decision making and planning

Decisions Making and Planning

Decision -Making and Planning

Decision Making: Essence of a Manager’s Job:

What is Decision- Making?Individuals at all levels and in all areas of organization make decisions. That is, they make choices from two or more alternatives. The decision made by a firm’s manger plays a vital role in determining the success of organization. A decision reached thirty years ago made Sam Walton the richest man in America. He decided to concentrate his Wal-Mart discount store in small towns and medium size cities whereas his larger rival such as K-Mart concentrated on urban areas. Decision making function of a manager is so important that it is sometimes termed as the essence of managing. The decision of our Government of not allowing Optical Fiber Cable free of cost, caused delay in developing our IT sector. The Optical Fiber cable is now being installed at a huge cost, which was offered free to the then Government.

Decision-making is almost universally defined as choosing between alternatives. It is closely related to all the traditional management functions. For example, when a manager plans, organizes, and controls, he or she is making decisions. Chester Barnard in his book The Function of the Executive, gave a comprehensive analytical treatment of decisions making and noted: “ The process of decision... are largely techniques for narrowing choice.”

Decision making is the process of identifying and choosing alternative courses of action in a manner appropriate to the demands of the situation. (KREITNER, Management, 7th edition A.I.T.B.S. Publishers and Distribution, New Delhi, 1999.)

Decision- making is normally defined as choosing one best alternative from a set of rational alternatives.

Decision-making involves making a choice among alternative courses of action.

Decision- making under Certainty, Risk and Uncertainty:

Virtually all decisions are made in an environment of at least some uncertainty. However, the degree will vary from relative certainty to uncertainty. Since decisions are made in the present for activities and actions to occur in the future, every decision maker’s situation involves at least some unknown factors. These unknowns include such consideration as the reaction of competitors to a price change, the actual productivity of a newly installed machine, the dependability of the raw materials supplied and so on. The degree of certainty in a decision may be viewed as a continuum with three positions along it: Certainty, Risk, and Uncertainty.

Certainty:A condition of certainty exists when there is no doubt about the factual basis of a particular decision and its outcome can be predicted accurately. Few decisions are made in the state of certainty. A condition of certainty exists when the manager can identify all available alternatives and can determine the outcome that will result from each alternative. The information is available and is considered to be reliable and the cause and effect relationship is known. Example: An investor in Bangladesh who wants to invest his savings in FIXED DEPOPSIT Scheme can easily know the different interest rates offered by commercial banks at a particular time. Singapore Airlines wants to buy Five Jumbo Jets. They have got three options: BOEING, McDonnell and AIRBUS fro where they can have the same.

Principles of Management-Decision making and planning-tafzal-mgt studies-cu-'08 1


Risk: A condition of risk is said to exist when a decision must be made on the basis of incomplete but reliable factual information. Most decisions facing the manager involve condition of risk. In a risk situation, factual information may exist, but it may be incomplete. Managers in this situation can estimate the likelihood that each alternative will achieve the desired outcomes by means of mathematical models. Example: Capital Budgeting Decisions with Probability. Insurance Premium.

Uncertainty: A condition of uncertainty exists when little or no reliable factual information is available. Most major decisions making in contemporary organization is done under a state of uncertainty. The decision-maker does not know all the alternatives, the risk associated with each and the likely consequence of each alternative. This uncertainty stems from the complexity and dynamism of contemporary organizations and their environment. Example: BMW may take a decision to set up a new plant in a politically volatile country by being attracted the low cost of production. Decision making under condition of uncertainty can be both rewarding and nerve-racking for managers.

Categories/ Types of Decisions:There have been attempts to categorize and classify the types of decisions that organizations commonly face. One widely accepted model divides all organizational decisions into three categories: technical, managerial and institutional.

Technical Decisions:Technical decisions concern the process by which inputs are changed into output by the organization. Such inputs may include people, information, product and so on.

Managerial Decisions:Managerial decisions also concerned with regulating the relationship between the organization and its immediate environment. Inventory management, maintenance, and controlling are the examples of managerial decisions.

Institutional Decisions:Institutional decisions involve long-term planning and policy formulation. They concern such issues as diversification of activities, large-scale expansion merger etc.

