage of resources by selecting most appropriate use that will contribute to the objective of enterprise. For example, raw materials can be purchased in bulk and transportation cost can be minimized. At the same time it ensures regular supply for the production department, that is, overall efficiency. Planning facilitates controlling. a. Planning facilitates existence of certain planned goals and standard of performance. b. It provides basis of controlling. c. We cannot think of an effective system of controlling without existence of well thought out plans. d. Planning provides pre-determined goals against which actual performance is compared. e. In fact, planning and controlling are the two sides of a same coin. If planning is root, controlling is the fruit. Planning provides competitive edge.
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Planning provides competitive edge to the enterprise over the others which do not have effective planning. This is because of the fact that planning may involve changing in work methods, quality, quantity designs, extension of work, redefining of goals, etc. b. With the help of forecasting not only the enterprise secures its future but at the same time it is able to estimate the future motives of its competitor which helps in facing future challenges. c. Therefore, planning leads to best utilization of possible resources, improves quality of production and thus the competitive strength of the enterprise is improved. Planning encourages innovations. a. In the process of planning, managers have the opportunities of suggesting ways and means of improving performance. b. Planning is basically a decision making function which involves creative thinking and imagination that ultimately leads to innovation of methods and operations for growth and prosperity of the enterprise.
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Disadvantages of Planning Internal Limitations There are several limitations of planning. Some of them are inherit in the process of planning like rigidity and other arise due to shortcoming of the techniques of planning and in the planners themselves. 1. Rigidity a. Planning has tendency to make administration inflexible. b. Planning implies prior determination of policies, procedures and programmes and a strict adherence to them in all circumstances. c. There is no scope for individual freedom. d. The development of employees is highly doubted because of which management might have faced lot of difficulties in future. e. Planning therefore introduces inelasticity and discourages individual initiative and experimentation. 2. Misdirected Planning a. Planning may be used to serve individual interests rather than the interest of the enterprise. b. Attempts can be made to influence setting of objectives, formulation of plans and programmes to suit ones own requirement rather than that of whole organization. c. Machinery of planning can never be freed of bias. Every planner has his own likes, dislikes, preferences, attitudes and interests which is reflected in planning. 3. Time consuming a. Planning is a time consuming process because it involves collection of information, its analysis and interpretation thereof. This entire process takes a lot of time specially where there are a number of alternatives available. b. Therefore planning is not suitable during emergency or crisis when quick decisions are required. 4. Probability in planning a. Planning is based on forecasts which are mere estimates about future. b. These estimates may prove to be inexact due to the uncertainty of future. c. Any change in the anticipated situation may render plans ineffective.
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d. Plans do not always reflect real situations inspite of the sophisticated techniques of forecasting because future is unpredictable. e. Thus, excessive reliance on plans may prove to be fatal. False sense of security a. Elaborate planning may create a false sense of security to the effect that everything is taken for granted. b. Managers assume that as long as they work as per plans, it is satisfactory. c. Therefore they fail to take up timely actions and an opportunity is lost. d. Employees are more concerned about fulfillment of plan performance rather than any kind of change.
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Expensive a. Collection, analysis and evaluation of different information, facts and alternatives involves a lot of expense in terms of time, effort and money b. According to Koontz and ODonell, Expenses on planning should never exceed the estimated benefits from planning. External Limitations of Planning 1. Political Climate- Change of government from Congress to some other political party, etc. 2. Labour Union- Strikes, lockouts, agitations. 3. Technological changes- Modern techniques and equipments, computerization. 4. Policies of competitors- Eg. Policies of Coca Cola and Pepsi. 5. Natural Calamities- Earthquakes and floods. 6. Changes in demand and prices- Change in fashion, change in tastes, change in income level, demand falls, price falls, etc. Planning and Control Planning is required at the very outset of management whereas control is required at the last stages. If planning is looking ahead, control is looking back. Relationship between Planning and Controlling 1. Planning originates controlling : The controlling process and technique is decided by planning. 2. Controlling sustains planning : It is the controlling, which directs and diverts the course of planning. Controlling invites our attention to those areas, where planning is necessary. 3. Controlling provides statistical information for planning : The measurement and comparison of actual performance requires preparation of certain statistical information and reports which provide basis for sound planning. 4. Planning is theoretical, whereas controlling is practical : Both planning and controlling are the two sides of the same coin. Both of them aim at achieving the maximum objectives of the business. Planning prepares plans and controlling works on it. 5. Planning and controlling both are inter-related or interwoven : Without controlling planning is not complete. Planning is the basis of Controlling can be exercised only with reference to and on the basis of plans. Unless the management is able to fix in clear terms the objectives of the organization, and can chart out a course of action, effective controlling is impossible.Thus, planning and controlling are mutually interrelated and interdependent activities. 6. Controlling measures plans: Controlling measures are taken in accordance with the predetermined plans, programmes and targets. 7. Planning and controlling, both are forward looking : Both planning and controlling aim at the future prospects of the
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Recognizing the Advantages of Planning The military saying, If you fail to plan, you plan to fail, is very true. Without a plan, managers are set up to encounter errors, waste, and delays. A plan, on the other hand, helps a manager organize resources and activities efficiently and effectively to achieve goals. The advantages of planning are numerous. Planning fulfills the following objectives: Gives an organization a sense of direction. Without plans and goals, organizations merely react to daily occurrences without considering what will happen in the long run. For example, the solution that makes sense in the short term doesn't always make sense in the long term. Plans avoid this drift situation and ensure that short-range efforts will support and harmonize with future goals. Focuses attention on objectives and results. Plans keep the people who carry them out focused on the anticipated results. In addition, keeping sight of the goal also motivates employees. Establishes a basis for teamwork. Diverse groups cannot effectively cooperate in joint projects without an integrated plan. Examples are numerous: Plumbers, carpenters, and electricians cannot build a house without blueprints. In addition, military activities require the coordination of Army, Navy, and Air Force units. Helps anticipate problems and cope with change. When management plans, it can help forecast future problems and make any necessary changes up front to avoid them. Of course, surprises such as the 1973 quadrupling of oil prices can always catch an organization short, but many changes are easier to forecast. Planning for these potential problems helps to minimize mistakes and reduce the surprises that inevitably occur. Provides guidelines for decision making. Decisions are future-oriented. If management doesn't have any plans for the future, they will have few guidelines for making current decisions. If a company knows that it wants to introduce a new product three years in the future, its management must be mindful of the decisions they make now. Plans help both managers and employees keep their eyes on the big picture. Serves as a prerequisite to employing all other management functions.Planning is primary, because without knowing what an organization wants to accomplish, management can't intelligently undertake any of the other basic managerial activities: organizing, staffing, leading, and/or controlling. Using Plans to Achieve Goals Planning is a crucial activity, for it designs the map that lays the groundwork for the other functions. The plan itself specifies what should be done, by whom, where, when, and how. All businesses from the smallest restaurant to the largest multinational corporation need to develop plans for achieving success. But before an organization can plan a course of action, it must first determine what it wants to achieve. Objectives, the end results desired by the organization, are derived from the organization's mission statement. The mission statement explains what the organization stands for and why it exists. A strong mission statement symbolizes legitimacy to external audiences, such as investors, customers, and suppliers. Likewise, a strong mission statement allows employees to identify with the overall purpose of the organization and commit to preserving it. The mission statement is the basis for all goals and plans outlined throughout the organization. Therefore, managers must use effective planning and goal-setting techniques to ensure that internal
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policies, roles, performances, structures, products, and expenditures are in line with the mission of the organization. Identifying Barriers to Planning Various barriers can inhibit successful planning. In order for plans to be effective and to yield the desired results, managers must identify any potential barriers and work to overcome them. The common barriers that inhibit successful planning are as follows:
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to plan or inadequate planning. Managers are not born with the ability to plan. Some managers are not successful planners because they lack the background, education, and/or ability. Others may have never been taught how to plan. When these two types of managers take the time to plan, they may not know how to conduct planning as a process. Lack of commitment to the planning process. The development of of a plan is hard work; it is much easier for a manager to claim that he or she doesn't have the time to work through the required planning process than to actually devote the time to developing a plan. (The latter, of course, would save them more time in the long run!) Another possible reason for lack of commitment can be fear of failure. As a result, managers may choose to do little or nothing to help in the planning process. Inferior information. Facts that are out-of-date, of poor quality, or of insufficient quantity can be major barriers to planning. No matter how well managers plan, if they are basing their planning on inferior information, their plans will probably fail. Focusing on the present at the expense of the future. Failure to consider the long-term effects of a plan because of emphasis on short-term problems may lead to trouble in preparing for the future. Managers should try to keep the big picture their long-term goals in mind when developing their plans. Too much reliance on the organization's planning department. Many companies have a planning department or a planning and development team. These departments conduct studies, do research, build models, and project probable results, but they do not implement plans. Planning department results are aids in planning and should be used only as such. Formulating the plan is still the manager's responsibility. Concentrating on controllable variables. Managers can find themselves concentrating on the things and events that they can control, such as new product development, but then fail to consider outside factors, such as a poor economy. One reason may be that managers demonstrate a decided preference for the known and an aversion to the unknown. The good news about these barriers is that they can all be overcome. To plan successfully, managers need to use effective communication, acquire quality information, and solicit the involvement of others. Importance of Planning

