Planning & Decision Making: Types, Steps, Tools & Analysis

What is Planning?

Planning is the first function of management. It means deciding what to do, when to do, and how to do to achieve business goals. Without planning, a business is like a ship without a rudder—it drifts aimlessly.

Why is Planning Important?

Example: A bakery planning to sell 100 cakes/day must:

• Buy flour, sugar, and eggs in advance.
• Hire enough staff.
• Set prices based on costs.

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Types of Planning

Planning can be classified in three ways:

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Steps in Planning

Planning is a step-by-step process. Follow these stages:

1. Setting Objectives

   • Goals must be SMART:
     • Specific (e.g., "Increase sales by 15%" vs. "Sell more").
     • Measurable (e.g., "15% more units" vs. "a lot more").
     • Achievable (e.g., "With current resources").
     • Relevant (e.g., "Aligns with company growth").
     • Time-bound (e.g., "By June 2025").

2. Developing Premises

   • Assumptions about the future (e.g., "Inflation will be 7% next year").

3. Identifying Alternatives

   • Brainstorm options (e.g., for a new product: "Launch online" or "Open a physical store").

4. Evaluating Alternatives

   • Compare pros/cons (e.g., "Online saves rent but needs strong IT").

5. Selecting the Best Plan

   • Choose the most feasible option.

6. Implementing the Plan

   • Put the plan into action (e.g., hire a digital marketing team).

7. Follow-up Action

   • Monitor progress and adjust if needed.

Example: A restaurant planning to expand:

1. Objective: Increase revenue by 30% in 2 years.
2. Premise: Kathmandu’s food delivery demand grows by 10% annually.
3. Alternatives:
   • Open a new branch.
   • Partner with a delivery app.
4. Evaluation:
   • New branch: High cost, but more control.
   • Delivery app: Lower cost, but less brand visibility.
5. Decision: Partner with Foody (a popular app in Nepal).
6. Implementation: Train staff, list menu on the app.
7. Follow-up: Track sales weekly and adjust promotions.

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What is Decision Making?

Decision making is choosing the best option from available alternatives to solve a problem. It is part of planning but focuses on selecting the right course of action.

Decision-Making Process

Example: A school deciding on a new textbook:

1. Problem: Current books are outdated.
2. Info: Survey teachers, check publisher reviews.
3. Alternatives:
   • Buy new books.
   • Use digital versions.
4. Evaluation:
   • New books: Expensive but better content.
   • Digital: Cheaper but requires devices.
5. Decision: Hybrid model (some new books + digital access).
6. Implementation: Order books, set up tablets.
7. Evaluation: Check student performance after 6 months.

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Types of Decisions

Decisions can be programmed (routine) or non-programmed (unique).

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Decision-Making Techniques

Businesses use tools to make better decisions:

1. Cost-Benefit Analysis

   • Compare costs vs. benefits of each option.
   • Formula: $$\text{Net Benefit}=\text{Total Benefits}-\text{Total Costs}$$
   • Example: A company considers buying a new machine costing Rs. 5,00,000.
     • Benefits: Saves Rs. 2,00,000/year in labor.
     • Costs: Machine cost + Rs. 50,000/year maintenance.
     • Net Benefit over 5 years: $$(2,00,000\times 5)-(5,00,000+50,000\times 5)=10,00,000-7,50,000=\text{Rs. 2,50,000 (Profit)}$$
     • Decision: Buy the machine.

2. SWOT Analysis

   • Assess Strengths, Weaknesses, Opportunities, Threats.
   • Example: A local dairy analyzing expansion to Pokhara:

     Strengths	Weaknesses	Opportunities	Threats
     Strong brand in Kathmandu	Limited funds	Growing demand in Pokhara	Competition from big brands
     Loyal customers	No local distribution	Government subsidies	High transport costs

3. Break-Even Analysis

   • Find the point where total revenue = total costs.
   • Formula: $$\text{Break-even point (units)}=\frac{\text{Fixed Costs}}{\text{Selling Price per Unit}-\text{Variable Cost per Unit}}$$
   • Example: A snack shop has:
     • Fixed costs (rent, salaries) = Rs. 20,000/month.
     • Selling price per samosa = Rs. 20.
     • Variable cost per samosa = Rs. 10.
     • Break-even units: $$\frac{20,000}{20-10}=2,000\text{ samosas}$$
     • Decision: Sell 2,000 samosas/month to cover costs.

