computer networks presentation for unit 3
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About This Presentation
Trasport layer
Slide Content
UNIT - II
PLANNING
PLANNING
UNIT - II
PLANNING
1.OBJECTIVES
2.STRATEGIES
3.POLICIES
4.DECISION MAKING.
PLANNING
1.OBJECTIVES
2.STRATEGIES
3.POLICIES
4.DECISION MAKING.
UNIT - II
PLANNING
DEFINITION
According to Koontz & O'Donnel – “Planning is deciding in
advance What to do, how to do it, and who is to do it. It is the
selection among alternatives of future course of action for the
enterprise as a whole and each department within it. Plans involve
selecting objectives and determining ways of achieving them”.
According to Mary cushing Niles – Planning is the conscious of
selecting and developing the best course of action to accomplish
an objectives. It is the basis from which future management action
spring”.
Planning
is the process of
thinking about and organizing the
activities required to achieve a desired goal.
PLANNING
DEFINITION
According to Koontz & O'Donnel – “Planning is deciding in
advance What to do, how to do it, and who is to do it. It is the
selection among alternatives of future course of action for the
enterprise as a whole and each department within it. Plans involve
selecting objectives and determining ways of achieving them”.
According to Mary cushing Niles – Planning is the conscious of
selecting and developing the best course of action to accomplish
an objectives. It is the basis from which future management action
spring”.
Planning
is the process of
thinking about and organizing the
activities required to achieve a desired goal.
NATURE AND PURPOSE OF PLANNING:
Nature of Planning
1.Planning is goal-oriented:
Every plan must contribute in some positive way towards the
accomplishment of group objectives.
Planning has no meaning without being related to goals.
2. Primacy of Planning:
Planning is the first of the managerial functions.
It precedes all other management functions.
3. Pervasiveness of Planning:
Planning is found at all levels of management:
Top management looks after strategic planning.
Middle management is in charge of administrative planning.
Lower management has to concentrate on operational planning.
4. Efficiency, Economy and Accuracy:
Efficiency of plan is measured by its contribution to the objectives as
economically as possible.
Planning also focuses on accurate forecasts.
Nature of Planning
1.Planning is goal-oriented:
Every plan must contribute in some positive way towards the
accomplishment of group objectives.
Planning has no meaning without being related to goals.
2. Primacy of Planning:
Planning is the first of the managerial functions.
It precedes all other management functions.
3. Pervasiveness of Planning:
Planning is found at all levels of management:
Top management looks after strategic planning.
Middle management is in charge of administrative planning.
Lower management has to concentrate on operational planning.
4. Efficiency, Economy and Accuracy:
Efficiency of plan is measured by its contribution to the objectives as
economically as possible.
Planning also focuses on accurate forecasts.
5. Co-ordination:
Planning co-ordinates the what, who, how, where and why of planning.
Without co-ordination of all activities, we cannot have united efforts.
6. Limiting Factors:
A planner must recognize the limiting factors (money, manpower etc) and
formulate plans in the light of these critical factors.
7. Flexibility:
The process of planning should be adaptable to changing environmental
conditions.
8. Planning is an intellectual process:
Planning is a mental activity. It is the process where a number of activities
are to be taken to decide the future course of action.
The quality of planning will vary according to the quality of the mind of the
manager.
9. Planning – based on objectives and policies:
Planning process involves setting of objectives to be achieved and
determining the techniques for achieving those objectives.
10. Planning is based on facts:
Planning is not a guess work or trial and error method. It is conscious the
determination of projecting a course of action for the future.
Planning co-ordinates the what, who, how, where and why of planning.
Without co-ordination of all activities, we cannot have united efforts.
6. Limiting Factors:
A planner must recognize the limiting factors (money, manpower etc) and
formulate plans in the light of these critical factors.
7. Flexibility:
The process of planning should be adaptable to changing environmental
conditions.
8. Planning is an intellectual process:
Planning is a mental activity. It is the process where a number of activities
are to be taken to decide the future course of action.
The quality of planning will vary according to the quality of the mind of the
manager.
9. Planning – based on objectives and policies:
Planning process involves setting of objectives to be achieved and
determining the techniques for achieving those objectives.
10. Planning is based on facts:
Planning is not a guess work or trial and error method. It is conscious the
determination of projecting a course of action for the future.
Purpose of Planning:
As a managerial function planning is important due to the following reasons:-
1.To manage by objectives:
All the activities of an organization are designed to achieve certain
specified objectives.
However, planning makes the objectives more concrete by focusing
attention on them.
2. To offset uncertainty and change:
Future is always full of uncertainties and changes.
Planning foresees the future and makes the necessary provisions for
it.
3. To secure economy in operation:
Planning involves, the selection of most profitable course of action
that would lead to the best result at the minimum costs.
4. To help in co-ordination:
Co-ordination is, indeed, the essence of management, the planning
is the base of it.
Without planning it is not possible to co-ordinate the different
activities of an organization.
As a managerial function planning is important due to the following reasons:-
1.To manage by objectives:
All the activities of an organization are designed to achieve certain
specified objectives.
However, planning makes the objectives more concrete by focusing
attention on them.
2. To offset uncertainty and change:
Future is always full of uncertainties and changes.
Planning foresees the future and makes the necessary provisions for
it.
3. To secure economy in operation:
Planning involves, the selection of most profitable course of action
that would lead to the best result at the minimum costs.
4. To help in co-ordination:
Co-ordination is, indeed, the essence of management, the planning
is the base of it.
Without planning it is not possible to co-ordinate the different
activities of an organization.
5. To make control effective:
The controlling function of management relates to the comparison of
the planned performance with the actual performance.
In the absence of plans, a management will have no standards for
controlling other's performance.
6. To increase organizational effectiveness:
Mere efficiency in the organization is not important; it should also
lead to productivity and effectiveness.
Planning enables the manager to measure the organizational
effectiveness in the context of the stated objectives and take further
actions in this direction.
7. To guide decision making:
Planning provides a basis for future oriented decisions. Without
planning, business decisions may become random.
The controlling function of management relates to the comparison of
the planned performance with the actual performance.
In the absence of plans, a management will have no standards for
controlling other's performance.
6. To increase organizational effectiveness:
Mere efficiency in the organization is not important; it should also
lead to productivity and effectiveness.
Planning enables the manager to measure the organizational
effectiveness in the context of the stated objectives and take further
actions in this direction.
7. To guide decision making:
Planning provides a basis for future oriented decisions. Without
planning, business decisions may become random.
PLANNING PROCESS
PLANNING PROCESS
The various steps involved in planning are given below
The various steps involved in planning are given below
PLANNING PROCESS
The various steps involved in planning are given below
a) Identification of Opportunities:
Identification of an opportunity is the real starting point
for planning.
It includes a preliminary look at possible future
opportunities and the ability to see them clearly and
completely.
Having identified the opportunities, it has to conduct the
strength, weakness, opportunities and Threat analysis
(SWOT).
This analysis helps the organisation to understand
whether it would be able to capitalise on the
opportunities identified.
Planning requires realistic diagnosis of the opportunity
situation.
The various steps involved in planning are given below
a) Identification of Opportunities:
Identification of an opportunity is the real starting point
for planning.
It includes a preliminary look at possible future
opportunities and the ability to see them clearly and
completely.
Having identified the opportunities, it has to conduct the
strength, weakness, opportunities and Threat analysis
(SWOT).
This analysis helps the organisation to understand
whether it would be able to capitalise on the
opportunities identified.
Planning requires realistic diagnosis of the opportunity
situation.
b) Establishing Objectives:
The next step in planning is to establish objectives for the
entire enterprise and then for each subordinate unit.
Objectives specifying the results expected, indicate the end
points of what is to be done, where the primary emphasis is
to be placed, and what is to be accomplished by the network
of strategies, policies, procedures, rules, budgets and
programs.
Under this phase, objectives of the whole organisation and
various departments, units and sections are fixed.
Thus, there will be hierarchy of objectives in the
organisation.
Objectives are set, taking into account the resource of the
organisation and capability of human resource.
Time line for the accomplishment of the objectives are also
fixed.
The next step in planning is to establish objectives for the
entire enterprise and then for each subordinate unit.
Objectives specifying the results expected, indicate the end
points of what is to be done, where the primary emphasis is
to be placed, and what is to be accomplished by the network
of strategies, policies, procedures, rules, budgets and
programs.
Under this phase, objectives of the whole organisation and
various departments, units and sections are fixed.
Thus, there will be hierarchy of objectives in the
organisation.
Objectives are set, taking into account the resource of the
organisation and capability of human resource.
Time line for the accomplishment of the objectives are also
fixed.
c) Considering the Planning Premises:
Planning premises are the assumptions that should be made
about the various elements of the environment.
It provides the basic framework in which plans operate.
This premises may be Internal or external
Internal premises include organisational policies, resources
of various types, sales forecasts and the ability of the
organisation to withstand the environmental pressure.
External premises include the total factors in task
environment like political, social, technological, competitors
plans and actions and government policies etc.
The plans are formulated on the basis of both internal and
external premises.
The nature of planning premises differs at different levels of
planning.
Planning premises are the assumptions that should be made
about the various elements of the environment.
It provides the basic framework in which plans operate.
This premises may be Internal or external
Internal premises include organisational policies, resources
of various types, sales forecasts and the ability of the
organisation to withstand the environmental pressure.
External premises include the total factors in task
environment like political, social, technological, competitors
plans and actions and government policies etc.
The plans are formulated on the basis of both internal and
external premises.
The nature of planning premises differs at different levels of
planning.
d) Identification of alternatives:
Once the organizational objectives have been clearly stated and the
planning premises have been developed, the manager should list as
many available alternatives as possible for reaching those objectives.
The focus of this step is to search for and examine alternative courses
of action, based on organisational objectives and planning premises.
