Management Concepts Chapter 05 - Planning

Planning

05.01. Concept / Meaning of Planning:

 Planning means looking ahead. Planning is the most basic of all managerial
functions.

 Planning is concerned with the determination of the objectives to be achieved

and course of action to be followed to achieve them. Before any operative
action takes place it is necessary to decide what, where, when and who shall
do the things.

 Planning includes forecasting. Decision making is also an important element of

planning.
 Planning determines both long-term and short-term objectives and also of the
individual departments as well as the entire organisation.

In short, planning is preparing for tomorrow, today. It’s the activity that allows
managers to determine what they want and how they will achieve it. Not only does
planning provide direction and a unity of purpose for organizations, it also answers
six basic questions in regard to any activity:

 What needs to be accomplished?

 When is the deadline?
 Where will this be done?
 Who will be responsible for it?
 How will it get done?
 How much time, energy, and resources are required to accomplish this goal?

05.02. Definition of Planning:

According to Knootz and O’ Donnel – “Planning is deciding in advance what to do,

how to do, when to do, and who is to do. It bridges the gap from where to start and
where to go.”

According to Henry Fayol – “Planning is deciding the best alternative among others
to perform different managerial operations in order to achieve the pre-determined
goals.”

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05.03. Nature / Characteristics of Planning:

1. Planning focuses on achieving the objectives: Management begins with

planning and planning begins with the determining of objectives. In the
absence of objectives no organization can ever be thought about.

2. Planning is the primary function of Management: Planning is the first

important function of management. The other functions-organising, staffing,
directing and controlling come later. In the absence of planning no other
function of management can be performed.

3. Planning is continuous: Planning is the process which begins with the

beginning of business itself and ends with the ending of the business. It means
that as along a business exists, the planning process is continuous.

For example, a company plans to sell one lakh units in the coming year. Suddenly,
many competing companies enter the market. This will naturally affect the previous
position of the company and therefore, it shall have to revise its planning.

4. Planning is Futuristic: Planning decides the plan of action - What is to be

done, how is to be done, when is to be done, by who is to be done, all the
questions are related to future. Under the planning, answer to these
questions is found out. While an effort is made to find out these answer.

5. Planning is mental exercise: Planning is known as a mental exercise as it is

related to thinking before doing something. A planner has mainly to think
about the following questions:

(1) What to do ? (2) How to do it ? (3) When to do it ? (4) Who is to do it ?

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05.04. Importance / Significance of Planning:

Planning is the first and most important function of the management. It is needed at
every level of the management. In the absence of planning all the business activities
of the organization will become meaningless. The importance of planning has
increased all the more in view of the increasing size of organizations.

1. Planning facilities Decision making: Decision making means the process of

taking decision. Under it, a variety of alternatives are discovered and the best
alternative is chosen. But is important to determine the objectives before the
discovery of alternatives. Objectives are determined under the process of
planning. So, it can be said that planning facilitates decision making.

2. Planning reduce risk of Uncertainty: Planning is always done for future and
future is uncertain. With the help of planning, possible changes in future are
anticipated and various activities are planned in the best possible way.

3. Planning reduces overlapping and wasteful activities: Under planning, future

activities are planned in order to achieve objectives the problem of when,
where, what and almost decided. This puts an end to disorder. In such
situation coordination is established among different activities and
department. It puts an end to overlapping and wasteful activities.

4. Planning provides Direction: Under the process of planning the objectives of

the organization are defined in simple and clear words. The outcome of this is
that all the employee's important role in the attainment of the objectives of
the organization.

5. Planning establishes Standards for controlling: By determining the objectives

of the organisation through planning all the people working in the
organization and all the departments are informed about the, what and how
to do things. Standards are laid down about their work, time and cost. Under
controlling, at the time of completing the work, the actual work done is
compared with the standard work and deviations are found out and if the
work has not been done as desired the persons concerned are held
responsible.

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05.05. Advantages of Planning:

1. All efforts are directed towards desired objectives or results. Unproductive

work and waste of resources can be minimised.
2. Planning enables a company to remain competitive with other rivals in the
industry.
3. Through careful planning, crisis can be anticipated and mistakes or delays can
be avoided.
4. Planning can point out the need for future change and the enterprise can
manage the change effectively.
5. Planning enables the systematic and thorough investigation of alternative
methods or alternative solutions to a problem. Thus we can select the best
alternative to solve any business problem.
6. Planning maximises the utilisation of available resources and ensures
optimum productivity and profits.
7. Planning provides the ground work for laying down control standards.
8. Planning enables management to relate the whole enterprise to its complex
environment profitably.