Planning provides directions Planning reduces the risks of uncertainty Planning reduces overlapping and wasteful activities
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Planning promotes innovative ideas Planning facilitates decision making Planning establishes standards for controlling. Features of planning Planning focuses on achieving objectives Planning is a primary function of management Planning is pervasive Planning is continuous Planning is futuristic Planning involves decision making Planning is a mental exercise Planning Principles Planing is a dynamic process, it is very essential for every organisation to achieve their ultimate goals, but, there are certain principles which are essential to be followed so as to formulate a sound plan. They are only guidelines in the formulation and implementation of plans. These principles are as follows:

1. Principle of Contribution: The purpose of planning is to ensure the effective and efficient
achievement of corporate objectives, in-fact, the basic criteria for the formulation of plans are to achieve the ultimate Objectives of the company. The accomplishment of the objectives always depends on the soundness of plans and the adequate amount of contribution of company towards the same. 2. Principle of Sound and Consistent Premising: Premises are the assumptions regarding the environmental forces like economic and market conditions, social, political, legal and cultural aspects, competitors actions, etc. These are prevalent during the period of the implementation of plans. Hence, Plans are made on the basis of premises accordingly, and the future of the company depends on the soundness of plans they make so as to face the state of premises. 3. Principle of Limiting factors : The limiting factors are the lack of motivated employees, shortage of trained personnel, shortage of capital funds, government policy of price regulation, etc. The company requires to monitor all these factors and need to tackle the same in an efficient way so as to make a smooth way for the achievement of its ultimate objectives. 4. Principle of Commitment: A commitment is required to carry-on the business that is established. The planning shall has to be in such a way that the product diversification should encompass the particular period during which entire investment on that product is recovered. 5. Principle of Coordinated Planning: Long and short-range plans should be coordinated with one another to form an integrated plan, this is possible only when latter are derived from the former. Implementation of the long-range plan is regarded as contributing to the implementation of the short-range plan. functional plans of the company too should contribute to all others plans i.e. implementation of one plan should contribute to all the other plans, this is possible only when all plans are consistent with one another and are viewed as parts of an integrated corporate plan. 6. Principle of Timing: Number of major and minor plans of the organisation should be arranged in a systematic manner. The plans should be arranged in a time hierarchy, initiation and completion of those plans should be clearly determined. 7. Principle of Efficiency: Cost of planning constitute human, physical and financial resources for their formulation and implementation as well. Minimizing the cost and achieving the efficient utilization of resources shall has to be the aim of the plans. Cost of plan formulation and implementation, in any case, should not exceed the organisations output's monetary value. Employee satisfaction and development, and social standing of the organisation are supposed to be considered while calculating the cost and benefits of plan.
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MG 61 - Principles of Management 8. Principle of Flexibility: Plans are supposed to be flexible to favour the organisation to cope-up
with the unexpected environments. It is always required to keep in mind that future will be different in actuality. Hence companies, therefore, require to prepare contingency plans which may be put into operation in response to the situations. 9. Principle of Navigational Change: Since the environment is always not the same as predicted, plans should be reviewed periodically. This may require changes in strategies, objectives, policies and programmes of the organisation. The management should take all the necessary steps while reviewing the plans so that they efficiently achieve the ultimate goals of the organisation. 10. Principle of Acceptance: Plans should be understood and accepted by the employees, since the successful implementation of plans requires the willingness and cooperative efforts from them. Communication also plays a crucial role in gaining the employee understanding and acceptance of the plans by removing their doubts and misunderstanding about the plans also their apprehensions and anxieties about consequences of plans for achievement of their personal goal. Criteria for effective goals To make sure that goal setting benefits the organization, managers must adopt certain characteristics and guidelines. The following describes these criteria:
Goals
must be specific and measurable. When possible, use quantitative terms, such as increasing profits by two percent or decreasing student enrollment by one percent, to express goals. Goals should cover key result areas. Because goals cannot be set for every aspect of employee or organizational performance, managers should identify a few key result areas. These key areas are those activities that contribute most to company performance for example, customer relations or sales. Goals should be challenging but not too difficult. When goals are unrealistic, they set employees up for failure and lead to low employee morale. However, if goals are too easy, employees may not feel motivated. Managers must be sure that goals are determined based on existing resources and are not beyond the team's time, equipment, and financial resources. Goals should specify the time period over which they will be achieved.Deadlines give team members something to work toward and help ensure continued progress. At the same time, managers should set short-term deadlines along the way so that their subordinates are not overwhelmed by one big, seemingly unaccomplishable goal. It would be more appropriate to provide a short term goal such as, Establish a customer database by June 30. Goals should be linked to rewards. People who attain goals should be rewarded with something meaningful and related to the goal. Not only will employees feel that their efforts are valued, but they will also have something tangible to motivate them in the future.
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Coordination of goals: All the different levels of management should have plans that work together to accomplish the organization's purpose. The plans of the top-, middle-, and first-level managers of an organization should work together to achieve the main goal. All managers plan basically the same way, but the kinds of plans they develop and the amount of time they spend on planning vary. Here are some examples:
Top-level
managers are concerned with longer time periods and with plans for larger organizational units. Their planning includes developing the mission for the organizational units, the organizational objective, and major policy areas. These goals are called strategic goals or objectives. Middle-level managers' planning responsibilities center on translating broad objectives of toplevel management into more specific goals for work units. These goals are called tactical goals or objectives. First-level managers are involved in day-to-day plans, such as scheduling work hours, deciding what work will be done and by whom, and developing structures to reach these goals. These goals are called operational goals or objectives. If a first-level manager develops a set of plans that contradicts that of a middle-level manager, conflicts will result. Therefore, all managers must work together when planning their activities What is MBO? Management Management by objectives (MBO) is a systematic and organized approach that allows management to focus on achievable goals and to attain the best possible results from available resources. It aims to increase organizational performance by aligning goals and subordinate objectives throughout the organization. Ideally, employees get strong input to identify their objectives, time lines for completion, etc. MBO includes ongoing tracking and feedback in the process to reach objectives. Management by Objectives (MBO) was first outlined by Peter Drucker in 1954 in his book 'The Practice of Management'. In the 90s, Peter Drucker himself decreased the significance of this organization management method, when he said: "It's just another tool. It is not the great cure for management inefficiency... Management by Objectives works if you know the objectives, 90% of the time you don't." Core Concepts According to Drucker managers should "avoid the activity trap", getting so involved in their day to day activities that they forget their main purpose or objective. Instead of just a few top managers, all managers should: participate in the strategic planning process, in order to improve the implementability of the plan, and implement a range of performance systems, designed to help the organization stay on the right track. Managerial Focus