The more common problem is not finding alternatives, but reducing
the number of alternatives so that the most promising may be
analyzed.
All the alternatives cannot be analysed. Some alternatives can be
rejected at its preliminary stage itself by considering preliminary
criteria such as minimum investment required, matching with the
present business, market conditions, government control, skilled
workers etc.
Only the alternatives which meet the preliminary criteria may be
chosen for further detailed analysis.
Once the organizational objectives have been clearly stated and the
planning premises have been developed, the manager should list as
many available alternatives as possible for reaching those objectives.
The focus of this step is to search for and examine alternative courses
of action, based on organisational objectives and planning premises.
The more common problem is not finding alternatives, but reducing
the number of alternatives so that the most promising may be
analyzed.
All the alternatives cannot be analysed. Some alternatives can be
rejected at its preliminary stage itself by considering preliminary
criteria such as minimum investment required, matching with the
present business, market conditions, government control, skilled
workers etc.
Only the alternatives which meet the preliminary criteria may be
chosen for further detailed analysis.
e) Evaluation of alternatives
Having sought out alternative courses and examined their strong and
weak points, the following step is to evaluate them by weighing the
various factors in the light of premises and goals.
One course may appear to be the most profitable but require a large cash
outlay and a slow payback; another may be less profitable but involve less
risk; still another may better suit the company in long–range objectives.
Each alternatives course of action is evaluated on the basis of profitability,
capital investment, risk involved, gestation period (development of
something)etc.
An evaluation of alternatives must include an evaluation of the premises
on which the alternatives are based.
A manager usually finds that some premises are unreasonable and can
therefore be excluded from further consideration.
This elimination process helps the manager determine which alternative
would best accomplish organizational objectives.
f) Choice of alternative plans:
After evaluation of various alternatives, the most appropriate course of
actions is selected.
Having sought out alternative courses and examined their strong and
weak points, the following step is to evaluate them by weighing the
various factors in the light of premises and goals.
One course may appear to be the most profitable but require a large cash
outlay and a slow payback; another may be less profitable but involve less
risk; still another may better suit the company in long–range objectives.
Each alternatives course of action is evaluated on the basis of profitability,
capital investment, risk involved, gestation period (development of
something)etc.
An evaluation of alternatives must include an evaluation of the premises
on which the alternatives are based.
A manager usually finds that some premises are unreasonable and can
therefore be excluded from further consideration.
This elimination process helps the manager determine which alternative
would best accomplish organizational objectives.
f) Choice of alternative plans:
After evaluation of various alternatives, the most appropriate course of
actions is selected.
g) Establishing sequence of activities
After decisions are made and plans are set, the final step to give them
meaning is to numberize them by converting them to budgets.
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.
In this step the planner has to think about the outcome of the chosen
alternatives.
h)Implementing the Plan:-
Once plans that furnish the organization with both long-range and
short-range direction have been developed, they must be
implemented.
Obviously, the organization cannot directly benefit from planning
process until this step is performed.
i) Follow Up:-
When the plan is under implementation. It is better to follow it up.
It means watching the consequences of implementation so that the
necessary corrective action can be taken to fine tune the plan.
After decisions are made and plans are set, the final step to give them
meaning is to numberize them by converting them to budgets.
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.
In this step the planner has to think about the outcome of the chosen
alternatives.
h)Implementing the Plan:-
Once plans that furnish the organization with both long-range and
short-range direction have been developed, they must be
implemented.
Obviously, the organization cannot directly benefit from planning
process until this step is performed.
i) Follow Up:-
When the plan is under implementation. It is better to follow it up.
It means watching the consequences of implementation so that the
necessary corrective action can be taken to fine tune the plan.
TYPES OF PLANS / COMPONENTS OF PLANNING
TYPES OF PLANS / COMPONENTS OF PLANNING :
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.
Plans can be broadly classified as
a) Strategic plans
b) Tactical plans
c) Operational plans
d) Contingency plans
INTER-RELATED
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.
Plans can be broadly classified as
a) Strategic plans
b) Tactical plans
c) Operational plans
d) Contingency plans
INTER-RELATED
a) STRATEGIC PLANS: (It includes Mission,objectives and strategies)
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.
It is further classified as:
i) Mission:
The mission is a statement that reflects the basic purpose
and focus of the organization which normally remain
unchanged. The mission of the company is the answer of
the question : why does the organization exists?
Properly crafted mission statements serve as filters to
separate what is important from what is not, clearly state
which markets will be served and how, and communicate
a sense of intended direction to the entire organization.
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.
It is further classified as:
i) Mission:
The mission is a statement that reflects the basic purpose
and focus of the organization which normally remain
unchanged. The mission of the company is the answer of
the question : why does the organization exists?
Properly crafted mission statements serve as filters to
separate what is important from what is not, clearly state
which markets will be served and how, and communicate
a sense of intended direction to the entire organization.
Mission of Ford:
“we are a global, diverse family with a proud inheritance,
providing exceptional products and services”.
Mission of TOYOTA
We are a global family with a proud heritage passionately
committed to providing
personal mobility for people around the
world
Mission of BSNL
To provide world class State-of-art technology telecom services to
its customers on demand at competitive prices.
To provide world class telecom infrastructure in its area of
operation and to contribute to the growth of the country's
economy
Mission of Infosys :
Infosys International Inc. is dedicated to providing the people,
services and solutions our
clients need to meet their information
technology challenges
and business goals.
“we are a global, diverse family with a proud inheritance,
providing exceptional products and services”.
Mission of TOYOTA
We are a global family with a proud heritage passionately
committed to providing
personal mobility for people around the
world
Mission of BSNL
To provide world class State-of-art technology telecom services to
its customers on demand at competitive prices.
To provide world class telecom infrastructure in its area of
operation and to contribute to the growth of the country's
economy
Mission of Infosys :
Infosys International Inc. is dedicated to providing the people,
services and solutions our
clients need to meet their information
technology challenges
and business goals.
ii) Objectives or goals:
Both goal and objective can be defined as statements that reflect
the end towards which the organization is aiming to achieve.
However, there are significant differences between the two.
A goal is an abstract and general umbrella statement, under
which specific objectives can be clustered.
Objectives are statements that describe—in precise,
measurable, and obtainable terms which reflect the desired
organization’s outcomes.
Shell Objectives
We are committed to deliver sustainable excellence in business performance by focusing
on the following:
Benefit our shareholders
Realise the potential of our people
Meet our customer requirements
Maximise refinery margins
Safeguard asset integrity
Deliver structural cost reductions
Sustain a robust management system
Deliver continuous sustainable Health, Safety, Security and Environmental excellence
Both goal and objective can be defined as statements that reflect
the end towards which the organization is aiming to achieve.
However, there are significant differences between the two.
A goal is an abstract and general umbrella statement, under
which specific objectives can be clustered.
Objectives are statements that describe—in precise,
measurable, and obtainable terms which reflect the desired
organization’s outcomes.
Shell Objectives
We are committed to deliver sustainable excellence in business performance by focusing
on the following:
Benefit our shareholders
Realise the potential of our people
Meet our customer requirements
Maximise refinery margins
Safeguard asset integrity
Deliver structural cost reductions
Sustain a robust management system
Deliver continuous sustainable Health, Safety, Security and Environmental excellence
iii) Strategies: (a plan of action designed to achieve a long-term or
overall aim)
Strategy is the determination of the basic long term
objectives of an organization.
It is concerned with adoption of action and collection
and allocation of resources necessary to achieve these
goals.
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.
This plan requires multilevel involvement, these plans
demand harmony among all levels of management
within the organization.
overall aim)
Strategy is the determination of the basic long term
objectives of an organization.
It is concerned with adoption of action and collection
and allocation of resources necessary to achieve these
goals.
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.
This plan requires multilevel involvement, these plans
demand harmony among all levels of management
within the organization.
b) TACTICAL PLANS:
Tactical planning takes a company's strategic
plan and sets forth
specific short-term actions and
plans, usually by company
department or function.
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.
Tactical planning takes a company's strategic
plan and sets forth
specific short-term actions and
plans, usually by company
department or function.
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.
c) OPERATIONAL PLANS:
An
Operational Plan
is a detailed
plan
used to provide a
clear picture of how a team, section or department will
contribute to the achievement of the organization's
strategic goals.
The specific results expected from departments, work
groups, and individuals are the operational goals.
These goals are precise and measurable.
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.
An operational plan determines what your organisation
is doing day by day and month by month.
An
Operational Plan
is a detailed
plan
used to provide a
clear picture of how a team, section or department will
contribute to the achievement of the organization's
strategic goals.
The specific results expected from departments, work
groups, and individuals are the operational goals.
These goals are precise and measurable.
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.
An operational plan determines what your organisation
is doing day by day and month by month.
d) Contingency plans
Contingency planning involves identifying alternative courses
of action that can be implemented if and when the original
plan proves inadequate because of changing circumstances.
A
contingency plan
is sometimes referred to as "Plan B,"
Keep in mind that events beyond a manager's control may
cause even the most carefully prepared alternative future
scenarios to go away.
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.
Contingency planning involves identifying alternative courses
of action that can be implemented if and when the original
plan proves inadequate because of changing circumstances.
A
contingency plan
is sometimes referred to as "Plan B,"
Keep in mind that events beyond a manager's control may
cause even the most carefully prepared alternative future
scenarios to go away.
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.
OBJECTIVES
OBJECTIVES
Objectives may be defined as the goals which an
organisation tries to achieve. Objectives are
described as the end- points of planning.
According to Koontz and O'Donnell, "an objective
is a term commonly used to indicate the end
point of a management programme.“
Objectives constitute the purpose of the
enterprise and without them no intelligent
planning can take place.
Objectives may be defined as the goals which an
organisation tries to achieve. Objectives are
described as the end- points of planning.