05.06. Disadvantages of Planning:

1. Environmental factors are uncontrollable and unpredictable to a large extent.

Therefore planning cannot give perfect insurance against uncertainty.
2. Planning is many times very costly.
3. Tendency towards inflexibility to change is another limitation of planning.
4. Planning delays action.
5. Planning encourages a false sense of security against risk or uncertainty.

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05.07. Requirements of a Good Plan

An effective and sound plan should have the following features:

(a) Clear objective. The purpose of plans and their components is to develop and
facilitate the realisation of organizational objectives. The statement on objectives
should be clear, concise, definite and accurate. It should not be coloured by bias
resulting from emphasis on personal objectives.

(b) Proper understanding. A good plan is one which is well understood by those who
have to execute it. It must be based on sound assumptions and sound reasoning.

(c) Flexible. The principle of flexibility states that management should be able to
change an existing plan because of change in environment without undue extra cost
or delay so that activities keep moving towards the established goals. Thus, a good
plan should be flexible to accommodate future uncertainties.

(d) Stable. The principle of stability states that the basic feature of the plan should
not be discarded or modified because of changes in external factors such as
population trends, technological developments, or unemployment.

(e) Comprehensive. A plan is said to be comprehensive when it covers each and

every aspect of business. It should integrate the various administrative plans so that
the whole organization operates at peak efficiency.

(f) Economical. A plan is said to be good, if it is as economical as possible, depending

upon the resources available with the organization.

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05.08. Planning Process / Steps in Planning:

1. Forecasting of Professional Opportunities: Planning needs to search for

professional opportunities in the business. The objectives can be set after
knowing the opportunities. The professional opportunity may be in the form
of units of production, sales units, profit in rupees, profit in percentage.

2. Establishment of objectives: The organisational objectives must be spelled

out in key areas of operations and should be divided according to various
departments and sections. The objectives must be clearly specified and
measurable as far as possible. Every member of the organisation should be
familiar with its objectives.

3. Forecasting: Forecasting means assessing the future on the basis of present

situation and past experiences. Accurate forecasting leads to correct decisions
about future course of action. Accurate forecasting helps to make accurate
planning.

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4. Establishing the sequence of Activities: Planning includes the forecasting of

so many activities. The proper sequence for those activates is essential. In
order to have a successful execution of the basic plan as also of the derivative
plans proper sequence is decided.

5. Determining of Alternative Courses: It is a common experience of all thinkers

that an action can be performed in several ways, but there is a particular way
which is the most suitable for the organisation. The management should try to
find out these alternatives and examine them carefully in the light of planning
premises.

6. Selection of Alternative Course: Having sought out alternative courses and

examined their strong and weak points, the next step is to evaluate them by
weighing the various factors. The next step - selecting the course of action is
the point at which the plan is adopted. It is the real point of decision-making.

7. Implementation of plan and Budgeting: First the department - wise budgets

are prepared and then a master budget for the whole enterprise is prepared
to give meaning to plans. Financial aspects are covered under budgeting. After
having decided the chef plan and the subsidiary plans, they are to be
implemented. After implementing the plans the sequence of different
activities has to be decided. In other words, it is decided as to who will do a
particular job and at what time.

8. Follow up: This is the last step in planning. After having adopted major and
expected plans and they are brought into execution, the process of planning
does not end with the implementation of plans. Plans are formulated for
future which is uncertain. It is of great importance that there is a constant
review of plans so as to ensure success in the uncertain future. The moment
there appears to be changes in the plans also. In this way we can say planning
is continuously moving process.

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05.09. Types of Plans:

05.09.01. Strategic Plan

A strategic plan is a high-level overview of the entire business, its vision, objectives,
and value. This plan is the foundational basis of the organization and will dictate
decisions in the long-term. The scope of the plan can be two, three, five, or even
ten years. The components of Strategic Plan are
(a) Vision and Mission, (b) Objectives and Goals, and (c) Strategies / Action Plan
In contrast to long-term planning (which begins with the current status and lays
down a path to meet estimated future needs), strategic planning begins with the
desired-end and works backward to the current status.

 At every stage of long-range planning the planner asks, "What must be done here
to reach the next (higher) stage?"

 At every stage of strategic-planning the planner asks, "What must be done at the
previous (lower) stage to reach here?"