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MBO managers focus on the result, not the activity. They delegate tasks by "negotiating a contract of goals" with their subordinates without dictating a detailed roadmap for implementation. Management by Objectives (MBO) is about setting yourself objectives and then breaking these down into more specific goals or key results. Main Principle The principle behind Management by Objectives (MBO) is to make sure that everybody within the organization has a clear understanding of the aims, or objectives, of that organization, as well as awareness of their own roles and responsibilities in achieving those aims. The complete MBO system is to get managers and empowered employees acting to implement and achieve their plans, which automatically achieve those of the organization. Where to Use MBO The MBO style is appropriate for knowledge-based enterprises when your staff is competent. It is appropriate in situations where you wish to build employees' management and self-leadershipskills and tap their entrepreneurial creativity, tacit knowledge and initiative. Management by Objectives (MBO) is also used by chief executives of multinational corporations (MNCs) for their country managers abroad. Setting Objectives For Management by Objectives (MBO) to be effective, individual managers must understand the specific objectives of their job and how those objectives fit in with the overall company objectives set by the board of directors. The managers of the various units or sub-units, or sections of an organization should know not only the objectives of their unit but should also actively participate in setting these objectives and make responsibility for them. The review mechanism enables leaders to measure the performance of their managers, especially in the key result areas: marketing; innovation; human organization; financial resources; physical resources; productivity; social responsibility; and profit requirements... More Balance between Management and Employee Empowerment The balance between management and employee empowerment has to be struck, not by thinkers, but by practicing managers. Turning their aims into successful actions, forces managers to master five basic operations: setting objectives, organizing the group, motivating and communicating, measuring performance, and developing people, including yourself. These Management by Objectives (MBO) operations are all compatible with empowerment, if you follow the main principle of decentralization: telling people what is to be done, but letting them achieve it their own way. To make the principle work well, people need to be able to develop personally. Further, different people have different hierarchy of needs and, thus, need to be managed differently if they are to perform well and achieve their potential.
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Empowerment recognizes "the demise" of the command-and-control system, but remains a term of power and rank. A manager should view members of his or her team much as a conductor regards the players in the orchestra, as individuals whose particular skills contribute to the success of the enterprise. While people are still subordinates, the superior is increasingly dependent on the subordinates for getting results in their area of responsibility, where they have the requisite knowledge. In turn, these subordinates depend on their superior for direction and "above all, to define what the 'score' if for the entire organization, that is, what are standards and values, performance and results." Individual Responsibility Management by Objectives (MBO) creates a link between top manager's strategic thinking and the strategy's implementationlower down. Responsibility for objectives is passed from the organization to its individual members. It is especially important forknowledge-based organizations where all members have to be able to control their own work by feeding back from their results to their objectives. Management by objectives is achieved through self-control, the tool of effectiveness. Today the worker is a self-manager, whose decisions are of decisive importance for results. In such an organization, management has to ask each employee three questions: 1. 2. 3. What should we hold you accountable for? What information do you need? What information do you owe the rest of us?
Managing for Results The only place where meaningful management results can be won is the outside world. Managing for results is expansion of Management by Objectives (MBO) into the marketplace. It is the theory and practice of how to produce results on the outside, in the market and economy. To achieve results, you should develop a solid, sound, customer-focused, and entrepreneurial strategy, aimed at market leadership, based on innovation, and tightly focused on decisive opportunities... More
MBO: Key Advantages and Disadvantages5 Advantages MBO programs continually emphasize what should be done in an organization to achieve organizational goals. MBO process secures employee commitment to attaining organizational goals. Disadvantages The development of objectives can be time consuming, leaving both managers and employees less time in which to do their actual work.
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The elaborate written goals, careful communication of goals, and detailed performance evaluation required in an MBO program increase the volume of paperwork in an organization.
The essence of MBO is participative goal setting, choosing course of actions and decision making. An important part of the MBO is the measurement and the comparison of the employees actual performance with the standards set. Ideally, when employees themselves have been involved with the goal setting and the choosing the course of action to be followed by them, they are more likely to fulfill their responsibilities. THE MBO PROCESS
UNIQUE FEATURES AND ADVANTAGES OF MBO The principle behind Management by Objectives (MBO) is to create empowered employees who have clarity of the roles and responsibilities expected from them, understand their objectives to be achieved and thus help in the achievement of organizational as well as personal goals. Some of the important features and advantages of MBO are:
Clarity of goals With MBO, came the concept of SMART goals i.e. goals that are: Specific Measurable Achievable Realistic, and Time bound. The goals thus set are clear, motivating and there is a linkage betweenorganizational goals and performance targets of the employees. The focus is on future rather than on past. Goals and standards are set for the performance for the future with periodic reviews and feedback. Motivation Involving employees in the whole process of goal setting and increasing
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employee empowerment increases employee job satisfaction and commitment. Better communication and Coordination Frequent reviews and interactions between superiors and subordinates helps to maintain harmonious relationships within the enterprise and also solve many problems faced during the period. Self Appraisal Performance appraisal feedback
Performance Review - Preparation Performance Review - The Meeting How to Complete a Performance Appraisal Form Analysis for Improving Performance Active performance conversation appraisal
Performance Consulting: Beyond Training Writing performance appraisal
Moving
Performance Appraisal Training How to Performance Measure Employee
FAQ about Performance Appraisal