According to Koontz and O'Donnell, "an objective
is a term commonly used to indicate the end
point of a management programme.“
Objectives constitute the purpose of the
enterprise and without them no intelligent
planning can take place.
CASCADING OF OBJECTIVES
Features of Objectives:
The objectives must be predetermined.
A clearly defined objective provides the clear
direction for managerial effort.
Objectives must be realistic.
Objectives must be measurable.
Objectives may be short-range, medium-range and
long-range.
Objectives should cover the main features of the
job.
Objectives must be clearly specified in writing.
The list of objectives should not be too long.
Objectives must be set by considering the various
factors affecting their achievement.
The objectives must be predetermined.
A clearly defined objective provides the clear
direction for managerial effort.
Objectives must be realistic.
Objectives must be measurable.
Objectives may be short-range, medium-range and
long-range.
Objectives should cover the main features of the
job.
Objectives must be clearly specified in writing.
The list of objectives should not be too long.
Objectives must be set by considering the various
factors affecting their achievement.
Objective should indicate the organisational
mission.
Objectives should be verifiable.
Objectives should be challenging and reasonable.
Objectives should yield specific results when
achieved.
Objectives should provide timely feedback.
Short term objectives should coincide with long-
term objectives.
Objective should start with the word “To” and be
followed by an action.
Objectives should be periodically reviewed.
mission.
Objectives should be verifiable.
Objectives should be challenging and reasonable.
Objectives should yield specific results when
achieved.
Objectives should provide timely feedback.
Short term objectives should coincide with long-
term objectives.
Objective should start with the word “To” and be
followed by an action.
Objectives should be periodically reviewed.
SMART OBJECTIVES
SMART OBJECTIVES
Examples of Objectives for a Company
1. Financial:
15 percent growth in revenues and earnings within the next 12 months,
is ideal because it can be measured and adjusted if necessary.
Another financial objective could focus on increasing capital and
investments, such as attracting new shareholders and investors by
improving credit worthiness and cash flow.
2. Human Resources:
A human resources objective could be to reduce employee turnover by
20 percent by introducing a new employee assistance program.
Another objective could be to improve productivity by implementing a
company-wide training program.
3. Customer Service:
A customer service objective could be to reduce delivery and distribution
time of products and services.
Another could be to reduce the number and frequency of customer
returns and complaints, or to improve the response time of client
inquiries.
1. Financial:
15 percent growth in revenues and earnings within the next 12 months,
is ideal because it can be measured and adjusted if necessary.
Another financial objective could focus on increasing capital and
investments, such as attracting new shareholders and investors by
improving credit worthiness and cash flow.
2. Human Resources:
A human resources objective could be to reduce employee turnover by
20 percent by introducing a new employee assistance program.
Another objective could be to improve productivity by implementing a
company-wide training program.
3. Customer Service:
A customer service objective could be to reduce delivery and distribution
time of products and services.
Another could be to reduce the number and frequency of customer
returns and complaints, or to improve the response time of client
inquiries.
MANAGEMENT BY OBJECTIVES (MBO)
MANAGEMENT BY OBJECTIVES (MBO)
MANAGEMENT BY OBJECTIVES (MBO)
Management by objectives
(
MBO) is a management
model that
aims to improve performance of an organization by clearly
defining objectives
that are agreed to by both
management and
employees.
Definition:
“MBO is a process whereby the superior and the mangers of an
organization jointly identify its common goals, define each
individual’s major area of responsibility in terms of results
expected of him, and use these measures as guides for operating
the unit and assessing the contribution of each of its members.”
- George Ordiorne
Management by objectives
(
MBO) is a management
model that
aims to improve performance of an organization by clearly
defining objectives
that are agreed to by both
management and
employees.
Definition:
“MBO is a process whereby the superior and the mangers of an
organization jointly identify its common goals, define each
individual’s major area of responsibility in terms of results
expected of him, and use these measures as guides for operating
the unit and assessing the contribution of each of its members.”
- George Ordiorne
MBO; FRAMEWORK CONCEPT
Jointly plan
• Setting
objectives
• Setting
standards
• Choosing
actions
Individually act
• Performing
tasks
(subordinate)
• Providing
support
(supervisor)
Jointly control
• Reviewing
results
• Discussing
implications
• Renewing MBO
cycle
Supervisor
Subordinate
and
Jointly plan
• Setting
objectives
• Setting
standards
• Choosing
actions
Individually act
• Performing
tasks
(subordinate)
• Providing
support
(supervisor)
Jointly control
• Reviewing
results
• Discussing
implications
• Renewing MBO
cycle
Supervisor
Subordinate
and
Features of MBO
MBO is concerned with goal setting and planning
for individual managers and their units.
The essence of MBO is a process of joint goal
setting between a supervisor and a subordinate.
Managers work with their subordinates to
establish the performance goals that are
consistent with their higher organizational
objectives.
It involves all levels of Management.
MBO facilitates control through the periodic
development and subsequent evaluation of
individual goals and plans.
MBO is concerned with goal setting and planning
for individual managers and their units.
The essence of MBO is a process of joint goal
setting between a supervisor and a subordinate.
Managers work with their subordinates to
establish the performance goals that are
consistent with their higher organizational
objectives.
It involves all levels of Management.
MBO facilitates control through the periodic
development and subsequent evaluation of
individual goals and plans.
Steps in MBO
The typical MBO process consists of the
following four steps:
1.Establishing a clear and precisely defined
statement of objectives for the employee
2.Developing an action plan indicating how
these objectives are to be achieved
3.Reviewing the performance of the
employees
4.Appraising performance based on objective
achievement
The typical MBO process consists of the
following four steps:
1.Establishing a clear and precisely defined
statement of objectives for the employee
2.Developing an action plan indicating how
these objectives are to be achieved
3.Reviewing the performance of the
employees
4.Appraising performance based on objective
achievement
STEPS FOR MBO
Appraise
Performance
•Corporate Strategic goals
•Departmental goals
•Individual goals
STEP 1: SET GOALSSTEP 1: SET GOALS
STEP 4: APPRAISE STEP 4: APPRAISE
OVERALL PERFORMANCEOVERALL PERFORMANCE
Action Plans
Review Progress
&
Take Corrective Action
STEP 2: DEVELOP PLANSSTEP 2: DEVELOP PLANS
STEP 3: REVIEW PROGRESSSTEP 3: REVIEW PROGRESS
Appraise
Performance
•Corporate Strategic goals
•Departmental goals
•Individual goals
STEP 1: SET GOALSSTEP 1: SET GOALS
STEP 4: APPRAISE STEP 4: APPRAISE
OVERALL PERFORMANCEOVERALL PERFORMANCE
Action Plans
Review Progress
&
Take Corrective Action
STEP 2: DEVELOP PLANSSTEP 2: DEVELOP PLANS
STEP 3: REVIEW PROGRESSSTEP 3: REVIEW PROGRESS
1) 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.
Managers need to identify and set objectives both for
themselves, their units, and their organizations.
These objectives are formed by keeping in view the external and
internal environment of the organisation.
During setting objectives for subordinates, we should consider
the organisational goals, subordinates ability and resources
available to him, government policies, level of competition,
technological advancement, potential demand for the product
etc.
These goals are communicated to all concerned in the
organisation.
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.
Managers need to identify and set objectives both for
themselves, their units, and their organizations.
These objectives are formed by keeping in view the external and
internal environment of the organisation.
During setting objectives for subordinates, we should consider
the organisational goals, subordinates ability and resources
available to him, government policies, level of competition,
technological advancement, potential demand for the product
etc.
These goals are communicated to all concerned in the
organisation.
2) Developing action plans
Actions plans specify the actions needed to
address, who will complete each action and
according to what timeline.
An overall, top-level action plan that depicts how
each strategic goal will be reached is developed
by the top level management.
The format of the action plan depends on the
objective of the organization.
The action plan depicts the Procedure for
utilisation of resource and facilities are drawn up.
Authority and responsibility associated with the
job are defined.
Actions plans specify the actions needed to
address, who will complete each action and
according to what timeline.
An overall, top-level action plan that depicts how
each strategic goal will be reached is developed
by the top level management.
The format of the action plan depends on the
objective of the organization.
The action plan depicts the Procedure for
utilisation of resource and facilities are drawn up.
Authority and responsibility associated with the
job are defined.
3) Reviewing Progress:
Performance is measured in terms of results.
As agreed upon in the action plan, superior and
subordinates sit together and assess the level of
performance in the light of targets willingly taken
by the subordinates.
The constraints faced by the subordinates in
accomplishing the objectives set for the period
are addressed and remedial measures are
deliberated.
Sometimes, if the target is perceived to be
excessive, it is revised suitably.
Performance is measured in terms of results.
As agreed upon in the action plan, superior and
subordinates sit together and assess the level of
performance in the light of targets willingly taken
by the subordinates.
The constraints faced by the subordinates in
accomplishing the objectives set for the period
are addressed and remedial measures are
deliberated.
Sometimes, if the target is perceived to be
excessive, it is revised suitably.
4) Performance appraisal:
Performance appraisals communicate to employees how they
are performing their jobs, and they establish a plan for
improvement.
Performance appraisals are extremely important to both
employee and employer, as they are often used to provide
predictive information related to possible promotion.
Appraisals can also provide input for determining the training
and development needs.
Performance appraisals encourage performance improvement.
The assessment of objectives unit wise and individually is made.
When the target is achieved suitable rewards are given to the
achiever.
Suitable remedial action are initiated where the target is under
achieved.
Action plan are revised so as to accomplish the objectives.
Performance appraisals communicate to employees how they
are performing their jobs, and they establish a plan for
improvement.
Performance appraisals are extremely important to both
employee and employer, as they are often used to provide
predictive information related to possible promotion.