Programmed Decisions and Non-Programmed Decisions:The frequency of recurrence determines whether a decisions is a programmed or non-programmed. Decisions not only differ in their content but also in terms of their relative uniqueness. By “relative uniqueness” we mean the degree to which a problem or decision i) has been seen before, ii) occurs frequently and on a regular basis, and iii) has been solved or resolved in a satisfactory manner.

Programmed Decisions: A programmed decision recurs often enough for a decision rule to be developed. A decision rule tells the decision maker which alternative to choose one he or she has information about the decision situation. Whenever, the situation is encountered, the appropriate decision rule is used. Programmed decisions are usually highly structured, that is, the goals are clear and well known, the decision procedure is already



established and the source and channels of information are well-defined. For example for EOQ we know the formula, EOQ= RS/C, Where R= Yearly requirement, C= Carrying cost, S=Ordering Cost.

Programmed decisions are those involving simple, common, frequently occurring problems that have well –established and understood solutions.

Programmed decision is a repetitive decision that can be handled by a routine approach. This type of decision is normally taken with the help of procedure and rule. A procedure is a series of interrelated sequential steps that a manager can use for responding to structured problem. For example: Admission procedure of a Public university. Whereas, a rule is an explicit statement that tells a manager what he or she ought or ought not do. For example: Wearing uniform is a rule for some corporations.

Non-Programmed Decisions:

The problem or decision situation that has not been encountered before, the decision maker cannot rely on a previously established decision rule. Such a decision is said to be non-programmed decision and it requires problem solving. Problem solving is a special kind of decision- making in which the issue is unique; it requires development and evaluation of alternatives without the aid of a programmed decision rule. Non-programmed decisions are poorly structured, because information is ambiguous, there is no clear procedure for the decision and the goals are often vague.

Non-programmed decisions are those that deal with unusual novel problems. These decisions are relatively unstructured and occur much less often. These decisions are normally made at the top-level managers. Merger, Acquisitions, and Take Over, Organization Design, New Product development, Legal Issues are common examples of non-programmed decisions.

Programmed-decisions are more common at the lower levels of the organization, whereas, a primary responsibility of top management is to make the difficult, no-programmed decision that determines the long-term effectiveness of the organization. By definition, the strategic decisions for which top management is responsible are poorly structured and non-routine and have far reaching consequences.

Programmed -decisions then can be made according to previously tested rules and procedures. Non-programmed decisions are generally require the decision-maker to exercise judgment and creativity. All problems require a decision, in other words, but not all decisions require problem solving.

Difference Between Programmed and Non-Programmed Decision:Characteristics Programmed Decisions Non-Programmed DecisionsType of Decisions Well structured Poorly structuredFrequency Repetitive and Routine New and unusedGoals Clear, specific VagueInformation Readily available Not available, unclear channelConsequence Minor MajorOrganizational level Lower-level Upper-LevelTime for solution Short Relatively longBasis for solution Decisions rules, set procedures Judgment and creativity

Important Characteristics of Decision Making: A decision can be made by an individual or a group Even a brief decision making process can be both logical and complex



Information is an indispensable element of the decision making process.

Individual Vs Group Decision Making:

Both individuals and groups make decisions in organizations. Individuals and groups subject to different types of pressures as they make decisions. Considerable research has been done to compare the decision-making success of individuals and groups in various situations. When it is better to have a group make a decision than individuals? Researches have found the answer depends on several factors: the type of decision, the knowledge and experience of the people involved, and the type of decisions process involved.

Characteristics of Group and Individual Decision-Making:Group Individual

Slow process More people to contribute ideas Complex tasks can be divided More thorough search for ideas More alternatives are generated Greater interest stimulated

Fast process For a judgmental task, a single expert may

be preferable Avoids special problems of group decision

making such as groupthink

Advantages and disadvantages of Group Decision making:

Individual and group decisions each have their own set of strengths. Neither is ideal for all situations. Let’s review the advantage that group decisions have over individual decisions:

1. Provides more complete information: There is often truth to the saying that two heads are better than one. A group brings a diversity of experience and perspectives to the decision process than an individual acting alone, cannot.