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05.09.01 (a) Vision & Mission :

Identification of the organization's vision and mission is the first step of any strategic
planning process. The vision sets out the reasons for organization's existence and
the "ideal" state that the organization aims to achieve; the mission identifies major
goals and performance objectives. One cannot overemphasize the importance of a
clear vision and mission; none of the subsequent steps will matter if the organization
is not certain where it is headed.

05.09.01 (b) Objectives and Goals :

Objectives:
The objectives are the areas of emphasis within the organization. Rather than
specific statements with a specific goal, objectives state that the organization plans
to continue to do quality work in the following areas. These objectives or areas of
emphasis need to be attained by discussion and review of the organization's current
activities as well as activities in which it would like to participate.

Goals:
These need to be both long-term and short-term goals; six months, one-year, three-
years, and ten-year goals need to be set so that the strategy for reaching these goals
can be outlined in the plan. Most organizations recommend setting the long-term
goals first and then setting short-term goals: those goals which can be reached as
steps to attaining the long-term goal.

05.09.01 (c) Strategy / Action Plan :

The Action Plan should be designed after the main goals and objectives have been
set in order to attain the mission in a straightforward and measurable way. With an
Action Plan, the goals themselves can be obtained. Without the Action Plan, and the
measures it entails, it would be impossible to implement the plan and measure its
success.

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05.09.02. Tactical Plan :

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.
Normally, it is the middle manager’s responsibility to take the broad strategic plan
and identify specific tactical actions.

05.09.03. Operational Plan :

The specific results expected from departments, work groups, and individuals are the
operational goals. These goals are precise and measurable.
“Process 150 sales applications each week” or “Publish 20 books this quarter” are
examples of operational goals.
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.
Operational plans can be a single-use plan or an ongoing plan.

05.09.03. (a) Single Use Plan :

These plans are created for events/activities with a single occurrence. This can be a
one-time sales program, a marketing campaign, a recruitment drive, etc. Single use
plans tend to be highly specific.
Program: A program specifies the steps to be taken resources to be used, time limit
for each step and assignment of task. It is a sequence of action steps arranged in the
priority necessary to implement a policy and achieve an objective. It defines the
contents and scope of activities. Programs are prepared for various activities like
development of new product, training of employee’s, purchase of machinery etc.
Budget: A budget is also a single-use plan because it predicts sources and amounts of
income and how much they are used for a specific project. It is a statement of
expected results expressed in numerical terms for a definite period of time in the
future. Budget serves as a mean of co-ordination and control. Budgets may be
prepaid for various groups of activities like production, sales, personal, advertising
etc. Budget may be prepared in term of money, time & / or resources.

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05.09.03. (b) Ongoing Plan :

These plans can be used in multiple settings on an ongoing basis. Ongoing plans are
created on an ad-hoc basis but can be repeated and changed as required. Ongoing
plans can be of different types, such as:

Policy: A policy is a general document that dictates how managers should approach
a problem. It influences decision making at the micro level. Specific plans on hiring
employees, terminating contractors, etc. are examples of policies.
Rule: Rules are specific regulations according to which an organization functions.
The rules are meant to be hard coded and should be enforced stringently. “No
smoking within premises”, or “Employees must report by 9 a.m.”, are two examples
of rules.
Procedure: A procedure describes a step-by-step process to accomplish a particular
objective. For example: most organizations have detailed guidelines on hiring and
training employees, or sourcing raw materials. These guidelines can be called
procedures.

05.09.04. Contingency Plan :

Intelligent and successful management depends upon a constant pursuit of

adaptation, flexibility, and mastery of changing conditions. Strong management
requires a “keeping all options open” approach at all times — that’s where
contingency planning comes in.
Contingency planning involves identifying alternative courses of action that can be
implemented if and when the original plan proves inadequate because of changing
circumstances.

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05.10. 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. They are present not only the end-point of
planning but also the end towards which organizing, directing and controlling
are aimed.
 Objectives provide direction to various activities. They also serve as the
benchmark of measuring the efficiency and effectiveness of the enterprise.
Objectives make every human activity purposeful. Planning has no meaning if
it is not related to certain objectives.

05.10.01. 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 must have social sanction.
 All objectives are interconnected and mutually supportive.
 Objectives may be short-range, medium-range and long-range.
 Objectives may be constructed into a hierarchy.

05.10.02. Advantages of Objectives

 Clear definition of objectives encourages unified planning.
 Objectives provide motivation to people in the organisation.
 When the work is goal-oriented, unproductive tasks can be avoided.
 Objectives provide standards which aid in the control of human efforts in an
organisation.
 Objectives serve to identify the organisation and to link it to the groups upon
which its existence depends.
 Objectives act as a sound basis for developing administrative controls.