Appraisals can also provide input for determining the training
and development needs.
Performance appraisals encourage performance improvement.
The assessment of objectives unit wise and individually is made.
When the target is achieved suitable rewards are given to the
achiever.
Suitable remedial action are initiated where the target is under
achieved.
Action plan are revised so as to accomplish the objectives.
Advantages:
Motivation :–
Involving employees in the whole process of goal setting and
increasing employee empowerment. This 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
organization and also to solve many problems.
Fostering a sense of commitment to objectives:-
Subordinates have a higher commitment to objectives they set
themselves than those imposed on them by another person.
Career advancement of employees:-
MBO Provides windows for employees to peep into inner strength
and weakness.
Nurturing Creativity:-
Linking performance evaluation to goal accomplishment impels
them to think creatively and innovatively.
Motivation :–
Involving employees in the whole process of goal setting and
increasing employee empowerment. This 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
organization and also to solve many problems.
Fostering a sense of commitment to objectives:-
Subordinates have a higher commitment to objectives they set
themselves than those imposed on them by another person.
Career advancement of employees:-
MBO Provides windows for employees to peep into inner strength
and weakness.
Nurturing Creativity:-
Linking performance evaluation to goal accomplishment impels
them to think creatively and innovatively.
Limitations:
It over-emphasizes the setting of goals
It underemphasizes the importance of the
environment or context in which the goals are set.
Companies evaluated their employees by
comparing them with the "ideal" employee.
Lack of conceptual clarity.
Goal setting constraint.
Time consuming concept.
Too much documentation work.
Too much pressure on employees.
Limited applicability.
It over-emphasizes the setting of goals
It underemphasizes the importance of the
environment or context in which the goals are set.
Companies evaluated their employees by
comparing them with the "ideal" employee.
Lack of conceptual clarity.
Goal setting constraint.
Time consuming concept.
Too much documentation work.
Too much pressure on employees.
Limited applicability.
MBO at Microsoft By Bill Gates
•Eliminate politics, by giving everybody the same
message.
•Keep a
flat organization in which all issues are discussed
openly.
•Insist on clear and direct
communication.
•Prevent competing
missions or objectives
•Eliminate rivalry between different parts of the
organization
•Empower teams
to do their own things
•Eliminate politics, by giving everybody the same
message.
•Keep a
flat organization in which all issues are discussed
openly.
•Insist on clear and direct
communication.
•Prevent competing
missions or objectives
•Eliminate rivalry between different parts of the
organization
•Empower teams
to do their own things
STRATEGIES
STRATEGIES (உத்
திகள்
)
According to Koontz and O' Donnell, "Strategies must often denote a
general programme of action and deployment of emphasis and
resources to attain comprehensive objectives".
According to Alfred D. Chandler, “Strategy is the determination of
basic long term objectives of an enterprise, and the adoption of the
course of action and allocation of resources to achieve these goals”.
Alfred D. Chandler
Characteristics of Strategy:
It is the right combination of different factors.
It relates the business organization to the environment.
It is an action to meet a particular challenge, to solve particular
problems or to attain desired objectives.
Strategy is a means to an end and not an end in itself.
It is formulated at the top management level.
It involves assumption of certain calculated risks.
திகள்
)
According to Koontz and O' Donnell, "Strategies must often denote a
general programme of action and deployment of emphasis and
resources to attain comprehensive objectives".
According to Alfred D. Chandler, “Strategy is the determination of
basic long term objectives of an enterprise, and the adoption of the
course of action and allocation of resources to achieve these goals”.
Alfred D. Chandler
Characteristics of Strategy:
It is the right combination of different factors.
It relates the business organization to the environment.
It is an action to meet a particular challenge, to solve particular
problems or to attain desired objectives.
Strategy is a means to an end and not an end in itself.
It is formulated at the top management level.
It involves assumption of certain calculated risks.
Strategic Planning Process / Strategic Formulation Process
Strategic Planning Process / Strategic Formulation Process
1.Input to the Organization:
Various Inputs (People, Capital, Management, Technical
skills, Employees, Consumers, Suppliers, Stockholders,
Government, Community and others)need to be
analysed.
2. Industry Analysis:
Formulation of strategy requires the evaluation of the
attractiveness of an industry.
The focus should be on the kind of
Comparison within an industry,
The possibility of new firms entering the market,
The availability of substitute products or services,
The bargaining positions of the suppliers,
Analysis of buyers or customers.
1.Input to the Organization:
Various Inputs (People, Capital, Management, Technical
skills, Employees, Consumers, Suppliers, Stockholders,
Government, Community and others)need to be
analysed.
2. Industry Analysis:
Formulation of strategy requires the evaluation of the
attractiveness of an industry.
The focus should be on the kind of
Comparison within an industry,
The possibility of new firms entering the market,
The availability of substitute products or services,
The bargaining positions of the suppliers,
Analysis of buyers or customers.
3. Enterprise Profile:
Enterprise profile is usually the starting point for
determining where the company is and where it should
go.
4. Mission (Purpose), Major Objectives, and Strategic
Intent:
Vision represents the fundamental thrust of the
company. It shows the direction for the whole
organisation to proceed and chart out a path to
accomplish a goal.
Mission or Strategic intent is the commitment to win in
the competitive environment, not only at the top-level
but also throughout the organization.
Objectives are the end result of an organisation.
Enterprise profile is usually the starting point for
determining where the company is and where it should
go.
4. Mission (Purpose), Major Objectives, and Strategic
Intent:
Vision represents the fundamental thrust of the
company. It shows the direction for the whole
organisation to proceed and chart out a path to
accomplish a goal.
Mission or Strategic intent is the commitment to win in
the competitive environment, not only at the top-level
but also throughout the organization.
Objectives are the end result of an organisation.
5. External Environment:
The next step of the process is environmental analysis.
Any organisation must know the kind of environment in which it has
to work.
A list of important factors likely to affect the organisation ‘s activity is
prepared.
The external environment must be assessed in terms of threats and
opportunities.
6. Internal Environment:
Internal Environment should be audited and evaluated with respect
to its resources.
Weaknesses and strengths in
Research and development.
Production
Operation
Procurement
Marketing
Products and Services.
The next step of the process is environmental analysis.
Any organisation must know the kind of environment in which it has
to work.
A list of important factors likely to affect the organisation ‘s activity is
prepared.
The external environment must be assessed in terms of threats and
opportunities.
6. Internal Environment:
Internal Environment should be audited and evaluated with respect
to its resources.
Weaknesses and strengths in
Research and development.
Production
Operation
Procurement
Marketing
Products and Services.
Other internal factors include,
Human resources.
Financial resources
Company image,
The organization structure and climate,
The planning and control system,
Relations with customers.
7. Development of Alternative Strategies:
Strategic alternatives are developed on the basis of an
analysis of the external and internal environment.
The process will bring large number of alternatives.
Human resources.
Financial resources
Company image,
The organization structure and climate,
The planning and control system,
Relations with customers.
7. Development of Alternative Strategies:
Strategic alternatives are developed on the basis of an
analysis of the external and internal environment.
The process will bring large number of alternatives.
8. Evaluation and Choice of Strategies:
However all the alternatives cannot be selected.
The alternatives are evaluated on the basis of some criteria.
These criteria are based on organisational mission and objectives.
Choices must be considered in the light of the risk involved.
Some profitable opportunities may not be pursued.
Another critical element in choosing a strategy is timing. Even the
best product may fail if it is introduced to the market at an
inappropriate time.
9.Medium/Short Range Planning, Implementation through
Reengineering (restructure) the Organization Structure and Control:
Implementation of the Strategy often requires reengineering the
organization, staffing the organization structure and providing
leadership.
Controls must also be installed monitoring performance against
plans.
However all the alternatives cannot be selected.
The alternatives are evaluated on the basis of some criteria.
These criteria are based on organisational mission and objectives.
Choices must be considered in the light of the risk involved.
Some profitable opportunities may not be pursued.
Another critical element in choosing a strategy is timing. Even the
best product may fail if it is introduced to the market at an
inappropriate time.
9.Medium/Short Range Planning, Implementation through
Reengineering (restructure) the Organization Structure and Control:
Implementation of the Strategy often requires reengineering the
organization, staffing the organization structure and providing
leadership.
Controls must also be installed monitoring performance against
plans.
10. Consistency Testing and Contingency Planning:
The last key aspect of the strategic planning process is
the testing for consistency and preparing for contingency
plans.
The last key aspect of the strategic planning process is
the testing for consistency and preparing for contingency
plans.
TYPES OF STRATEGIES
TYPES OF STRATEGIES
According to Michel Porter, the
strategies can be classified into
three types.
They are:
•Cost leadership strategy
•Differentiation strategy
•Focus strategy
According to Michel Porter, the
strategies can be classified into
three types.
They are:
•Cost leadership strategy
•Differentiation strategy
•Focus strategy
The following table illustrates Porter's generic strategies:
a) COST LEADERSHIP STRATEGY:
This generic strategy calls for being the low cost producer in an industry for a
given level of quality.
The firm sells its products either at average industry prices to earn a profit higher
than that of rivals, or below the average industry prices to gain market share.
The cost leadership strategy usually targets a broad market.
Some of the ways that firms acquire cost advantages are by:
Improving process efficiencies, gaining unique access to a large source of
lower cost materials, making optimal outsourcing and vertical integration
decisions, or avoiding some costs altogether.
If competing firms are unable to lower their costs by a similar amount, the
firm may be able to sustain a competitive advantage based on cost leadership.
Firms that succeed in cost leadership often have the following internal strengths:
Access to the capital required to make a significant investment in production
assets; this investment represents a barrier to entry that many firms may not
overcome.
Skill in designing products for efficient manufacturing, for example, having a
small component count to shorten the assembly process.