2. Generates more alternative: Because groups have a greater amount and diversity of information, they can identify more alternatives than individual. This is particularly evident when group members represent different specialties. For instance, a team made up of representative from engineering, accounting, production, marketing, and personnel will generate alternatives that reflect their diverse specialties. Such multiplicity of “worldviews” often yields a greater array of alternatives.

3. Increases acceptance of a solution: Many decisions fail after the final choice has been made because people do not accept the solution. However, if the people who will be affected by a certain solution and who will help implement it get to participate in the process itself, they will be more likely to accept it and to encourage others to accept it as well. Group members are reluctant to fight or undermine a decision they have helped develop.

4. Increases legitimacy: The group decision-making process is consistent with democratic ideals and therefore decisions made by groups may be perceived as more legitimate than decisions made by one person. The fact that the individual decision maker has complete power and has not consulted others can create a perception that a decision was made autocratically and arbitrarily.

Disadvantages:



If groups are good, how did the phrase “ A camel is a racehorse put together by a committee” become so popular? The answer, of course, is that group decisions are not without drawbacks. The major disadvantages of group decisions making are as follows:

1. Time consuming: It takes time to assemble a group. In addition, the interaction that takes place once the group is in place is frequently inefficient. The result is that groups almost always take more time to reach a solution than it would take an individual making the decision alone.

2. Minority domination: Members of a group are never perfectly equal. They may differ in rank in the organization, experience, knowledge about the problem, influence with other members, verbal skills, assertiveness, and the like. This creates the opportunity for one or more member to use their advantage to dominate others in the group. A dominant minority frequently can have an excessive influence on the final decision.

3. Pressures to conform: Special pressures to conform in groups can lead to a phenomenon called groupthink. This is a form of conformity in which group members withhold deviant, minority, or unpopular views in order to give the appearance of agreement. Groupthink undermines critical thinking in the group and eventually harms the quality of the final decision.

4. Ambiguous responsibility: Group members share responsibility, but who is actually responsible for the final outcome? In an individual decision, it is clear who is responsible. In a group decision, the responsibility of any single member is diluted.

Groupthink:

Groupthink, according to Irving L. Janis is “ a mode of thinking that people engage in when they are deeply involved in a cohesive in group, when members’ striving for unanimity overrides their motivation to realistically appraise alternative course of action”. When groupthink occurs, then, the group unknowingly makes unanimity, rather the best decision, its goal.

Groupthink is the withholding by group members of different views in order to appear in agreement. (Robbins: MANAGEMENT)

Symptoms of Groupthink: Invulnerability Rationalization Morality Stereotyping Peer pressure Self-censorship Unanimity Mind guards

Decisions Making Defects with Symptoms of Groupthink: Few alternatives No reexamination of preferred alternative No reexamine of rejected alternative Rejection of expert opinion Selective bias of new information



No contingency plan

PLANNING: THE FOUNDATION OF MANAGING

What is Planning?

Planning is the beginning function of management process. It is one of the basic functions in the management process. Every manager must have plans so as to reach maximum organizational effectiveness. Planning involves the assessment of environment for opportunities and threats of the foreseeable future, evaluation of the strengths and weaknesses of the enterprise, and the formulation of objectives and strategies designed to exploit the opportunities and combat the threats. In designing an environment for the effective performance of individuals working together in a group, a manager’s most essential task is to see that everyone understands the group’s mission and objectives and the methods for attaining them. If group effort is to be effective, people must know what they are expected to accomplish. In this sense, planning is defined as deciding in advance what is to be done in future in order to get the things done in an effective and efficient way to reach the organization in achieving her objectives.

All planning is concerned with the future; it is concerned with deciding what an enterprises wants to be and wants to achieve –how to attain these aspirations, allocate resources and implement designs.

Let us define planning from the context of different authors.

Russel L. Ackoff says “ planning is design of a desired future and of effective ways of bringing it about.” He further noted that “planning is a process that involves making and evaluating each of interrelated decisions before action is required, in a situation in which it is believed that unless action is taken a desired future state is not likely to occur, and that, if appropriate action is taken, the likelihood of a favorable outcome can be increased.” ( Ackoff, Russel A. A Concept of Corporate Planning, New York: Wiley-Interscience, 1970.p. 1)

Planning involves selecting missions and objectives and deciding the actions to achieve them; it requires decision making, that is, choosing a course of action from among alternatives.( Heinz Weihrich & Harold Koontz, Management, A Global Perspective, TaTa McGraw Hill Book Co, 11th Edition. New Delhi)

Planning is the process of coping with uncertainty by formulating future courses of action to achieve specified results. (KREITNER, Management, 7th edition A.I.T.B.S. Publishers and Distribution, New Delhi, 1999.)