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05.10.03. Process of Setting Objectives

Objectives are the keystone of management planning. It is the most important task
of management. Objectives are required to be set in every area which directly and
vitally effects the survival and prosperity of the business. In the setting of objectives,
the following points should be borne in mind.
1. Objectives are required to be set by management in every area which directly
and vitally affects the survival and prosperity of the business.
2. The objectives to be set in various areas have to be identified.
3. While setting the objectives, the past performance must be reviewed, since
past performance indicates what the organisation will be able to accomplish in
future.
4. The objectives should be set in realistic terms i.e., the objectives to be set
should be reasonable and capable of attainment.
5. Objectives must be consistent with one and other.
6. Objectives must be set in clear-cut terms.
7. For the successful accomplishment of the objectives, there should be effective
communication.

05.11. Strategies :

 The term 'Strategy' has been adapted from war and is being increasingly used
in business to reflect broad overall objectives and policies of an enterprise.
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".

 Strategies are plans made in the light of the plans of the competitors because
a modern business institution operates in a competitive environment. They
are a useful framework for guiding enterprise thinking and action.

 A perfect strategy can be built only on perfect knowledge of the plans of

others in the industry. This may be done by the management of a firm putting
itself in the place of a rival firm and trying to estimate their plans.

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05.11.01. Characteristics of Strategy :

1. It is the right combination of different factors.

2. It relates the business organisation to the environment.
3. It is an action to meet a particular challenge, to solve particular problems or to attain
desired objectives.

4. Strategy is a means to an end and not an end in itself.

5. It is formulated at the top management level.
6. It involves assumption of certain calculated risks.

05.11.02. Strategic Planning Steps:

1. Analysis of the current state

Here, you analyze your organization's external and internal environment. You may
conduct a SWOT analysis, which is an examination of your organization's strengths,
weaknesses, opportunities, and threats. You will also carefully examine the specific
external environmental factors, such as your rivals, the power of your suppliers, the
power your buyers or customers have, whether there is a viable threat that major
clients or customers can effectively substitute your product or service, and whether
there are any barriers to entry into a new market.

2. Defining the future state

Here, you will develop an organizational vision and a mission statement that
describes the future of your organization - where it wants to be, it’s essential values,
and what it wants do. After you have defined the organization's vision and mission,
you can begin to formulate a detailed strategy to achieve them.

3. Determination of objectives and strategies

Now that you have defined the organization's vision and mission, you can develop a
set of objectives that will lead you to the overall strategic goal or vision. For an
example, an objective may be to increase market share year-over-year by at least
five percent. Think of achieved objectives as building blocks in constructing your goal
or vision.

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4. Implementation and evaluation

The next step is to implement and evaluate the plan. Implementation in large
organizations, such as governmental agencies or large corporations, will be done by a
different set of organizational members than the members that created the plan.
Different parts of the plan are typically distributed to various parts of the
organization. You will also need to constantly monitor and assess the
implementation of the plan to determine if the plan is achieving the objectives
leading to the strategic goal. If not, then adjustments to the long-term strategy will
be necessary.

5. Updating & Review

Typically strategic plans are created through a major effort every five years, and
updated with a review process every 12 months or so. It’s not over. It’s never over.
To ensure the plan performs as designed, you must hold regularly scheduled formal
reviews of the process and refine as necessary.

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05.12. Policies

A policy is a standing plan. Policies are directives providing continuous framework for
executive actions on recurrent managerial problems. A policy assists decision-making
but deviations may be needed, as exceptions and under some extraordinary
circumstances.
Policy-making is an important part of the process of planning. Policies may be
described as plans which are meant to serve as broad guides to decision making in a
firm. Policies exist at various levels of the enterprise—Corporate level, divisional level
and departmental level. Policies are valuable because they allow lower levels of
management to handle problems without going to top management for a decision
each time.

05.12.01. Essentials of Policy Formulation

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 organisation.
 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 conform to economic principles, statutes and regulations.
 A policy should be a general statement of the established rule.

05.12.02. Importance of Policies

Policies are useful for the following reasons:

1. They provide guides to thinking and action and provide support to the
subordinates.
2. They delimit the area within which a decision is to be made.
3. They save time and effort by pre-deciding problems and
4. They permit delegation of authority to mangers at the lower levels.

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