Peter Drucker's Management By Objectives In 1955, Peter Drucker published his book titled The Practice of Managment. In his book, Peter Drucker presented his theory of management by objectives. It emphasised the importance of corporate objectives as a tool to assist managers in the successful completion of their tasks and responsibilities. Peter Drucker believed that for a business to become successful, the activities of all of the workforce and management should be focused on a common goal. This meant that each individual in a business should be given targets or objectives that when combined would assist in achieving the corporate objectives of the business. In his book Peter Drucker made the suggestion that managers should communicate and consult with their staff with regards to the setting of objectives and that staff should provide feedback to their superiors on several factors. These factors would include what their objectives should be, what was needed to achieve them, what managers could do to help staff achieve their objectives and what should be done in the future. For management by objectives to be successfully implemented it is imperative that delegation can occur from management to staff. Peter Drucker felt that if this was not possible, management by objectives would not function properly and managers and workers should be able to control their own performance. He believed that there was no benefit from setting objectives for people and not giving them the freedom of ability to direct their own efforts to achieve their objectives.
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The implementation of management by objectives can cause conflicts in a business due to varying management styles. An example of this would be that authoritarian managers would dislike the loss of power through delegation and would most likely resist the implementation of management by objectives. Peter Drucker suggested that management by self control was better than management by dominance even though this may involve changing the whole management philosophy and culture of a business. He felt that with self control brought with it self discipline which is the core principle of management by objectives and that workers want responsibility, to contribute to the business and want to help the business achieve its objectives. Advantages of Management by Objectives
Increased
Motivation. It provides clear objectives for managers which they need to achieve and allows for the prioritisation of activities which leads to improved time management. This enables them to achieve their own objectives and the objectives of the business as a whole. This makes management by objectives act as a motivator because individuals can measure their performance against their agreed targets. Indication of performance. Management by objectives provides a performance indicator for the business. The objectives set act as a control mechanism due to the ability to check an individuals performance against their targets. This makes it easier for the business to identify when performance does not meet the required targets, making it easier to decide on what action to take to rectify the problem. Increased focus. Due to the way that management by objectives works, all employees should be working towards the same goal. This would therefore ensure that all activities undertaken by employees should benefit the business. Disadvantages of Management by Objectives
Low
morale and high stress levels. If objectives are imposed on employees rather than agreed it can reduce morale and if targets are overambitious it can cause high levels of stress for employees. Increased bureaucracy. The process of determining and agreeing targets can be very bureaucratic and time consuming due to the number of meetings and discussions needed. Long term implications. In certain businesses, depending on its corporate culture, management by objectives can lead to short-termism which can lead to the long term detriment of the business. This is especially true in industries or businesses where salaries and benefits are determined the amount of sales made and how they compare to others. This can lead targets to become more focused on quantity rather than quality, appropriateness and ethics. Unsuitable or unrealistic targets. As circumstances change, targets can quickly become outdated or unrealistic. If the business does not evaluate and change its targets to reflect changes in circumstances, it would most likely reduce the flexibility of a businesss response. There is also no guarantee that targets set will be met which may lead to more time being spent in setting targets rather than achieving them.
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In conclusion, despite the apparent advantages of management by objectives its use has declined and is rejected fiercely by many businesses. This is due to the constraint it puts on management thinking. It can cause managers to miss business opportunities due to them being too focused on their targets which are a major problem in business environments that change rapidly and where the business needs to respond quickly to changes. Management by objectives can also lead to a reduction in innovation or creativity in the business when responding to different situations. However, for large businesses that operate in stable markets, management by objectives is still considered to be suitable. 1. Determination of objectives. The first step in planning work is to determine the overall, major objectives. These objectives set the pattern of the proposed course of action and shape the structure of other subsidiary objectives in the organization. That is, major objectives are broken down into departmental, sectional and individual objectives when derivative plans are developed throughout the organization. Major objectives must be spelled out in realistic or specific terms rather than the establishment of general philosophical or creed-type objectives. Creed-type objectives are completely useless in managerial planning. As a guide to action, objectives must be specific, informative and clear enough to indicate what is to be done. 2. Establishment of planning premises. Planning premises are assumptions about the further or understanding of the expected situation. On the stage of planning, they provide the setting or back-drop against which all planning activities are carried out. Planning premises supply pertinent facts and information relating to the future, and as such, they are vital to the success of planning. Forecasts and trends analyses provide most of the information required in planning. 3. Selection of the operating plan from alternatives. In business, there exists a number of alternative courses of actions for achieving the desired results. All these courses of action must be found out for their comparative and analytical evaluation. With reference to considerations like cost, risk and gain, all available alternatives are appraise to select a satisfactory course of action. In other words, the techniques of decision making are applied to choose the proposed course of action from several alternatives. If alternatives are not developed, planning becomes a straight-jacket pattern of activity and loses much of its beneficial results. The overall programme or the operating plan emerges from this steps in the planning process. 4. Preparation of derivative plans. The overall operating plan of the enterprise can not be executed effectively unless it is supported, enlarged and clarified by the preparation of other derivative plans for each segment of the company. Within the framework of a primary and basic operating plan, the derivative plans are developed in each area of the business to integrate objectives with all relevant policies, procedures, programmes and budgets. The breakdown of the primary plan of action into departmental and sectional plans gives a realistic pictures of things to come in future.
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5. Timing and sequence of operations. Timing is an essential consideration in planning, and it gives practical shape and concrete form to the programme. The starting and finishing times are fixed for each piece of work so as to indicate when and within what time the work is to be commenced and completed. There are several cases on record to show that bad timing of programmes has resulted in their failure. Further to maintain a symmetry of performance and a smooth flow of work, the sequence of operations is to be arranged carefully by giving priorities to some work in preference to others. Sequence determination is, of course, tied up with timing and both of them are encompassed in scheduling. 6. Securing participation. For the effective execution of the programme, the subordinate's participation has been found to be of extreme importance. Plans must be communicated and explained in greater details to the subordinated for increasing their understanding of the proposed action and for enlisting their co-operation in the execution of plans. This participation improves the equality of planning thorough the knowledge of additional facts, new visions and revealing situations. Moreover, the participating mangers owe a personal obligation to execute the plan as effectively as possible. The sky to the successful execution of plans lies in having a fully informed group of managers and employees. Accordingly, joint participation in planning has become the rule rather than an exception now-a-days.