Planning involves defining the organization’s objectives or goals, establishing an overall strategy for achieving these goals, and developing a comprehensive plans to integrate and coordinate activities. It is concerned with both ends (what is to be done) and means (how it is to be done).( Stephen P. Robbins and Mary Coulter, Management, Prentice-Hall India, New Delhi 5th Edition.)

Planning can be defined as the process by which managers set objectives, assess the future, and develop courses of action designed to accomplish these objectives. (BOONE & KURTZ, MANAGEMENT,4th

edition, McGraw Hill Book Company.) Planning is defined as managerial function of establishing objectives and developing plans to accomplish objectives. (Steven J. Skinner and John M. Ivancevich, Business for the 21st century, IRWIN, BOSTON< 1992)



The Nature of Planning:

We can highlight the essential nature of planning by examining its four major aspects: I) its contribution to purpose and objectives, 2) its primacy among the manager’s tasks, 3) its pervasiveness and 4) the efficiency of resulting plans.

The contribution to purpose and objectives:

Every plan and all supporting plans should contribute to the accomplishment of the purpose and objectives of the enterprise. The concept derives from the nature of the organized enterprise, which exists for the accomplishment of group purpose through deliberate cooperation.

The Primacy of Planning:

Planning is the beginning task of managing. The other functions of the organization remain merely the function if it is not [properly been supported and guided by proper plans. Managerial operations like organizing, staffing, leading and controlling are designed to support the accomplishment of enterprise objectives, planning logically precedes the execution of all the other managerial functions. Planning normally guides other functions of the organization.

Planning and controlling are inseparable-the Siamese twins of management. Any attempt to control without planning is meaningless. since there is no way for people to tell whether they are going where they want to go unless they first know where they want to go. Planning thus furnish the standards of control.

The Pervasiveness of Planning:

Planning is a function of all managers, although the character and breadth of planning will vary with each manager’s authority and with the nature of policies and plans outlined by supervisors. If managers are not allowed a certain degree of discretion and planning responsibility, they are not truly managers.

Manages, regardless their position in the organization structure have to make plans if they are to be successful in running their organization in a meaningful way.

The Efficiency of plans:

The effectiveness of a plan pertains to the degree to which it achieves the purpose or objectives. The efficiency of a plan, on the other hand, refers to its contribution to the purpose and objectives, offset by the cost and other factors required to formulate and operate it. A plan may enhance the attainment of objectives, but at unnecessary high cost. When cost is measured not only in terms of time or money or production but also in the degree of individual and group satisfaction.

Some writers mentioned these following aspects as major nature of planning: Primacy over other functions Specific objectivity, Process of thinking, Futurity Pervasiveness Efficiency



Data oriented Continuity Choosing of best alternative, Flexibility.

Purposes of Planning:

Planning is the beginning function of management process. It is one of the basic functions in the management process. Every manager must have plans so as to reach maximum organizational effectiveness. Planning involves the assessment of environment for opportunities and threats of the foreseeable future, evaluation of the strengths and weaknesses of the enterprise, and the formulation of objectives and strategies designed to exploit the opportunities and combat the threats. In designing an environment for the effective performance of individuals working together in a group, a manager’s most essential task is to see that everyone understands the group’s mission and objectives and the methods for attaining them. If group effort is to be effective, people must know what they are expected to accomplish. In this sense, planning is defined as deciding in advance what is to be done in future in order to get the things done in an effective and efficient way to reach the organization in achieving her objectives. Now question arise why do people make plans? The answer is people do plan for a number of reasons, these are: Planning gives direction Reduces the impact of changes Minimizes the waste and redundancy Sets standards used in controlling.

Planning establishes coordinated effort. It gives direction to managers and non-managers. When employees know where the organization is going and what they must contribute to reach the objective, they can coordinate their activities, cooperate with each other, and work in teams. Without planning, department could be working at cross-purposes and preventing the organization from moving efficiently toward its objectives. It works like a rudder in a ship in a deep sea.