High level of expertise in manufacturing process engineering.
Efficient distribution channels.
This generic strategy calls for being the low cost producer in an industry for a
given level of quality.
The firm sells its products either at average industry prices to earn a profit higher
than that of rivals, or below the average industry prices to gain market share.
The cost leadership strategy usually targets a broad market.
Some of the ways that firms acquire cost advantages are by:
Improving process efficiencies, gaining unique access to a large source of
lower cost materials, making optimal outsourcing and vertical integration
decisions, or avoiding some costs altogether.
If competing firms are unable to lower their costs by a similar amount, the
firm may be able to sustain a competitive advantage based on cost leadership.
Firms that succeed in cost leadership often have the following internal strengths:
Access to the capital required to make a significant investment in production
assets; this investment represents a barrier to entry that many firms may not
overcome.
Skill in designing products for efficient manufacturing, for example, having a
small component count to shorten the assembly process.
High level of expertise in manufacturing process engineering.
Efficient distribution channels.
Examples of Cost Leadership Strategy
Wal-Mart:
Wal-Mart Stores Inc. has been successful using its strategy of everyday
low prices to attract customers. The idea of everyday low prices is to
offer products at a cheaper rate than competitors on a consistent basis,
rather than relying on sales. Wal-Mart is able to achieve this due to its
large scale and efficient supply chain. They source products from cheap
domestic suppliers and from low-wage foreign markets. This allows the
company to sell their items at low prices and to profit off thin margins at
a high volume.
McDonald's:
The restaurant industry is known for yielding low margins that can make
it difficult to compete with a cost leadership marketing strategy.
McDonald's has been extremely successful with this strategy by offering
basic fast-food meals at low prices. They are able to keep prices low
through a division of labor that allows it to hire and train inexperienced
employees rather than trained cooks. It also relies on few managers who
typically earn higher wages. These staff savings allow the company to
offer its foods for bargain prices.
Wal-Mart:
Wal-Mart Stores Inc. has been successful using its strategy of everyday
low prices to attract customers. The idea of everyday low prices is to
offer products at a cheaper rate than competitors on a consistent basis,
rather than relying on sales. Wal-Mart is able to achieve this due to its
large scale and efficient supply chain. They source products from cheap
domestic suppliers and from low-wage foreign markets. This allows the
company to sell their items at low prices and to profit off thin margins at
a high volume.
McDonald's:
The restaurant industry is known for yielding low margins that can make
it difficult to compete with a cost leadership marketing strategy.
McDonald's has been extremely successful with this strategy by offering
basic fast-food meals at low prices. They are able to keep prices low
through a division of labor that allows it to hire and train inexperienced
employees rather than trained cooks. It also relies on few managers who
typically earn higher wages. These staff savings allow the company to
offer its foods for bargain prices.
TATA Implemented TATA Implemented
Cost Leadership StrategyCost Leadership Strategy
64
Cost Leadership StrategyCost Leadership Strategy
64
Innovation has been the hallmark in the mission for the Nano. It
has focused on creating cost effective solutions. A new brand of
innovation that makes more out of less.
34 patents have been filed.
Inexpensive solutions availing the existing infrastructure of Tata
motors.
Modular design: Components in kit forms that can be easily
shipped, assembled and serviced even by local entrepreneurs.
Light weight welded steel platform. Minimum use of steel to
reduce weight.
Adoption of rear engine, rear wheel drive.
Elimination of propeller shaft.
65
has focused on creating cost effective solutions. A new brand of
innovation that makes more out of less.
34 patents have been filed.
Inexpensive solutions availing the existing infrastructure of Tata
motors.
Modular design: Components in kit forms that can be easily
shipped, assembled and serviced even by local entrepreneurs.
Light weight welded steel platform. Minimum use of steel to
reduce weight.
Adoption of rear engine, rear wheel drive.
Elimination of propeller shaft.
65
Logistics & Supply Chain ManagementLogistics & Supply Chain Management
Mother plant
Manufacture the complete car.
Centralization of purchase.
97% parts locally sourced.
Only 20 companies to supply 70% of components.
Volume commitments. 75% from single source.
Half the vendors will be located near the mother plant.
66
Mother plant
Manufacture the complete car.
Centralization of purchase.
97% parts locally sourced.
Only 20 companies to supply 70% of components.
Volume commitments. 75% from single source.
Half the vendors will be located near the mother plant.
66
b) DIFFERENTIATION STRATEGY:
A differentiation strategy calls for the development of a product or service
that offers unique attributes that are valued by customers and that
customers perceive to be better than or different from the products of the
competition.
The value added by the uniqueness of the product may allow the firm to
charge a premium price for it.
The firm hopes that the higher price will more than cover the extra costs
incurred in offering the unique product.
Because of the product's unique attributes, if suppliers increase their prices
the firm may be able to pass along the costs to its customers who cannot
find substitute products easily.
Firms that succeed in a differentiation strategy often have the following
internal strengths:
•Access to leading scientific research.
•Highly skilled and creative product development team.
•Strong sales team with the ability to successfully communicate the
perceived strengths of the product.
•Corporate reputation for quality and innovation.
A differentiation strategy calls for the development of a product or service
that offers unique attributes that are valued by customers and that
customers perceive to be better than or different from the products of the
competition.
The value added by the uniqueness of the product may allow the firm to
charge a premium price for it.
The firm hopes that the higher price will more than cover the extra costs
incurred in offering the unique product.
Because of the product's unique attributes, if suppliers increase their prices
the firm may be able to pass along the costs to its customers who cannot
find substitute products easily.
Firms that succeed in a differentiation strategy often have the following
internal strengths:
•Access to leading scientific research.
•Highly skilled and creative product development team.
•Strong sales team with the ability to successfully communicate the
perceived strengths of the product.
•Corporate reputation for quality and innovation.
Examples of Differentiation Strategy:
Products Or Services
Another way to stand out from the pack is to offer different products or
services than your competition
For example, be the first in your town to open a gourmet (standard)
coffee shop or a Thai restaurant. The key to this type of strategy is to
conduct market research to ensure that your unique products or services
will be accepted by the local community. You can also expand your
product mix to include items that your competitors do not carry.
Convenience:
Emphasize the convenience of your business to set yourself apart from
the competition. As a smaller business, you may be able to reduce the
time it takes for customers to get in and out. Your location may also
make it easier for customers to find you.
Expertise:
Your personal or business experiences or credentials may allow you to
market your expertise. You may be the only florist in your area with an
advanced horticultural degree
Products Or Services
Another way to stand out from the pack is to offer different products or
services than your competition
For example, be the first in your town to open a gourmet (standard)
coffee shop or a Thai restaurant. The key to this type of strategy is to
conduct market research to ensure that your unique products or services
will be accepted by the local community. You can also expand your
product mix to include items that your competitors do not carry.
Convenience:
Emphasize the convenience of your business to set yourself apart from
the competition. As a smaller business, you may be able to reduce the
time it takes for customers to get in and out. Your location may also
make it easier for customers to find you.
Expertise:
Your personal or business experiences or credentials may allow you to
market your expertise. You may be the only florist in your area with an
advanced horticultural degree
c) FOCUS STRATEGY:
The focus strategy concentrates on a narrow segment and within that
segment attempts to achieve either a cost advantage or differentiation.
The premise is that the needs of the group can be better serviced by
focusing entirely on it.
A firm using a focus strategy often enjoys a high degree of customer loyalty,
and this entrenched loyalty discourages other firms from competing directly.
Because of their narrow market focus, firms pursuing a focus strategy have
lower volumes and therefore less bargaining power with their suppliers.
However, firms pursuing a differentiation-focused strategy may be able to
pass higher costs on to customers since close substitute products do not
exist.
Firms that succeed in a focus strategy are able to tailor a broad range of
product development strengths to a relatively narrow market segment that
they know very well.
Some risks of focus strategies include imitation and changes in the target
segments. Furthermore, it may be fairly easy for a broad-market cost leader
to adapt its product in order to compete directly. Finally, other focusers may
be able to carve out sub-segments that they can serve even better.
The focus strategy concentrates on a narrow segment and within that
segment attempts to achieve either a cost advantage or differentiation.
The premise is that the needs of the group can be better serviced by
focusing entirely on it.
A firm using a focus strategy often enjoys a high degree of customer loyalty,
and this entrenched loyalty discourages other firms from competing directly.
Because of their narrow market focus, firms pursuing a focus strategy have
lower volumes and therefore less bargaining power with their suppliers.
However, firms pursuing a differentiation-focused strategy may be able to
pass higher costs on to customers since close substitute products do not
exist.
Firms that succeed in a focus strategy are able to tailor a broad range of
product development strengths to a relatively narrow market segment that
they know very well.
Some risks of focus strategies include imitation and changes in the target
segments. Furthermore, it may be fairly easy for a broad-market cost leader
to adapt its product in order to compete directly. Finally, other focusers may
be able to carve out sub-segments that they can serve even better.
Example:
Lexus is a brand of Toyota Motor Company. It is a famous
for luxury cars. Its rivals are BMW and Mercedes-Benz.
Lexus is a perfect example for a focus strategy. Lexus is
positioned for a group of rich people. Toyota offers the
same benefits as competitors but lowest price for its
Lexus on the market.
Example:
Mercedes-Benz is famous for luxury cars. It focuses on a
narrow market and gets huge profit margins at the hi-
income and upscale segment. A best-value focus strategy
is used. On the market, selling price of Mercedes-Benz is
charged higher than Toyota
Lexus is a brand of Toyota Motor Company. It is a famous
for luxury cars. Its rivals are BMW and Mercedes-Benz.
Lexus is a perfect example for a focus strategy. Lexus is
positioned for a group of rich people. Toyota offers the
same benefits as competitors but lowest price for its
Lexus on the market.