Forecasting
Eight Steps to Forecasting 1. Determine the use of the forecast What objective are we trying to obtain? 2. Select the items or quantities that are to be forecasted. 3. Determine the time horizon of the forecast. Short time horizon 1 to 30 days Medium time horizon 1 to 12 months Long time horizon more than 1 year 4. Select the forecasting model or models 5. Gather the data to make the forecast. 6. Validate the forecasting model 7. Make the forecast 8. Implement the results Definition of 'Forcasting' 1. The use of historic data to determine the direction of future trends. 2. Forecasting is used by companies to determine how to allocate their budgets for an upcoming period of time.
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MG 61 - Principles of Management 3. This is typically based on demand for the goods and services it offers, compared to the cost of
producing them. 4. Investors utilize forecasting to determine if events affecting a company, such as sales expectations, will increase or decrease the price of shares in that company. 5. Forecasting also provides an important benchmark for firms which have a long- term perspective of operations. 6. Forecasting is a prelude to planning. Before making plans, an estimate must be made of what conditions will exist over some future period. How estimates are made, and with what accuracy, is another matter, but little can be done without some form of estimation. What is forecasting? Forecasting is a tool used for predicting future demand based on past demand information. Why forecast?
There are many circumstances and reasons, but forecasting is inevitable in developing plans to satisfy future demand. Most firms cannot wait until orders are actually received before they start to plan what to produce. Customers usually demand delivery in reasonable time, and manufacturers must anticipate future demand for products or services and plan to provide the capacity and resources to meet that demand. Firms that make standard products need to have saleable goods immediately available or at least to have materials and subassemblies available to shorten the delivery time. Firms that make to order cannot begin making a product before a customer places an order but must have the resources of labor and equipment available to meet demand. Forecasting is used to make informed decisions. Long-range Short-range
Forecast Forecast affect decisions and activities throughout an organization Accounting, finance Human resources Marketing MIS Operations Product / service design
Why isforecasting important? Mistakes are costly: If you produce too much of a product, or a product that no one wants to buy, you still must pay for materials, labor, and storage.
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If you produce too little of a product, you will lose sales and possibly market share. Uses of Forecasts Accounting Cost/profit estimates Finance Human Resources Marketing MIS Operations Product/service design Forecasting Horizons Long Term 5+ years into the future R&D, plant location, product planning Principally judgement-based Medium Term 1 season to 2 years Aggregate planning, capacity planning, sales forecasts Mixture of quantitative methods and judgement Short Term 1 day to 1 year, less than 1 season Demand forecasting, staffing levels, purchasing, inventory levels Quantitative methods Cash flow and funding Hiring/recruiting/training Pricing, promotion, strategy IT/IS systems, services Schedules, workloads New products and services
Short Term Forecasting: Needs and Uses Scheduling existing resources How many employees do we need and when? How much product should we make in anticipation of demand? Acquiring additional resources When are we going to run out of capacity? How many more people will we need? How large will our back-orders be?
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Determining what resources are needed What kind of machines will we require? Which services are growing in demand? declining? What kind of people should we be hiring?
Types of Forecasting Models/Techniques 1. Types of Forecasts Qualitative --- based on experience, judgement, knowledge; Quantitative --- based on data, statistics; 2. Methods of Forecasting Naive Methods --- eye-balling the numbers; Formal Methods --- systematically reduce forecasting errors; 3. Time series models (e.g. exponential smoothing); 4. Causal models (e.g. regression). Focus here on Time Series Models 5. Assumptions of Time Series Models There is information about the past; This information can be quantified in the form of data; The pattern of the past will continue into the future. Types of Forecasts Economic Forecasts- projections of economic growth, inflation rates, money supply based on economic and fiscal data trends along with policy interventions Demographic Forecasts- projections of population in aggregate and disaggregate form forecasts using birth and death rates in each case Technological Forecasts- predicting technological change e.g. in cloud computing or electronics sectors et al Other Forecasts- weather, earthquakes, tsunami et al Business Forecasts- involving demand and sales forecasts our primary interest in this DPF course Forecasting Characteristics By its very nature, forecasting always has errors; forecasts rarely match actual demand/sales; forecast accuracy and errors are real issues
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Their chosen time horizon also determines accuracy with shorter periods having higher accuracy; the constant need to reduce lead times also puts focus on shorter planning horizons( as in lean manufacturing/JIT environments) Aggregate demand forecasts are more accurate than market segmental forecasts( e.g. all Maruti 800 cars versus red Maruti 800s; all paints versus blue color paints; all toothpastes versus herbal toothpastes); these have implications at different levels/stages of the supply chain Forecasting Horizon-focus Short term forecasts say for next 1-2 months for current production planning and scheduling; for specific products, machine capacities and deployment, labor skills and usage, cash inventories ; operational focus Medium term forecasts say for next 3-12 months for plant level planning for product/volume changes requiring redeployment of resources; for product groups, departmental capacities, work force management, purchased materials and inventories; tactical focus Long term forecasts 1 year to 3 years for planning a new plant or facility requiring major investments and other resources for both new and old product lines; strategic focus
Forecasting Horizon- methodology Short-term forecasting( 1 day to 3 months) for production planning needing disaggregated product forecasts with high accuracy levels; primarily uses time series data methods Medium-term forecasting( 3 months to 12-24 months) useful for aggregate sales and operational planning; also for seasonal business operations; uses both time series and causal forecasting models Long term forecasting( beyond 24 months) useful for aggregate business planning for capacity and site/location decisions; uses judgment and causal models Features of Forecasts Assumes causal system past ==> future. Forecasts rarely perfect because of randomness. Forecasts more accurate for groups vs. individuals. Forecast accuracy decreases as time horizon increases Elements of a Good Forecast 1. Timely 2. Reliable 3. Accurate 4. Meaningful
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5.
Easy to use
Steps in the Forecasting Process:
Forecasting Models/Techniques
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Types of forecasting methods/Techniques Qualitative methods Rely on subjective opinions from one or more experts. based on experience, judgement, knowledge; Quantitative methods Rely on data and analytical techniques. based on statistics;
Qualitative forecasting methods/Techniques