By forcing managers to look ahead, anticipate change, consider the impact of change, and develop appropriate responses, planning reduces uncertainty. It also clarifies the consequences of actions managers might take in response to change.

Planning also reduces overlapping and wasteful activities. Coordination before the fact is likely pinpoint waste and redundancy. Furthermore, when means and ends are unclear, inefficiencies become obvious.

Finally, planning establishes objectives or standards that are used in controlling. If we are unsure of what we are trying to achieve, how can we determine whether or not we have achieved it? In planning, we develop the objectives. In the controlling function, we compare actual performance against the objectives, identify any significant deviations, and take necessary corrective action. Without planning, there would be no way to control. For this reason it is often said that planning is looking ahead and controlling is looking back.

Importance of Planning:

While planning does not guarantee success in accomplishing organizational objectives, it is rare for an organization to succeed solely by luck or chance or circumstances. Careful planning should result in the development of a blueprint describing the means to accomplish objectives. Such a blueprint typically includes checkpoints at which actual operations can be compared with expectations to determine whether



specific activities are moving the organization toward its objectives. There are several reasons why planning is considered to be a vital function for every manager. J. L. Massie argued that “ The need for planning becomes more obvious as persons and organizations develop and awareness of the precise nature of their objectives.”

Affecting Performance:

A number of empirical studies provide evidence concerning the importance of planning in organizational success. The firms that make plans are found to be more successful than the firms that do not formulate plans. And the quality of performance differs significantly in case of firms that make plans.

Focusing Attention on Objectives:

Objectives are endpoints toward which all organizational activities are aimed at. Objectives serve as the focal point for organizational decisions and activities.

Once organizational objectives are defined, the planning process involves developing methods for achieving them. Plans continually reinforce the importance of these objectives by focusing on them. Every decision is measured in terms of its contribution to the achievement of organizational objectives. Having plans that focus on these objectives helps prevent overinvolvement of managers in less important decisions and activities.

Offsetting Uncertainties and Anticipating Problems:

A significant aspect of any planning process is the collection of information for use in forecasting the future. This information is then used to develop action plans: detailed guidelines of how the organization will go about moving from its present position to the accomplishment of objectives. Action plans can be either primary or contingent in nature. Primary plans are based on management’s future expectations given the current political, legal, economic, technological, and societal environment. A contingent plan is an alternative plan that will be implemented should certain events occur.

Identifying alternative futures and developing contingency plans produces at least three benefits: 1) it permits quick response to change, 2) it prevents panic in crisis situation, and 3) it makes managers more adaptable by encouraging them to appreciate just how variable in the future can be.

Providing Guidelines For Decision Making: Decision- making is choosing one alternative from a set of rational alternatives, which will best suit the organization in a particular situation. Since plans specify the actions necessary to accomplish organizational objectives, they serve as the basis for decisions about the future activities.

Planning ensures helps provide the coordination needed to do the job.

Facilitating Control: Planning and controlling are closely related. Without having plans managers are not in a position to control.

Responsibilities for Planning:



Regardless of their positions in the organizational hierarchy, all managers engage in planning to some degree. Marketing sales mangers develop plans for target markets, market penetration, and sales increases. Operations managers plan cost cutting programs and better inventory control methods. As a general rule, however, the larger an organization becomes, the more primary planning activities become associated with groups of managers rather than individual managers. Let us examine who are responsible for planning in different organizations:

Planning Staff. Some large organizations develop a professional planning staff. Tenneco, General Motors, Disney, Caterpillar, NCR and Boeing all have planning staffs. And although the planning staff was pioneered in the United States, foreign firms like Nippon Telegraph & Telephone have also started using them. Organizations might use planning staff for a variety of reasons. In particular, a planning staff can reduce the workload of individual managers, help coordinate the planning activities of individual managers, bring to a particular problem many different tools and techniques, take a broader view than individual managers, and go beyond pet projects and particular departments.

