Principles of Management Chapter 3 Planning

What is Planning?
-Is a logical and systematic approach of formulating
the objectives, programs, policies, procedures,
budgets, rules and regulations, and other types of
plans.
- Considered the most basic of all managerial
functions. Without this, other functions of a manager
cannot be tackled efficiently and effectively.
-- Managers organizes, staffs, directs, and controls in
order to guarantee the attainment of objectives and
the other types of plans made.
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Nature of Planning – 4 Major
Factors
1. Contribution to Purpose and Objectives – planning is
required to facilitate accomplishment of business purpose
and objectives. This statement is taken from the nature of
organized business.
2. Planning as the First Basic Function – logically
performed before the execution of all other managerial
functions. All managerial functions must be planned if they
are to be effective and efficient.
3. Planning as a Function of All Managers – the character
and scope of planning will differ from one authority to
another.
4. Planning for Efficient Organization – evaluated by the
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Major Types of Plans
Objectives or Goals
-Goal prescribes definite scope and suggests direction to maximize the
efforts of a manager. Synonymous to aim, purpose.
-Objectives have to do with the direction in which an individual or
organization wants to move. Planning involved determination of desired
future events. These results or events are objective and go by the name of
targets.
Mission
-It is the purpose or reason for the existence of an organization. Can be
defined in terms of an organization’s products/service or
markets/customers.
Long-Range and Short-Range Objectives
-Long-range generally go beyond the current fiscal or calendar year of the
organization. Ex. Increase sales to a specific level within the next four
years.
-Short-range should be derived form an in-depth evaluation of the
organization’s long-range objectives. Ex. Listing of priorities.
5

Guidelines in Implementing Management by Objectives (MBO)
1. Adapt your objectives directly to organizational goals and
strategic plans.
2. Quantify and target the results whenever possible.
3. Test your objectives for challenge and achievability.
4. Adjust the objectives to the availability of resources and realities
of organizational life.
5. Establish performance reports and milestones that measure
profess toward the objective.
6. Put your objectives in writing and express them in clear, concise,
and unambiguous statements.
7. Limit the number of statements of objectives to the most relevant
key result aread of your job.
8. Communicate you objectives to your subordinates so as they
can formulate their own.
9. Review your statements with others to assure consistency and
mutual support.
6

Simplest form of MBO:
1.Individual objectives are
jointly set by the
subordinate and the
superior.
2.Individuals are
periodically evaluated
and receive feedback
concerning their
performance.
3.Individuals are evaluated7

Program
- The actual course of action designed to carry out the established
objective. Indicated use of different resources in an integrated
pattern and establishes a sequence or required actions and time
schedules for each in order to achieve stated objectives.
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Policies
-These are basic guidelines for action. The indicated what is permitted and
what is not permitted. Policies are broad, general guides for action which
constrain or direct objective attainment. Ex. Promotion policy.
Procedures
-Series of related steps expressed in chronological order for a specific purpose.
It outlines precisely how a recurring activity must be accomplished.
Rules
-Require specific and definite actions for a given situation. It permit no flexibility
and deviation. Do not have to specify sequence.
Budget
-Plan stated in financial terms. Estimate of income and expenditures for a
future period.
Philosophy
-The values and beliefs an organization holds as the guiding light is the
company’s philosophy. Usually passed on by the founder of the organization.
Strategy
- Method of shaping a company’s future and involves determining the long-run
direction of the organization.9

Basic Steps in Business
Planning
1. Define the Business Idea – writing the
description of the idea. The most important and
most difficult part of the business plan.
2. Establish Goals and Objectives – identification
of goals for individuals, group, and for the entire
organization. Use of MBO, can be a process for
explicitly teaching the objectives of the
organization.
3. Evaluate the Ideas, Goals, and Objectives –
determine whether or not specific idea makes
sense, it can work, it can fulfil the series of goals
and objectives.
4. Forecast Cash Needs – indicates the cash
investment, funding or investment requirements.
5. Identify Sources of Funds – from personal
equity, borrowing from financial institutions
6. Write a Business Plan – summary and
10

Basic Steps in Business Planning
11

Other Types of Plans
12
Standing Plans – serve as guidelines to managerial action,
brings consistency to the operations.
Single-Use Plans – designed for specific purpose or period.
Ex. Budget
Long-Range Plans – these are strategic plans of the
organization. It takes time to achieve this goal.
Intermediate Plans – follow once the long-range plans are
formulated and made for the its realization.
Short-Range Plans – provide guidelines for day-to-day
actions
Marketing Plans – to increase their present market share
and develop new products.
Production Plans – producing the desired amount of goods
demanded at the market place.
Financial Plans – tells the managers how well they are
doing, the need for working capital, need for expansion and

Other Types of Plans
13
Manpower Plans – determining types of personnel needed in the long and
short-range for the organization.
Strategic Plans – determining the major goals of the entire organization
and the policies to guide the achievement of these goals.
Tactical Plans – determination of the short term-specific utilization of the
resources of the org. in achieving its strategic goals.
Functional Plans – classified by function or use.
Planning Horizon: Short-Range Versus Long-Range
Short-Range Plans – covers up to one year.
Long-Range Plans – extends into the future
Operational Versus Strategic Plans
Strategic Planning – analogous to top-level long-range planning
Operational or Tactical Plans – a short-range planning and concentrate
on the formulation of functional plans – done by managers at all levels in
the organization.