Grass Roots: deriving future demand by asking the person closest to the customer. Market Research: trying to identify customer habits; new product ideas. Panel Consensus: deriving future estimations from the synergy of a panel of experts in the area. Historical Analogy: identifying another similar market. Delphi Method: similar to the panel consensus but with concealed identities. Qualitative Forecasting Models (cont) 1. Jury of executive opinion Opinions of a small group of high level managers, often in combination with statistical models. Result is a group estimate. 2. Sales force composite Each salesperson estimates sales in his region. Forecasts are reviewed to ensure realistic. Combined at higher levels to reach an overall forecast. 3. Consumer market survey. Solicits input from customers and potential customers regarding future purchases. Used for forecasts and product design & planning Quantitative forecasting methods/Techniques Time Series and Trend Analysis: models that predict future demand based on past history trends Causal Relationship: Models that use statistical techniques to establish relationships between various items and demand Simulation: Models that can incorporate some randomness and non-linear effects Techniques of Forecasting 1. Business Barometers The term barometer is refers to indicator of business situation. Past pattern or business trends tend to repeat in future. This helps in preparing forecasting
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2. Time Series and Trend Analysis. Time series analysis helps in identifying. Regulation of systematic variation is data series cyclical fluctuations 3. Regression or Correlation techniques. These are statistical techniques. Which establish in relationship in multiple variables? Such multivariate analysis provides the help for estimating future figure with the help of techniques suggested by statisticians. Techniques of Forecasting 1. Extrapolation This is mathematical techniques based on principle of relative consistency in pattern of past movements. The techniques such as arithmetic techniques of extrapolation, semi-log trend, modified exponential trend, logistic curve are used for extrapolating purpose. 2. Economic Model Economics refer to the application of mathematical economic theory and statistical procedures to the economic data in order to verify economic theorems and to establish quantitative results. With the help of computers, it has been now very easy to solve simultaneous equations with any number of variables, which was an impossible task in previous generations.
Forecast Variations:
How should we pick our forecasting model/Techniques?/Choosing a Forecasting Technique No single technique works in every situation
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Two most important factors 1. Cost & 2. Accuracy Other factors include the availability of: 1. Data availability/Historical data 2. Time horizon for the forecast 3. Required accuracy 4. Required Resources 5. Time needed to gather and analyze the data 6. Computers Four Fundamental Approaches Subjective Judgmental Experimental Sales force surveys Delphi techniques Jury of experts Objective Causal / Relational Econometric Models Leading Indicators Input-Output Models Time Series Customer surveys Focus group sessions Test Marketing Black Box Approach Uses past to predict the future
Evaluating Forecasts Visual Review Errors Errors Measure MPE and MAPE Tracking Signal
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Forecasting Problems
Lack of understanding of integrated market and supply realities by key decision makers within an organization Lack of trust and transparency amongst supply chain elements and partner organizations Lack of proper communication, coordination and collaboration amongst supply chain partners Lack of metrics for measuring total supply chain performance Lack of IT tools, processes, professional competencies to achieve accurate forecasts
Principles of Forecasting Forecasts have four major characteristics or principles. An understanding of these will allow us to make more effective use of forecasts. They are simple and, to some extent, common sense. Forecasts are usually wrong. Forecasts attempt to look into the unknown future and, except by sheer luck, will be wrong to some degree. Errors are inevitable and must be expected. Every forecast should include an estimate of error. Since forecasts are expected to be wrong, the real question is, By how much? Every forecast should include an estimate of error often expressed as a percentage (plus and minus) of the forecast or as a range between maximum and minimum values. Estimates of this error can be made statistically by studying the variability of demand about the average demand. Forecasts are more accurate for families or groups. The behavior of individual items in a group is random even when the group has very stable characteristics. (For example, the marks for individual students in a class are more difficult to forecast accurately than the class average. High marks average out with low marks. This means that forecasts are more accurate for large groups of items than for individual items in a group).
For production planning, families or groups are based on the similarity of process and equipment used. ( For example, a firm forecasting the demand for knit socks as a product group might forecast mens socks as one group and womens as another since the markets are different. However, production of mens and womens ankle socks will be done on the same machines and knee socks on another. For production planning, the forecast should be for (a) mens and womens ankle socks and (b) mens and womens knee socks)
Principles of Forecasting
Forecasts are more accurate for nearer time periods. The near future holds less uncertainty than the far future. Most people are more confident in forecasting what they will be doing over the next week than a year from now. As someone once said, tomorrow is expected to be pretty much like today. In the same way, demand for the near term is easier for a company to forecast than for a time in the distant future. This is extremely important for long lead-time items and especially so if their demand is dynamic. Anything that can be done to reduce lead time will improve forecast accuracy.
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Applications of forecasting in many situations Supply chain management - Forecasting can be used in Supply Chain Management to make sure that the right product is at the right place at the right time. Accurate forecasting will help retailers reduce excess inventory and therefore increase profit margin. Studies have shown that extrapolations are the least accurate, while company earnings forecasts are the most reliable. Accurate forecasting will also help them meet consumer demand. Weather forecasting, Flood forecasting, Meteorology, Transport planning, Transportation forecasting, Economic forecasting, Egain Forecasting, Technology forecasting, Earthquake prediction, Land use forecasting ,Product forecasting, Player and team performance in sports Telecommunications forecasting, Political Forecasting Sales Forecasting Methods/ Techniques of Forecasting Naive Forecasts
Operations 1. Forecasts many 2. Work to improve short-term forecasts 3. Accurate short-term forecasts improve Profits Lower inventory levels Reduce inventory shortages Improve customer service levels Enhance forecasting credibility Forecasting Problems
Strategy are the basis for decisions
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Lack of understanding of integrated market and supply realities by key decision makers within an organization Lack of trust and transparency amongst supply chain elements and partner organizations Lack of proper communication, coordination and collaboration amongst supply chain partners Lack of metrics for measuring total supply chain performance Lack of IT tools, processes, professional competencies to achieve accurate forecasts
Decision making
Managers as Decision Makers Decision making the process of recognizing a problem or opportunity and creating a solution A decision is a choice between alternatives
Steps in the Decision Making Process
Steps in the Rational Decision-Making Process
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Evaluating Alternatives in the Decision-Making Process
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Rational Decision-making Process Steps
Types of problems and decisions:

Well-Structured Problems - straightforward, familiar, and easily defined Programmed Decisions - A structured decision or one that occurs frequently and used to address structured problems. Have well established and understood solutions i. minimize the need for managers to use discretion ii. facilitate organizational efficiency Poorly-Structured Problems - new, unusual problems for which information is ambiguous or incomplete Nonprogrammed Decisions - An unstructured decision, which occurs less frequently than a programmed decision, Involves complex, important, and nonroutine problems or opportunities (used to address poorly- structured problems) produce a custom-made response more frequent among higher-level managers Procedure, Rule, & Policy
Types of problems & levels in the organization
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Decision making conditions:
Distinguishing Between Decision Making Conditions
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Rational Perspectives on Decision Making
Behavioral Aspects of Decision Making

The Administrative Model of Decision Making
The Administrative Model

Important Behavioral Concepts Bounded rationality Satisficing Coalition Intuition Escalation of Commitment Risk Propensity
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Ethics and Decision Making

Components of managerial ethics: Relationships of the firm to employees Employees to the firm The firm to other economic agents
Group and Team Decision Making in Organizations The most common method of group and team decision making are: Interacting groups Delphi groups Nominal groups.
Group Decision Making Advantages More information & knowledge are available More alternatives are likely to be generated More acceptance of the final decision is likely Enhanced communication of the decision may result Better decisions Disadvantages The process takes longer, so it is more costly Compromise decisions due to indecisiveness may emerge One person may dominate the group Groupthink may occur
Advantages and Disadvantages of Group- Aided Decision Making Advantages Greater pool of knowledge Different perspectives Greater comprehension Increased acceptance Training ground Disadvantages Social pressure Minority domination Logrolling Goal displacement Groupthink
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Groupthink A situation that occurs when a group or teams desire for consensus and cohesiveness overwhelms its desire to reach the best possible decision.
Managing Group and Team Decision-Making Processes Promoting the Effectiveness of Group and Team Decision Making:
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Common Errors in Decision Making
Over-confidence Hindsight Self-serving Sunk costs