Planning Task Force. Organizations sometimes use a planning task force to help develop plans. Such a task force with a special interest in the relevant area of planning. The task force may also have members from the planning staff if the organization has one. A planning task force is most often created when the organization wants to address a special circumstance. For example, when Electronic Data System decided to expand its information management services to Europe, managers knew that the firm’s normal planning approach would not suffice, and top management created a special planning task force. The task force included representative from each of the major units within the company, the corporate planning staff, and the management team that would run the European operation. Once the plan for entering the European market was formulated and implemented, the task force was eliminated.

Board of Directors. Among its other responsibilities, the board of directors establishes the corporate mission and strategy. In some companies the board of directors takes an active role in the planning process. At CBS, for example, the board of directors has traditionally played a major role in planning. In other companies the board selects a competent chief executive and delegate s planning to that individual.

Chief Executive Officer. The chief executive officer (CEO) is usually the president or the chair of the board of directors. The CEO is probably the single most important individual in any organization’s planning process. The CEO plays a major role in the complete planning process and is responsible for implementing the strategy. The board and CEO, then, assume direct role in planning. The other organizational components involved in the planning process have more of an advisory or consulting role.

Executive Committee. The executive committee is usually composed of the top executives in the organization working together as a group. Committee members usually meet regularly to provide input to the CEO on the proposals that affect their own units and to review the various strategic plans that develop from this input. Members of the executive committee are frequently assigned to various staff committees, subcommittees, and task forces to concentrate on specific projects or problems that might confront the entire organization at some time in the future.

Line Management. The final component of most organization’s planning activities is the line management. Line managers are those persons with formal authority and responsibility for the management of the organization. They play an important role in an organization’s planning process for two reasons. First, they are a valuable source of inside information for other managers as plans are formulated and implemented. Second, the line managers are the middle and lower levels of the organization usually must execute the plans developed by top management. Line management identifies, analyzes, and



recommends program alternatives, develops budgets and submits them for approval, and finally sets the plan in motion.

Why do Managers Hesitate to Plan? Despite its numerous advantages, some managers do not plan. Some reasons managers have given for not planning include:

It is risky: Developing a plan involves setting targets. When targets or objectives are stated, a manager’s performance can be monitored and evaluated.It is costly: Planning takes time, energy, and creative thinking. Some managers are not willing to absorb these expenses.It is difficult: Planning involves complex decisions, having people from different backgrounds develop a common and interdependent approach, patience to wait for results, and a commitment to a program of often new and untested activities.

Although these reasons are often valid, intense competition forces firms to plan. They must because companies can no longer count on having a solid lead over their competitors. Too much is changing in the business environment for any manager to put off planning.

Steps In Planning:Being aware of opportunitiesEstablishing objectivesDeveloping premisesDetermining alternative coursesEvaluating alternative coursesSelecting a courseFormulating derivative plansNumberizing plans budgets.

Types of Planning:

Single use plan and Standing Plan

Single Use Plan:

Program: Programs are a complex of goals, policies, procedures, rules, task assignments, steps to be taken, resources to be deployed and other elements necessary to carry out a given course of action; they are ordinarily supported by budgets. A program is a large scale, single use plan involving numerous interrelated activities. A program will typically specify the objectives, major steps necessary to achieve these objectives, individuals or departments responsible for each step, the order of the various steps, and resources to be used. Example may include such as Construction of Bridge over the river Karnaphully, the new product development program, increasing morale and productivity of employees of a manufacturing organization.



A program is a statement of the activities or steps needed to accomplish a single-use plan. It makes the strategy actions oriented. It may involve the corporation, changing the company’s internal culture, or beginning a new research effort. FedEx Corporation’s program to install a sophisticated information system to enable its customers to track their shipments at any point in time.

Project: A project is a single use plan that is a component of a program or is on a smaller scale than a program. Example may be given like transforming petrol engine to gasoline one of a particular organization, deployment of newly acquired machinery of an organization and the likes.

Budget: A budget is a statement of expected results expressed in numerical terms. It may be referred to as a “numberized” program. A budget is a simply a financial plan listing in details the resources or funds allocated to a particular program, project, product/division. Example is Income Statement of a newly introduced product.

A budget is a statement of a corporation’s programs in terms of dollars. Used in planning and control. A budget lists the detailed cost of each program. Many corporations demand a certain percentage return on investment, often called a “hurdle rate,” before management approve a new program.