Example:
Mercedes-Benz is famous for luxury cars. It focuses on a
narrow market and gets huge profit margins at the hi-
income and upscale segment. A best-value focus strategy
is used. On the market, selling price of Mercedes-Benz is
charged higher than Toyota
POLICIES
POLICIES (கொ
ள்கை
)
Policies are general statements or understanding which
provides guidance in decision making to members of an
organisation in respect to any course of action.
-
L.M.PRASAD.
“A Policy is those principles and rules that are set by
managerial leadership as guidelines and constraints for
the organisation’s thought and actions”
-F.R. HANKER.
ள்கை
)
Policies are general statements or understanding which
provides guidance in decision making to members of an
organisation in respect to any course of action.
-
L.M.PRASAD.
“A Policy is those principles and rules that are set by
managerial leadership as guidelines and constraints for
the organisation’s thought and actions”
-F.R. HANKER.
Sample Policy Examples:
1. Sample Attendance Policy:
A company's attendance policy should define key terms, specify
procedures for reporting absences and detail applicable
consequences.
2. Sample Payroll Procedures:
The purpose of this type of policy is to define the company's pay
period, specify pay dates and provide details about payroll taxes
and how employees are required to report their time. It's also
advisable to include how garnishments are handled and inform
employees of their obligation to keep their address current for
tax purposes
3.Dress Code Policy:
It is a good idea to provide a written policy that specifies
expectations for workplace apparel. The sample policy provided
here outlines a business casual approach though it can be
adjusted to meet the needs of any workplace.
1. Sample Attendance Policy:
A company's attendance policy should define key terms, specify
procedures for reporting absences and detail applicable
consequences.
2. Sample Payroll Procedures:
The purpose of this type of policy is to define the company's pay
period, specify pay dates and provide details about payroll taxes
and how employees are required to report their time. It's also
advisable to include how garnishments are handled and inform
employees of their obligation to keep their address current for
tax purposes
3.Dress Code Policy:
It is a good idea to provide a written policy that specifies
expectations for workplace apparel. The sample policy provided
here outlines a business casual approach though it can be
adjusted to meet the needs of any workplace.
The essentials of policy formation may be listed as
below:
A policy should be definite, positive and clear.
It should be understood by everyone in the
organization.
A policy should be translatable into the practices.
A policy should be flexible and at the same time have a
high degree of permanency.
A policy should be formulated to cover all reasonable
anticipatable conditions.
A policy should be founded upon facts and sound
judgment.
A policy should be a general statement of the
established rule.
below:
A policy should be definite, positive and clear.
It should be understood by everyone in the
organization.
A policy should be translatable into the practices.
A policy should be flexible and at the same time have a
high degree of permanency.
A policy should be formulated to cover all reasonable
anticipatable conditions.
A policy should be founded upon facts and sound
judgment.
A policy should be a general statement of the
established rule.
POLICY FORMULATION PROCCESS
POLICY FORMULATION PROCCESS:
A policy formulation process involves the following steps:
1.Definition of Policy Areas:
The initial steps in policy formulation is to specify the
area in which the policies are formulated.
During this process, the objectives, needs and
environment of the organization should be kept in mind.
2.Creation of policy alternatives:
By analyzing the external and internal environment of
the organization carefully, the opportunities and Threat
(or) constraints, strength and weakness are identified.
On the basis of such analysis, we can identify the policy
alternatives for each objectives.
A policy formulation process involves the following steps:
1.Definition of Policy Areas:
The initial steps in policy formulation is to specify the
area in which the policies are formulated.
During this process, the objectives, needs and
environment of the organization should be kept in mind.
2.Creation of policy alternatives:
By analyzing the external and internal environment of
the organization carefully, the opportunities and Threat
(or) constraints, strength and weakness are identified.
On the basis of such analysis, we can identify the policy
alternatives for each objectives.
3.Evaluation of policy alternatives:
Each of the policy alternatives are evaluated in terms of
contribution to objectives.
The various factors such as costs, benefits and resources
required should be considered in evaluating alternatives.
4.Choice of policies:
After evaluation of each policy alternatives, the most
appropriate alternatives is selected for implementation.
5.Communication of policy:
The chosen policy is communicated to those responsible for
implementation.
The policy may be communicated through the policy
manuals, company handbooks, written memorandum.
Each of the policy alternatives are evaluated in terms of
contribution to objectives.
The various factors such as costs, benefits and resources
required should be considered in evaluating alternatives.
4.Choice of policies:
After evaluation of each policy alternatives, the most
appropriate alternatives is selected for implementation.
5.Communication of policy:
The chosen policy is communicated to those responsible for
implementation.
The policy may be communicated through the policy
manuals, company handbooks, written memorandum.
6.Implementation of policy:
The chosen policy is then put into action by
converting it into operational plan.
7.Review of policy:
Policy should be reviewed periodically to
facilitate the rapid changes in the environment.
Without such reviews, policies become obsolete
over the period of time.
The chosen policy is then put into action by
converting it into operational plan.
7.Review of policy:
Policy should be reviewed periodically to
facilitate the rapid changes in the environment.
Without such reviews, policies become obsolete
over the period of time.
•Human Resource Policies:-
Manpower Planning
Recruitment & Selection
Training & Development
Performance Appraisal
Promotion, Transfer, & Demotion
Administration Section
Grievance Handling
Kaizen suggestion
Welfare Activities
Manpower Planning
Recruitment & Selection
Training & Development
Performance Appraisal
Promotion, Transfer, & Demotion
Administration Section
Grievance Handling
Kaizen suggestion
Welfare Activities
HR Policies
•Recruitment policy.
•360 Degree Appraisal.
•Training / Talent Management
•Recognition
•Benefits
•Happiness At Work
•Recruitment policy.
•360 Degree Appraisal.
•Training / Talent Management
•Recognition
•Benefits
•Happiness At Work
PLANNING PREMISES
PLANNING PREMISES
Planning premises
are the
basic assumptions about the
environment.
Planning premises
include
assumptions or forecasts of
the future and known conditions that will affect the
course of the
plans.
These assumptions are essential to make
plans
more
realistic and operational.
Planning premises provide a framework.
All
plans
are
made within this framework
Planning premises imply not only the assumptions about
the future but also predictions.
Effective planning is therefore largely dependent upon
the correct knowledge and choice of planning premises.
Planning premises
are the
basic assumptions about the
environment.
Planning premises
include
assumptions or forecasts of
the future and known conditions that will affect the
course of the
plans.
These assumptions are essential to make
plans
more
realistic and operational.
Planning premises provide a framework.
All
plans
are
made within this framework
Planning premises imply not only the assumptions about
the future but also predictions.
Effective planning is therefore largely dependent upon
the correct knowledge and choice of planning premises.
Koontz and weihrich have defied planning premises as
“ Planning premises are the anticipated (எ
திர்பார்க்கப்பட்ட
)
environment in which plans are expected to operate”.
According to Dr.G.R.Terry
”planning premise
are the assumptions providing a
background against which the estimated events affecting
the
planning
will take place
”
“ Planning premises are the anticipated (எ
திர்பார்க்கப்பட்ட
)
environment in which plans are expected to operate”.
According to Dr.G.R.Terry
”planning premise
are the assumptions providing a
background against which the estimated events affecting
the
planning
will take place
”
Classification of planning premises:
Planning premises may be classified as follows:
1.Internal and External
2.Tangible and intangible
3.Controllable and uncontrollable.
4. Constant and Variable Premises
Planning premises may be classified as follows:
1.Internal and External
2.Tangible and intangible
3.Controllable and uncontrollable.
4. Constant and Variable Premises
1.Internal and External:
Internal premises exists within a business enterprise.
These include resources and capabilities of enterprise
in the form of men, material, machine, money and
methods.
Competency of management personal and skill of the
labour may be regarded as the most important internal
premises.
External premises are those which lies outside of the firm.
There are many kind of external premises.
(a) General business environment including economic,
technological, political and social conditions.
(b) The product market consisting of the demand and
supply forces for the product and service
(c) The factor market for land, labour, capital etc.
Internal premises exists within a business enterprise.
These include resources and capabilities of enterprise
in the form of men, material, machine, money and
methods.
Competency of management personal and skill of the
labour may be regarded as the most important internal
premises.
External premises are those which lies outside of the firm.
There are many kind of external premises.
(a) General business environment including economic,
technological, political and social conditions.
(b) The product market consisting of the demand and
supply forces for the product and service
(c) The factor market for land, labour, capital etc.
2. Tangible and intangible premises:
Tangible premises are those which can be
expressed in quantitative terms like
monetary units, unit of product, labour
hour, machine hour and so on.
Intangible premises are those which cannot
be measured quantitatively.
Example of such premises is reputation
(புகழ்) of the concern, public relations,
employee morale (ப
ணியாளர் மனஉறுதி
), motivation
etc.
Tangible premises are those which can be
expressed in quantitative terms like
monetary units, unit of product, labour
hour, machine hour and so on.
Intangible premises are those which cannot
be measured quantitatively.
Example of such premises is reputation
(புகழ்) of the concern, public relations,
employee morale (ப
ணியாளர் மனஉறுதி
), motivation
etc.
3.Controllable and uncontrollable premises:
This classification is on the basis of controllability.
Controllable premises are
Those which are entirely within the control of
management.
These include organizational Policies, organizational
structures, systems, procedures, Strategies, Human
resources etc. such premises are mostly internal.
Uncontrollable premises are
Those which cannot be controllable by an
organizations action.
These include the rate of economic growth, population
growth, taxation policy of the government, monetary
policies Stock market index, natural calamities, war
etc.
This classification is on the basis of controllability.
Controllable premises are
Those which are entirely within the control of
management.
These include organizational Policies, organizational
structures, systems, procedures, Strategies, Human
resources etc. such premises are mostly internal.