Decision Making
14
This is the process of choosing a specific procedure or course of action from
among several possible alternatives.
Judgment is important in decision making.
Can be determined by non-quantitative means, such as intuition, facts,
experiences, and opinions.
Can also be determined by quantitative means such as operations research,
linear programming, simulation, PERT, etc.
Other Techniques:
•Marginal Analysis
-Used to figure out how much more output will result if one more variable worker is
added while other factors are being held constant.
•Financial Analysis
-Used for estimating the profitability of an investment, calculation the payback
period and analyzing cash inflows and outflows.
•Break-Even Analysis
- Total revenue equals total cost and there is no profit.

Decision Making (other techniques)
15
•Ratio Analysis
-An accounting tool used for the interpretation of accounting information. Basic
financial ratios compare costs and revenue for a particular period:
•Operation Research Technique
-Defined by Miller and Starr as “Applied Decision Theory”, which seeks scientific,
logical, or mathematical means. Observation, analysis, hypothesis formulation,
and experimentation.
1. Queuing or Waiting-Line Method
- Balancing waiting lines and services provided. When people in queues are not
going to be provided quick service, they may go elsewhere.

Decision Making (other techniques)
16
2. Linear Programming
-Used in involving the allocation of resources or limited resources to reach a
particular objective such as least cost, highest margin and so on.
3. Game Theory
-Involves selecting the best strategy, taking into consideration one’s actions and the
action of one’s competitors. When one individual wins, the other losses.
4. Simulation
-Involves the building of a model that represents a real or an existing system in
evaluating and selecting the best one.
5. Decision Tree
-Through a graphic illustration, alternative solutions can be identified

The Decision Making Environment
17
Most companies have three levels of management:
 Strategic-Level
-Determine long-term strategies and set corporate
objectives and policy consistent with these objectives.
 Tactical-Level
-Charged with the responsibility of implementing the
objectives and policies set fort at the strategic level of
management.
Operational-Level
-Complete specific tasks as directed by tactical-level
managers.
As a rule of thumb, the higher the decision maker is in the organization, the
more complex and difficult he has to make. Also, the number of people affected
by the decision increases at the level of the decision maker.

The Decision Making Process
18
Steps in Decision Making Process:
1. Set Objectives
- Decision maker sets the objectives for the
decision.
2. Identify Constraints
- Constraints in some way limit the decision maker’s
choices. Defined by legal, economic, or political
considerations.
3. Identify Alternatives
- Making a choice between two or more
alternatives. Most cases alternatives are chosen
as solution to the problem.
4. Gather Appropriate Information
- Decision maker gathers information that may
provide insight as to which alternative to choose.
5. Evaluate Alternatives
- Decision maker evaluates each alternative.
6. Choose the Most Acceptable Alternative
- Examines the ranking of alternatives and selects

Planning Techniques and Tools
19
1. Forecasting
- An attempt to foretell or predict future trends,
events or conditions from known data and to
prepare for the expected changes in
business or industry.
- Many decisions are based on estimates of
what is likely to happen in the future.
Methods in Forecasting
• Survey Method – involves probing the
customer or respondents through
questionnaires or interviews.
• Trent Method or Time-Series Analysis –
future predicted using past data or
information.
• Econometric Models – Based on statistical
methods of analyzing data and making
predictions.

Planning Techniques and Tools
20
3. Scheduling
-Term used for planning time for various activities in an
organization.
-Program Evaluation Review Technique (PERT) and
Critical Path Method (CPM)
-Two basic concepts: Events – identifiable
accomplishments that occurs at a definite point in time.
Activities – the work required to complete the event.
-Three Types of Timing: Optimistic Time (minimum time if
could take), Pessimistic Time (maximum), and the most
probable time. An average of these times (expected) is
computed.
4. Management by Objectives
- The boss and the subordinates function as a team in
setting objectives and accomplishing those objectives
through cooperation.

Why Managers Fail in Planning
21
1. Lack of Real Commitment in Planning –
lack real commitment by managers from the
top level down to the lowest supervisor.
2. Interchanging Planning Studies with Plans
– nothing is planned unless it includes a
decision of some kind.
3. Failure to Develop and Implement Sound
Strategies – without sound strategy, plans go
in the wrong direction. Unless implemented by
action plan, it becomes only a statement of
wishes and hopes.
4. Lack of Meaningful Objectives and Goals –
clear and attainable?
5. Tendency to Underestimate the
Importance of Planning Premises – plans
and decisions should be consistent and
implemented.

Why Managers Fail in Planning
22
6. Failure to See the Scope of Plans – neglecting
other types of plans
7. Failure to See Planning as a Rational Process –
requires clear goals, knowledge of alternatives,
ability to analyze alternatives to come up with the
best possible answer.
8. Too Much Reliance on Experience – what
happened in the past may not likely fit a future
situation.
9. Failure to Use the Principle of Limiting Factor –
anticipating the worst, most problem situation
10.Lack of Top Management Support – top
management does not support, believe and
encourage
11.Lack of Clear Delegation – do not know what the
jobs are, how their jobs relate to others, no clear
authority to make decisions.
12.Lack of Adequate Control Techniques and

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