Steps to be taken for successful implementation of a program:1. Divide the total set of activities into meaningful steps2. Study the relationships among different steps, taking special note of any required sequence of

steps3. Assign responsibility for each step to appropriate managers and /or units4. Determine and allocate the resources needed for each step5. Estimate the starting dates for completion of each step6. Assign target date for completion of each step.

Standing Plans:Policy:

Policies are directives designed to guide the thinking, decisions, and actions of mangers and their subordinates in implementing a firm’s strategy. Previously referred to as standard operating procedures, policies increase managerial effectiveness by standardizing many routine decisions and clarifying the discretion managers and subordinates can exercise in implementing functional tactics. Logically, policies should be derived from functional tactics (and, in some instances, from corporate, or business strategies) with the key purpose of aiding strategy execution (Pearce and Robinson: Strategic Management). Policies also are plans in that they are general statements or understanding that guide or channel thinking in decision making. Policies are general guidelines for decision- making. Many organizations provide parameter within which decisions must be made. Example may include Promotion policy, Recruitment policy, Credit policy and the same.

A policy is a broad guideline for decision-making that links the foundation of strategy with its implementation. Corporations use policies to make sure that employees throughout the firm make decisions and take actions that support the corporation’s mission, objectives, and strategies.

GENERAL ELECTRIC: GE must be number 1 0r 2 wherever it competes.



3M: Researchers should spend 15% of their time working on something other than their primary projects.

Procedure: Procedures are plans that establish a required method of handling future activities. They are chorological sequences of required actions. They are guide to action, rather than to thinking, and they detail the exact manner in which certain activities must be accomplished. Procedures are guide to action that specifies in detail the manner in which activities are to be performed. They tend to be narrower in scope than policies and are often intended to be used in implementing policies. This describes in details how a recurring task or activity is to be handled. Example: Admission procedure of a University in CANADA may be like this:

1. Checking application form2. Verifying test scores as required by the concerned university3. Checking reference(s)4. Financial guarantee and so on.

Procedures, sometimes termed as Standard Operating Procedures (SOP), are a system of sequential steps or techniques that describe in detail how a particular task or job is to be done. They typically detail the various activities that must be carried out in order to complete the corporation’s programs.

Rules: Rules spell out specific actions or non-actions, allowing no discretion. Rules are the simplest type of standing plans. They are statements of actions that must be taken or not taken in a given situation. Rules serve as a guide to behavior. Example may include wearing safety measures while working with dangerous equipments, prohibition of smoking in a particular area of a factory and so on.

Characteristics of Policy:

Flexibility: A policy achieves balance between rigidity and flexibility.

Comprehensiveness: A policy must cover multiple contingencies. The degree of comprehensiveness depends on the scope of actions controlled by the policy itself.

Coordination: A policy must be readily coordinate among other decisions, teams, and departments.

Clarity: A policy must be started clearly and logically

Ethics: A policy must be ethical and responsive to cultural differences.

Sources of policy:

Written: Most of the policies of an organization are found in the form of written. Example: Recruitment policy, Promotion policy, Credit policy etc.

Oral: Some policies may be oral types. They are simply found as customs.

Appealed: When lower level manager appeals to his/her boss for the approval of a certain task simply applies to his/ her supervisor and waits for his/her decision.



Externally imposed: This type of policy is imposed by outside the organization. For example, Bangladesh government sets some policy regarding industry, economy or other aspects of business, which become mandatory for business houses to abide by.

Barriers to Goal Setting and Planning:

Planning is a critical function of managing. So, while we are trying to formulate a plan for an organization, naturally a number of circumstances serve as barriers to effective planning and goal setting. So, people concerned with planning should keep in mind these obstacles while formulating plans. The barriers are as follows:

Inappropriate Goals: Inappropriate goals can come in many forms. Paying a large dividend to stockholders may be inappropriate it comes at the expense of research and development. Goals may also be inappropriate if they are unattainable. Setting goals for a new comer to become the leader of a particular product simply become inappropriate because it is unattainable. Goals may also be inappropriate if they place tool much emphasis on either quantitative or qualitative measures of success. Goals should be both qualitative as well as quantitative.

Improper Reward System: This is another barrier to effective goal setting and planning. For example, people may inadvertently be rewarded for poor goal setting behavior or be un-rewarded or even punished for proper goal setting behavior. So, when a well-formulated plan is not rewarded by the management of the organization people will simply feel discourage to formulate effective plans.