Uncontrollable premises are
Those which cannot be controllable by an
organizations action.
These include the rate of economic growth, population
growth, taxation policy of the government, monetary
policies Stock market index, natural calamities, war
etc.
4. Constant and Variable Premises
Constant Premises
do not change. They remain the same, even if
there is a change in the course of action. They include men, money
and machines.
Variable Premises
are subject to change. They change according to
the course of action. They include union-management relations.
Constant Premises
do not change. They remain the same, even if
there is a change in the course of action. They include men, money
and machines.
Variable Premises
are subject to change. They change according to
the course of action. They include union-management relations.
DECISION MAKING
DECISION MAKING
In the words of George R. Terry, "Decision-making is the
selection based on some criteria from two or more
possible alternatives".
“Decision making is defined as the selection of a course
of action from among alternatives”.
-Knootz and weihrich
“Decision Making is the process of identifying and
selecting a course of action to solve a specific problem”
- James A.F. Stoner.
In the words of George R. Terry, "Decision-making is the
selection based on some criteria from two or more
possible alternatives".
“Decision making is defined as the selection of a course
of action from among alternatives”.
-Knootz and weihrich
“Decision Making is the process of identifying and
selecting a course of action to solve a specific problem”
- James A.F. Stoner.
Characteristics of Decision Making
Decision making implies that there are various
alternatives and the most is chosen to solve the problem
or to arrive at expected results. desirable alternative
The decision-maker has freedom to choose an
alternative.
Decision-making may not be completely rational but may
be judgemental and emotional.
Decision-making is goal-oriented.
Decision-making is a mental or intellectual process
because the final decision is made by the decision-maker.
A decision may be expressed in words or may be implied
from behaviour.
Decision making implies that there are various
alternatives and the most is chosen to solve the problem
or to arrive at expected results. desirable alternative
The decision-maker has freedom to choose an
alternative.
Decision-making may not be completely rational but may
be judgemental and emotional.
Decision-making is goal-oriented.
Decision-making is a mental or intellectual process
because the final decision is made by the decision-maker.
A decision may be expressed in words or may be implied
from behaviour.
Choosing from among the alternative courses of
operation implies uncertainty about the final
result of each possible course of operation.
Decision making is rational. It is taken only after a
thorough analysis and reasoning and weighing
the consequences of the various alternatives.
operation implies uncertainty about the final
result of each possible course of operation.
Decision making is rational. It is taken only after a
thorough analysis and reasoning and weighing
the consequences of the various alternatives.
TYPES OF DECISIONS
TYPES OF DECISIONS:
a) Programmed and Non-Programmed Decisions:
Organizational
Levels
Nature of
Problems
Nature of
Decision-making
a) Programmed and Non-Programmed Decisions:
Organizational
Levels
Nature of
Problems
Nature of
Decision-making
TYPES OF DECISIONS:
a) Programmed and Non-Programmed Decisions: Herbert Simon
has grouped organizational decisions into two categories
based on the procedure followed. They are:
i)Programmed decisions:
Programmed decisions are routine and repetitive and are
made within the framework of organizational policies and
rules.
These policies and rules are established well in advance to
solve recurring problems in the organization. Programmed
decisions have short-run impact.
They are, generally, taken at the lower level of management.
EXAMPLE:
McDonald’s employees are trained to make the Big Mac
according to specific procedures.
a) Programmed and Non-Programmed Decisions: Herbert Simon
has grouped organizational decisions into two categories
based on the procedure followed. They are:
i)Programmed decisions:
Programmed decisions are routine and repetitive and are
made within the framework of organizational policies and
rules.
These policies and rules are established well in advance to
solve recurring problems in the organization. Programmed
decisions have short-run impact.
They are, generally, taken at the lower level of management.
EXAMPLE:
McDonald’s employees are trained to make the Big Mac
according to specific procedures.
ii) Non-Programmed Decisions:
Non-programmed decisions are decisions taken to meet non-
repetitive problems.
Non-programmed decisions are relevant for solving unique/
unusual problems in which various alternatives cannot be
decided in advance.
A common feature of non-programmed decisions is that they are
novel and non-recurring and therefore, readymade solutions are
not available.
Since these decisions are of high importance and have long-term
consequences, they are made by top level management.
EXAMPLE:
Decisions about mergers, acquisitions and takeovers, new facilities,
new products, labor contracts and legal issues are non
programmed decisions.
Non-programmed decisions are decisions taken to meet non-
repetitive problems.
Non-programmed decisions are relevant for solving unique/
unusual problems in which various alternatives cannot be
decided in advance.
A common feature of non-programmed decisions is that they are
novel and non-recurring and therefore, readymade solutions are
not available.
Since these decisions are of high importance and have long-term
consequences, they are made by top level management.
EXAMPLE:
Decisions about mergers, acquisitions and takeovers, new facilities,
new products, labor contracts and legal issues are non
programmed decisions.
b) Strategic, Tactical and operational Decisions:
b) Strategic, Tactical and operational Decisions:
Organizational decisions may also be classified as
strategic or tactical.
i)Strategic Decisions: (strategy involves planning a company's next move)
Basic decisions or strategic decisions are decisions
which are of crucial importance.
Strategic decisions a major choice of actions
concerning allocation of resources and contribution
to the achievement of organizational objectives.
Decisions like plant location, product diversification,
entering into new markets, selection of channels of
distribution, capital expenditure etc are strategic
decisions.
Organizational decisions may also be classified as
strategic or tactical.
i)Strategic Decisions: (strategy involves planning a company's next move)
Basic decisions or strategic decisions are decisions
which are of crucial importance.
Strategic decisions a major choice of actions
concerning allocation of resources and contribution
to the achievement of organizational objectives.
Decisions like plant location, product diversification,
entering into new markets, selection of channels of
distribution, capital expenditure etc are strategic
decisions.
ii) Tactical Decisions: (Tactical involve physically carrying out the plan)
Tactical decisions
are
medium term
decisions
.
They are derived out of strategic decisions.
Tactical planning takes a company's strategic plan and sets forth
specific short-term actions and plans, usually by company
department or function.
The tactical planning is shorter than the strategic plan.
If the strategic plan is for five years, tactical plans might be for a
period of one to three years, or even less
3. Operational decisions:
These decisions relate to day-to-day operations of the enterprise.
They have a short-term horizon as they are taken repetitively.
These decisions are based on facts regarding the events and do not
require much of business judgment.
Operational decisions are taken at lower levels of management.
Tactical decisions
are
medium term
decisions
.
They are derived out of strategic decisions.
Tactical planning takes a company's strategic plan and sets forth
specific short-term actions and plans, usually by company
department or function.
The tactical planning is shorter than the strategic plan.
If the strategic plan is for five years, tactical plans might be for a
period of one to three years, or even less
3. Operational decisions:
These decisions relate to day-to-day operations of the enterprise.
They have a short-term horizon as they are taken repetitively.
These decisions are based on facts regarding the events and do not
require much of business judgment.
Operational decisions are taken at lower levels of management.
EXAMPLE:
1. strategic decision.
•Super shop, a state-wide chain of grocery stores wants to increase
its profit.
•The board of directors discusses how to best achieve this.
•They decide they will move into the pharmacy sector and include
chemist shops in their stores.
•This is a big departure from their usual business. It’s a strategic
decision.
2. Tactical decisions:
•The directors instruct the tactical managers to implement the
decision.
•The personnel manager advertises for pharmacists to be employed.
•The publicity manager plans a TV & newspaper campaign to
advertise the change.
•The facilities manager puts out tenders for the construction work
needed.
1. strategic decision.
•Super shop, a state-wide chain of grocery stores wants to increase
its profit.
•The board of directors discusses how to best achieve this.
•They decide they will move into the pharmacy sector and include
chemist shops in their stores.
•This is a big departure from their usual business. It’s a strategic
decision.
2. Tactical decisions:
•The directors instruct the tactical managers to implement the
decision.
•The personnel manager advertises for pharmacists to be employed.
•The publicity manager plans a TV & newspaper campaign to
advertise the change.
•The facilities manager puts out tenders for the construction work
needed.
3. Operational
•The builders arrive at a local supermarket.
•The supermarket manager instructs staff to reorganise shelving to
allow the construction of the pharmacy.
•The manager chooses and arranges training for staff who will be
working in the pharmacy.
•The builders arrive at a local supermarket.
•The supermarket manager instructs staff to reorganise shelving to
allow the construction of the pharmacy.
•The manager chooses and arranges training for staff who will be
working in the pharmacy.
DECISION MAKING PROCESS
DECISION MAKING PROCESS
DECISION MAKING PROCESS :
The decision making process is presented in the figure below:
1.Specific Objective:
The need for decision making arises in order to achieve certain
specific objectives.
The starting point in any analysis of decision making involves the
determination of whether a decision needs to be made.
2. Problem Identification:
A problem is a felt need, a question which needs a solution.
In the words of Joseph L Massie "A good decision is dependent
upon the recognition of the right problem".
The objective of problem identification is that if the problem is
precisely and specifically identifies, it will provide a clue in
finding a possible solution.
A problem can be identified clearly, if managers go through
diagnosis and analysis of the problem.
The decision making process is presented in the figure below:
1.Specific Objective:
The need for decision making arises in order to achieve certain
specific objectives.
The starting point in any analysis of decision making involves the
determination of whether a decision needs to be made.
2. Problem Identification:
A problem is a felt need, a question which needs a solution.
In the words of Joseph L Massie "A good decision is dependent
upon the recognition of the right problem".
The objective of problem identification is that if the problem is
precisely and specifically identifies, it will provide a clue in
finding a possible solution.
A problem can be identified clearly, if managers go through
diagnosis and analysis of the problem.
Diagnosis:
Diagnosis is the process of identifying a problem from its signs
and Symptoms.