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Planning vs. Decision Making

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Limitations of Planning

Planning is not perfect. Some challenges include:

• Rigidness: Too much planning can stifle creativity.
• Time-Consuming: Gathering data and analyzing takes effort.
• Uncertainty: Future events (e.g., earthquakes, pandemics) can’t be predicted.
• Costly: Hiring consultants or buying software adds expenses.
• Resistance: Employees may ignore plans if not involved.

Example: A tourism company plans a new trek package but faces:

• Uncertainty: Monsoon delays.
• Cost: High marketing expenses.
• Solution: Use contingency plans (e.g., offer refunds if weather cancels).

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Exam Tip: How to Score Full Marks in NEB Exams

NEB exams test conceptual understanding + application. Follow these tips:

1. Define Key Terms Clearly

   • Example:

     "Planning is the process of thinking about and organizing the activities required to achieve desired goals."

2. Use Diagrams/Charts

   • Draw flowcharts, tables, or mindmaps to explain processes (e.g., steps in planning).

3. Solve Numerical Problems

   • Practice cost-benefit, break-even, and SWOT analysis questions.

4. Relate to Nepalese Businesses

   • Example:

     "Nepal’s Nabil Bank uses long-term planning to expand its digital banking services."

5. Compare and Contrast

   • Questions often ask:

     "Differentiate between programmed and non-programmed decisions."

6. Answer in Short Paragraphs

   • NEB prefers concise, structured answers (not essays).

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NEB-Style Questions & Solutions

Short Answer Questions (2 marks each)

1. What is planning? State any two importance of planning.

   Answer: Planning is the managerial function of setting goals and deciding actions to achieve them. Importance:

   • Provides direction to employees.
   • Helps reduce uncertainty in business operations.

2. Differentiate between short-term and long-term planning.

   Short-term Planning	Long-term Planning
   Duration: <1 year	Duration: >5 years
   Example: Monthly sales target	Example: Building a new factory
   Focus: Daily operations	Focus: Future growth

Long Answer Questions (5-10 marks)

3. Explain the steps in planning with an example of a small business.

   Answer: Planning involves 7 steps:

   1. Setting Objectives: A café sets a goal to increase profit by 20% in a year.
   2. Developing Premises: Assumes footfall grows by 10% due to a new mall nearby.
   3. Identifying Alternatives:
      • Hire more staff.
      • Introduce happy hour discounts.
   4. Evaluating Alternatives:
      • Hiring costs Rs. 50,000/month.
      • Discounts reduce profit margin by 5%.
   5. Selecting the Best Plan: Combine both (hire 2 staff + offer discounts).
   6. Implementation: Train staff, promote discounts on social media.
   7. Follow-up: Track sales weekly and adjust menu prices if needed.

4. What is break-even analysis? How is it useful for businesses? Solve a numerical problem.

   Answer: Break-even analysis determines the point where total revenue equals total costs, meaning no profit or loss. Usefulness:

   • Helps set pricing strategies.
   • Guides production decisions.
   • Reduces financial risks.

   Numerical Problem: A pen manufacturer has:

   • Fixed costs = Rs. 1,00,000.
   • Selling price per pen = Rs. 50.
   • Variable cost per pen = Rs. 20. Break-even point: $$>\frac{1,00,000}{50-20}=3,333\text{ pens}>$$ Interpretation: The company must sell 3,333 pens to cover costs.

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Summary

• Planning is goal-setting + action planning.
• Types: Short-term, medium-term, long-term; strategic, tactical, operational.
• Steps: Objectives → Premises → Alternatives → Evaluation → Selection → Implementation → Follow-up.
• Decision making is choosing the best option.
• Techniques: Cost-benefit, SWOT, break-even analysis.
• Limitations: Rigidness, uncertainty, cost.
• Exam Tip: Use diagrams, examples, and numerical problems to score well.

Good luck for your NEB exam! 🚀