Dynamic and Complex Environment: We are living in a dynamic and complex environment. The nature of complexity is increasing day by day. So, dynamic and complex environment work is a major hindrance to effective planning. Rapid change, technological innovation, intense competition, change in customer taste and preferences can each increase the difficulty of an organization’s ability to correctly assess the premise s of the planning. The latest technology that the organization is currently using may simply become obsolete with the introduction of a new technology.

Reluctance to Establish Goals: Another important issue that is found almost in all organizations is that manager hesitates to make plans for themselves or their respective units. The reasons may be lack of confidence or fear of failure. If a manager sets goal that is specific, concise, and time related, then whether he or she attains it is obvious. Managers who consciously or unconsciously try to avoid this degree of accountability are likely to hinder the organization’s planning efforts.

Resistance to Change: The general phenomenon of human being is to resist change. This attitude of human resources works as an important barrier to effective planning. Planning essentially involves changing something about the organization.

Constraints: Constraints is another barrier top effective planning. We work in organizations with so many constraints. These constraints limit an organization’s ability. Common constraints are lack of resources governmental restrictions, and strong competition. For example, Bangladesh government every year formulates some financial or other policies that hinder some organization in performing their tasks. Time constraints are also a factor. It is easy to say, “I’m too busy to plan today; I’ll do it tomorrow.” Effective planning takes time, energy, and unwavering belief in its importance.

Overcoming the Barriers:



So far we have discussed about the barriers to effective planning, fortunately there are several guidelines for making goal setting and planning effective. Some guidelines are discussed below:

Understand the Purpose of Goals and Plans: One of the best ways to facilitate goal-setting and planning processes is to recognize their basic purposes. Managers should also recognize that there are limits to the effectiveness of setting goals and making plans. Planning is not a panacea that will solve all of organization’s problems, nor it is an iron clad set of procedures to be followed at any cost. And effective planning and goal setting do not necessarily ensure success; adjustments and exceptions are to be expected over time. For example: COCA-COLA introduced a new formula to combat its rival PEPSI but customers did not prefer the new product, COCA –COLA without any hesitation replaced the product.

Communication and Participation: Goals and plans normally are formulated at top level of the organization, but their effective implementations are usually ensured with the help of managers of all levels from top to bottom of the organizational hierarchy. So, for get reap of the fruits of the plan, organization should ensure that it has properly been communicated and participated. People responsible for achieving goals and implementing plans must also have a voice in developing them from outset. For these many organizations now –a- days using MBO as a goal setting process where all managers can share and participate. For Example: When COMPAQ COMPUTER decided to become number three in the industry from number five it formulated a strategic plan outlining how to achieve the goal in detailed and communicated throughout the organization and ensure everybody’s cooperation in achieving its target.

Consistency, Revision, and Updating: We live in a complex environment. For this reason we always should be careful about the effective use of our plans. Goals should be consistent both horizontally and vertically. Horizontal consistency means that goals should be consistent across the organization, from one department to the next. Vertical consistency means that goals should be consistent up and down the organization: strategic, tactical, and operational goals must agree with one another. Because, goals setting and planning are dynamic processes, they must also be revised and updated regularly. Many organizations are seeing the need to revise and update on an increasingly frequent basis. CITICORP, one of the most prestigious financial; group of the world, for example, once used a three-year planning horizon for developing and providing new financial services. That cycle has been cut to two years, and the bank hopes to reduce it to one year very soon.

Effective Reward System: In general, people should be rewarded both for establishing effective goals and plans and for successfully achieving them. Because failure sometimes result from factors outside the manager’s control, however, people should also be assured that failure to reach a goal will not necessarily bring punitive consequences. If managers are properly being rewarded for effective assumptions of their duties they must be properly rewarded. This will ensure the organization to formulate plans.

Planning does not guarantee success. But people will succeed without planning is quite absurd. Effective goal setting and planning can lead an organization to get competitive advantage over its competitors. But formulating and implementing goals and plan is not a easy task. For effective formulation and implementation of the goal setting and planning we should carefully analyze the limits to effective planning and goals setting and only then we can make proper plan, which is crucial to the success of organization.


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