A symptom is a condition or set of conditions that indicates the
existence of a problem.
Diagnosing the real problem implies knowing the gap between
what is and what ought to be, identifying the reasons for the
gap and understanding the problem in relation to higher
objectives of the organization.
Analysis: Diagnosis gives rise to analysis.
Analysis of a problem requires:
• Who would make decision?
• What information would be needed?
• From where the information is available?
Analysis helps managers to gain an insight into the problem.
Diagnosis is the process of identifying a problem from its signs
and Symptoms.
A symptom is a condition or set of conditions that indicates the
existence of a problem.
Diagnosing the real problem implies knowing the gap between
what is and what ought to be, identifying the reasons for the
gap and understanding the problem in relation to higher
objectives of the organization.
Analysis: Diagnosis gives rise to analysis.
Analysis of a problem requires:
• Who would make decision?
• What information would be needed?
• From where the information is available?
Analysis helps managers to gain an insight into the problem.
3. Search for Alternatives:
A problem can be solved in several ways;
however, all the ways cannot be equally
satisfying.
Therefore, the decision maker must try to find
out the various alternatives available in order to
get the most satisfactory result of a decision.
A decision maker can use several sources for
identifying alternatives:
• His own past experiences
• Practices followed by others and
• Using creative techniques.
A problem can be solved in several ways;
however, all the ways cannot be equally
satisfying.
Therefore, the decision maker must try to find
out the various alternatives available in order to
get the most satisfactory result of a decision.
A decision maker can use several sources for
identifying alternatives:
• His own past experiences
• Practices followed by others and
• Using creative techniques.
4. Evaluation of Alternatives:
After the various alternatives are identified, the next step is to
evaluate them and select the one that will meet the choice
criteria.
The decision maker must check proposed alternatives against
limits, and if an alternative does not meet them, he can discard
it.
Having narrowed down the alternatives which require serious
consideration, the decision maker will go for evaluating how
each alternative may contribute towards the objective supposed
to be achieved by implementing the decision.
5. Choice of Alternative:
The evaluation of various alternatives presents a clear picture as
to how each one of them contribute to the objectives under
question.
A comparison is made among the likely outcomes of various
alternatives and the best one is chosen.
After the various alternatives are identified, the next step is to
evaluate them and select the one that will meet the choice
criteria.
The decision maker must check proposed alternatives against
limits, and if an alternative does not meet them, he can discard
it.
Having narrowed down the alternatives which require serious
consideration, the decision maker will go for evaluating how
each alternative may contribute towards the objective supposed
to be achieved by implementing the decision.
5. Choice of Alternative:
The evaluation of various alternatives presents a clear picture as
to how each one of them contribute to the objectives under
question.
A comparison is made among the likely outcomes of various
alternatives and the best one is chosen.
6. Action:
Once the alternative is selected, it is put into
action.
The actual process of decision making ends with
the choice of an alternative through which the
objectives can be achieved.
7. Results:
When the decision is put into action, it brings
certain results.
These results must correspond with objectives.
Thus, results provide indication whether decision
making and its implementation is proper.
Once the alternative is selected, it is put into
action.
The actual process of decision making ends with
the choice of an alternative through which the
objectives can be achieved.
7. Results:
When the decision is put into action, it brings
certain results.
These results must correspond with objectives.
Thus, results provide indication whether decision
making and its implementation is proper.
RATIONAL DECISION MAKING MODEL
RATIONAL DECISION MAKING
MODEL
The Rational Decision Making Model is a model
which emerges from Organizational Behaviour.
The process is one that is logical and follows the
orderly path from problem identification through
solution.
It provides a structured and sequenced approach to
decision making.
Using such an approach can help to ensure discipline
and consistency is built into your decision making
process.
MODEL
The Rational Decision Making Model is a model
which emerges from Organizational Behaviour.
The process is one that is logical and follows the
orderly path from problem identification through
solution.
It provides a structured and sequenced approach to
decision making.
Using such an approach can help to ensure discipline
and consistency is built into your decision making
process.
The Six-Step Rational Decision-
Making Model
1. Define the problem.
2. Identify decision criteria
3. Weight the criteria
4. Generate alternatives
5. Rate each alternative on each
criterion
6. Compute the optimal decision
Making Model
1. Define the problem.
2. Identify decision criteria
3. Weight the criteria
4. Generate alternatives
5. Rate each alternative on each
criterion
6. Compute the optimal decision
The Six-Step Rational Decision-Making Model
1) Defining the problem
This is the initial step of the rational decision making process.
First the problem is identified and then defined to get a clear
view of the situation.
2) Identify decision criteria
Once a decision maker has defined the problem, he or she
needs to identify the decision criteria (principle or standard) that
will be important in solving the problem.
In this step, the decision maker is determining what’s
relevant in making the decision.
This step brings the decision maker’s interests, values, and
personal preferences into the process.
Identifying criteria is important because what one person
thinks is relevant, another may not.
Also keep in mind that any factors not identified in this step
are considered as irrelevant to the decision maker.
This is the initial step of the rational decision making process.
First the problem is identified and then defined to get a clear
view of the situation.
2) Identify decision criteria
Once a decision maker has defined the problem, he or she
needs to identify the decision criteria (principle or standard) that
will be important in solving the problem.
In this step, the decision maker is determining what’s
relevant in making the decision.
This step brings the decision maker’s interests, values, and
personal preferences into the process.
Identifying criteria is important because what one person
thinks is relevant, another may not.
Also keep in mind that any factors not identified in this step
are considered as irrelevant to the decision maker.
3) Weight the criteria
The decision-maker weights the
previously identified criteria in order to
give them correct priority in the decision.
4) Generate alternatives
The decision maker generates possible
alternatives that could succeed in
resolving the problem.
No attempt is made in this step to
appraise these alternatives, only to list
them.
The decision-maker weights the
previously identified criteria in order to
give them correct priority in the decision.
4) Generate alternatives
The decision maker generates possible
alternatives that could succeed in
resolving the problem.
No attempt is made in this step to
appraise these alternatives, only to list
them.
5) Rate each alternative on each criterion
The decision maker must critically analyze
and evaluate each one.
The strengths and weakness of each
alternative become evident as they
compared with the criteria and weights
established in second and third steps.
6) Compute the optimal decision
Evaluating each alternative against the
weighted criteria and selecting the
alternative with the highest total score.
The decision maker must critically analyze
and evaluate each one.
The strengths and weakness of each
alternative become evident as they
compared with the criteria and weights
established in second and third steps.
6) Compute the optimal decision
Evaluating each alternative against the
weighted criteria and selecting the
alternative with the highest total score.
DECISION MAKING UNDER VARIOUS CONDITIONS
DECISION MAKING UNDER VARIOUS CONDITIONS
The conditions for making decisions can be divided into
three types.
Namely a) Certainty, b) Uncertainty and c) Risk
Virtually all decisions are made in an environment to at
least some uncertainty However; the degree will vary
from relative certainty to great uncertainty.
There are certain risks involved in making decisions.
a) Certainty:
In a situation involving certainty, people are reasonably
sure about what will happen when they make a decision.
The information is available and is considered to be
reliable, and the cause and effect relationships are
known.
The conditions for making decisions can be divided into
three types.
Namely a) Certainty, b) Uncertainty and c) Risk
Virtually all decisions are made in an environment to at
least some uncertainty However; the degree will vary
from relative certainty to great uncertainty.
There are certain risks involved in making decisions.
a) Certainty:
In a situation involving certainty, people are reasonably
sure about what will happen when they make a decision.
The information is available and is considered to be
reliable, and the cause and effect relationships are
known.
b) Uncertainty
In a situation of uncertainty, on the other hand,
people have only a meare database, they do not
know whether or not the data are reliable, and they
are very unsure about whether or not the situation
may change.
Moreover, they cannot evaluate the interactions of
the different variables.
For example, a corporation that decides to expand its
Operation to an unfamiliar country may know little
about the country, culture, laws, economic
environment, and politics. The political situation may
be volatile that even experts cannot predict a
possible change in government.
In a situation of uncertainty, on the other hand,
people have only a meare database, they do not
know whether or not the data are reliable, and they
are very unsure about whether or not the situation
may change.
Moreover, they cannot evaluate the interactions of
the different variables.
For example, a corporation that decides to expand its
Operation to an unfamiliar country may know little
about the country, culture, laws, economic
environment, and politics. The political situation may
be volatile that even experts cannot predict a
possible change in government.
c) Risk
In a situation with risks, factual information may exist,
but it may be incomplete.
In order to improve decision making One may estimate
the objective probability of an outcome.
All intelligent decision makers dealing with uncertainty
like to know the degree and nature of the risk they are
taking in choosing a course of action.
The ordinary practice is to have staff specialists conic up
with best estimates.
Virtually every decision is based on the interaction of a
number of important variables, many of which has an
element of uncertainty but, perhaps, a fairly high degree
of probability.
In a situation with risks, factual information may exist,
but it may be incomplete.
In order to improve decision making One may estimate
the objective probability of an outcome.
All intelligent decision makers dealing with uncertainty
like to know the degree and nature of the risk they are
taking in choosing a course of action.
The ordinary practice is to have staff specialists conic up
with best estimates.
Virtually every decision is based on the interaction of a
number of important variables, many of which has an
element of uncertainty but, perhaps, a fairly high degree
of probability.
Thus, the wisdom of launching a new product
might depend on a number of critical variables:
the cost of introducing the product, the cost of
producing it, the capital investment that will he
required, the price that can be set for the
product, the size of the potential market, and the
share of the total market that it will represent.
might depend on a number of critical variables:
the cost of introducing the product, the cost of
producing it, the capital investment that will he
required, the price that can be set for the
product, the size of the potential market, and the
share of the total market that it will represent.
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