Planning and Decision Making: Process, Types of Plans, Forecasting and Tools
Table of Contents
Overview
Planning is the first function of management. It answers: What do we want to achieve? How will we achieve it? When and by whom? Planning reduces uncertainty, provides direction and helps coordinate different activities. However, planning alone is not enough—managers must take decisions to choose among alternatives, and they often use forecasting to estimate future conditions (demand, prices, competition, costs).
In this chapter, we connect these ideas:
- Planning gives direction (goals + actions).
- Forecasting provides assumptions about the future.
- Decision making selects the best alternative.
Learning objectives
After studying this topic, you should be able to:
- Explain the meaning, need and importance of planning.
- Write the steps of planning and the planning process flow.
- Classify types of plans with examples.
- Distinguish between policies, procedures, rules, programmes and budgets.
- Explain forecasting methods (qualitative and quantitative).
- Describe the decision-making process and common decision models.
Key terms
- Planning: deciding objectives and actions in advance.
- Objective/goal: desired end result to be achieved.
- Strategy: long-term plan to achieve mission and competitive advantage.
- Policy: general guideline for decision making.
- Procedure: step-by-step method of performing a routine work.
- Rule: specific instruction to be followed strictly.
- Programme: a combination of goals, policies, procedures, schedules and budgets for a project.
- Budget: quantified plan expressed in numbers (money, units, time).
- Forecasting: estimating future conditions based on data and judgement.
- Decision making: choosing the best option among alternatives.
- Programmed decision: routine decision based on policies/rules.
- Non-programmed decision: novel decision requiring judgement.
Meaning and importance of planning
Planning means thinking in advance and deciding:
- What is to be done (objectives)
- How it will be done (methods/strategy)
- When it will be done (schedule)
- Who will do it (responsibility)
- Resources required (budget, people, machines)
Importance / advantages (write 6–8 points in exams)
- Provides direction: everyone knows the target.
- Reduces uncertainty and risk: better preparation for changes.
- Facilitates coordination: departments align actions.
- Improves efficiency: avoids duplication and wastage.
- Helps control: standards for comparison are set in plans.
- Encourages innovation: managers think of better alternatives.
Planning process (steps)
Planning is systematic. Typical steps:
- Setting objectives: clear and measurable goals.
- Developing planning premises: assumptions about future (demand, price, resources).
- Identifying alternatives: list possible courses of action.
- Evaluating alternatives: compare cost, time, feasibility, risk.
- Selecting the best plan: choose the most suitable option.
- Formulating supporting plans: budgets, policies, schedules, procedures.
- Implementing the plan: communicate + allocate resources.
- Follow-up and review: monitor and revise when needed.
Flow (easy to draw in exam):
Objectives → Premises → Alternatives → Evaluation → Selection → Supporting plans → Implementation → Review
Types of plans
Plans can be classified in many ways:
By level
- Strategic plans: long-term; top management (e.g., expand to new state in 3 years).
- Tactical plans: medium-term; middle management (e.g., marketing campaign plan).
- Operational plans: short-term; lower level (e.g., weekly production schedule).
By time
- Long-term, medium-term, short-term plans.
By use
- Standing plans: used repeatedly (policies, procedures, rules).
- Single-use plans: used once for a specific project (programmes, budgets for event).
Standing plans vs single-use plans
Policies, procedures, rules, programmes and budgets (with examples)
Students often confuse these. Write with examples:
Policy
Broad guideline for decisions.
- Example: “Credit sales only to approved customers.”
Procedure
Step-by-step method for a routine.
- Example: Steps for purchase: indent → quotations → approval → purchase order → receipt → payment.
Rule
Specific instruction to be followed strictly.
- Example: “No employee is allowed to enter production area without safety helmet.”
Programme
Plan for a specific project; includes multiple elements.
- Example: “Launch new product programme” with objectives, schedule, responsibilities, budget.
Budget
Numerical statement of a plan.
- Example: “Advertising budget ₹10 lakh for Q1”; “Production budget: 5,000 units in March”.
Quick memory: PPRPB = Policy, Procedure, Rule, Programme, Budget.
Forecasting: meaning, need and methods
Forecasting is the process of estimating future conditions to support planning.
Need
- Reduces uncertainty by making realistic assumptions.
- Helps in demand planning, inventory, capacity, cash budgets.
Methods
- Qualitative methods (when data is limited)
- Delphi technique: experts give opinions in rounds until consensus.
- Sales force composite: salespeople estimate demand.
- Jury of executive opinion: managers forecast based on judgement.
- Quantitative methods (data-based)
- Time series: past data trends used to predict (moving averages).
- Regression analysis: relationship between variables (sales vs income).
- Trend projection: extend trend line into future.
Tip: In exams, always write one qualitative + one quantitative method with example.
Decision making: meaning and types
Decision making is choosing the best alternative among available options.
Types of decisions
- Programmed decisions: repetitive and routine; policies/rules guide them.
- Example: approving leave as per policy.
- Non-programmed decisions: new and complex; require judgement.
- Example: opening a new branch in a new city.
Another classification:
- Strategic (top level), tactical (middle), operational (lower).
Decision-making process (steps)
- Identify the problem (what exactly is wrong?)
- Collect information (facts, constraints)
- Develop alternatives
- Evaluate alternatives (cost–benefit, feasibility, risk)
- Select the best alternative
- Implement the decision
- Feedback and follow-up
Flow: Problem → Info → Alternatives → Evaluation → Choice → Implementation → Feedback
Models/tools for decisions (rational, bounded rationality, decision tree)
Rational decision model (ideal)
Assumes managers have complete information and choose the best option logically.
- Useful as a guideline, but in reality information may be limited.
Bounded rationality (Herbert Simon)
Managers have limited time and information, so they “satisfice” (choose a satisfactory option) rather than optimise.
- Example: choosing a supplier that meets minimum quality and delivery rather than searching endlessly for perfect supplier.
Decision tree (simple tool)
Used when decisions involve uncertainty and probabilities.
Steps:
- List alternatives
- Show possible outcomes
- Assign probabilities and payoffs
- Calculate expected value (if required)
Simple representation:
Choice A → Outcome1/Outcome2; Choice B → Outcome1/Outcome2
Common limitations of planning and how to overcome (exam points)
Limitations:
- Planning may be rigid if managers refuse to revise.
- Costly and time-consuming for small decisions.
- Uncertainty can make forecasts wrong.
- Resistance to change by employees.
Overcoming:
- Make plans flexible; use rolling plans.
- Involve employees; improve communication.
- Use realistic premises and multiple forecasts.
- Review plans regularly (feedback loop).
Quick recap (1-minute revision)
- Planning is deciding objectives and actions in advance; it provides direction, coordination and standards for control.
- Planning steps: objectives → premises → alternatives → evaluation → selection → supporting plans → implementation → review.
- Types of plans: strategic/tactical/operational; standing vs single-use.
- Policy vs procedure vs rule vs programme vs budget—know examples.
- Forecasting supports planning (qualitative + quantitative methods).
- Decision making: programmed vs non-programmed; process steps; rational vs bounded rationality; decision tree tool.
