Planning and Decision Making
Core
Planning is deciding in advance what to do, how, when and by whom. Steps: setting objectives, developing premises, identifying alternatives, evaluating alternatives, selecting a course, implementing and reviewing. Types: strategic (long-term, top level), tactical (departmental) and operational (short-term). Plans must be flexible but not vague. Limitations include uncertainty, cost, rigidity and a false sense of security.
Decision making is choosing the best alternative from available options. Steps: define the problem, collect information, develop alternatives, evaluate, select, implement and follow up. Decisions may be programmed (routine) or non-programmed (novel). Group decisions improve acceptance but can suffer from groupthink and slower speed.
Worked example
A firm is choosing between launching a new product and continuing the current product. New product: 60% chance of ₹2,00,000 profit, 40% chance of ₹50,000 loss. Expected value = (0.6 × 2,00,000) + (0.4 × −50,000) = 1,20,000 − 20,000 = ₹1,00,000. Continuing: certain ₹80,000. The new product has a higher expected value by ₹20,000, but it carries a possible loss. A risk-averse firm may stay with ₹80,000; a risk-neutral firm chooses the new product. Reasoning: expected value compares alternatives, but risk attitude and non-financial factors also matter.
Traps
Planning does not guarantee success; it reduces uncertainty. A decision is not the same as a plan: a plan is a document of intended action. Do not ignore implementation and feedback. Do not treat all decisions as programmed. In numerical answers, show the formula and write the loss as a negative value.