Self-assessment Questions
Randomness Representation Availability Framing
Confirmation Selective perception Anchoring Immediate gratification
1. What is planning? What are the steps involved in it? 2. What is the nature and purpose of plann ing? Br iefly explain the comp onents of planning. 3. "Planning is the essence of management, it is a management function". Elucidate. 4. What is planning? Explain its characteristics. 5. Discuss the importance of planning. If two football teams of equal ability are going to meet two weeks hence, which do you think will have the best chance of winning : Team 1, which has scouted the other team and trained its players on Team 2's strengths and weaknesses, or Team 2 which has ignored its opponents? 6. What are planning premises? Explain the classifications of planning premises. 7. Explain the advantages and limitations of planning. 8. Discuss the importance of planning. What should be done to overcome its limitations? 9. Define objectives. Discuss the characteristics of business objectives . Why should objectives be verifiable? 10. Define objectives. Explain the criteria of sound objectives. Can an objective be a planning premise? Give reasons. 11. What do you understand by the term 'policy'? Explain the different types of policies and
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describe how policies are formulated. 12. Distinguish between the terms 'strategy' and 'policy'. List some of the issues on which a policy is to be laid down in the area of finance . 13. Discuss the technique of 'management by objectives' and briefly show its benefits. 14. What is the difference between a policy and a procedure? Should a policy be permanent or subject to ready changes? 15. "Planning is essentially forward looking". Explain . 16. What is the importance of planning in modern business? Describe the important principles of planning. 17. Distinguish between a policy and a strategy. Give your suggestions for making policies effective. 18. Point out the difference between planning and forecasting and explain the various steps involved in planning. 19. Explain 'planning premises'. List the planning premises you would have, as a manufacturer, of anyone of the following: cement, sugar, liquor. 20. "Planning is described as the selection from the alternatives of policies, procedures and programmes". Examine this statement. 21. Why are strategies important? Can an organisation be successful without effective strategies? 22. How do policies differ from strategies? 23. Write short notes on the following. Objectives (a) (b) Systems approach to managing (c) MBO process (d) Quantitative objectives and Quantitative objectives' (e) Verifiable objectives (f) Benefits of MBO (g) Weaknesses of MBO 24. What do you understand by 'objective'? How important are they in managing an organization? Illustrate. 25. Explain the concept of MBO. What are its benefits and weaknesses? 26. How do you implement MBO in an organization? Draw a flow chart. Explain why MBO did not take off in Indian business organizations. 27."The only planning tool we need in this company is the budget. If everyone meets his or her budget, we need nothing else, and management by objectives would be an unnecessary waste". Comment. 28.(a) What are the factors responsible for the limited success of MBO programs? Explain. (b) Do you believe that managing by objectives could be introduced in a government agency? A university?
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Planning Notes Final 1

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MG 61 - Principles of Management

Department Mechanical Engineering, Annai Vailankanni College of Engineering

4. The Planning process 5. Management by objectives (MBO) Benefits of MBO

Department Mechanical Engineering, Annai Vailankanni College of Engineering

6. Decision making Rational decision making Steps in decision making

7. Quantitative & qualitative factors 8. Managerial analysis

Department Mechanical Engineering, Annai Vailankanni College of Engineering

Department Mechanical Engineering, Annai Vailankanni College of Engineering

Department Mechanical Engineering, Annai Vailankanni College of Engineering

Department Mechanical Engineering, Annai Vailankanni College of Engineering

Department Mechanical Engineering, Annai Vailankanni College of Engineering

Department Mechanical Engineering, Annai Vailankanni College of Engineering

Department Mechanical Engineering, Annai Vailankanni College of Engineering

Department Mechanical Engineering, Annai Vailankanni College of Engineering

Department Mechanical Engineering, Annai Vailankanni College of Engineering

Department Mechanical Engineering, Annai Vailankanni College of Engineering

Department Mechanical Engineering, Annai Vailankanni College of Engineering

Department Mechanical Engineering, Annai Vailankanni College of Engineering

Performance Consulting: Beyond Training Writing performance appraisal

Performance Appraisal Training How to Performance Measure Employee

FAQ about Performance Appraisal

Department Mechanical Engineering, Annai Vailankanni College of Engineering

Department Mechanical Engineering, Annai Vailankanni College of Engineering

Department Mechanical Engineering, Annai Vailankanni College of Engineering

Department Mechanical Engineering, Annai Vailankanni College of Engineering

Department Mechanical Engineering, Annai Vailankanni College of Engineering

Department Mechanical Engineering, Annai Vailankanni College of Engineering

Steps in the Forecasting Process:

Department Mechanical Engineering, Annai Vailankanni College of Engineering

Qualitative forecasting methods/Techniques

Department Mechanical Engineering, Annai Vailankanni College of Engineering

Department Mechanical Engineering, Annai Vailankanni College of Engineering

Strategy are the basis for decisions

Department Mechanical Engineering, Annai Vailankanni College of Engineering

Steps in the Decision Making Process

Steps in the Rational Decision-Making Process

Department Mechanical Engineering, Annai Vailankanni College of Engineering

Evaluating Alternatives in the Decision-Making Process

Department Mechanical Engineering, Annai Vailankanni College of Engineering

Rational Decision-making Process Steps

Types of problems and decisions:

Types of problems & levels in the organization

Department Mechanical Engineering, Annai Vailankanni College of Engineering

Decision making conditions:

Distinguishing Between Decision Making Conditions

Department Mechanical Engineering, Annai Vailankanni College of Engineering

Rational Perspectives on Decision Making

Behavioral Aspects of Decision Making

The Administrative Model

Department Mechanical Engineering, Annai Vailankanni College of Engineering

Ethics and Decision Making

Department Mechanical Engineering, Annai Vailankanni College of Engineering

Department Mechanical Engineering, Annai Vailankanni College of Engineering

Common Errors in Decision Making

Over-confidence Hindsight Self-serving Sunk costs

Randomness Representation Availability Framing

Confirmation Selective perception Anchoring Immediate gratification

Department Mechanical Engineering, Annai Vailankanni College of Engineering

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