Chapter Three: Planning Function

Planning is the primary function of management. It focuses on the future course of action. It
specifies the objectives to be achieved in future and selects the alternative course of action to
reach defined objectives. It also involves many activities like analyzing and decision making
about technical, personnel, financial, and other elements essential to implement predetermined
course of action. Thus, planning is mental and paper activities which look ahead for drawing the
future course of action. In other words, planning is intellectual process which is concerned with
deciding in advance what, when, why, how, and who shall do the work. Generally, manager
defines goals and takes necessary steps to ensure that these goals can be achieved in efficient
manner. Planning reflects vision, foresight and wisdom. Thus, it is the blue print of action and
operation. Following are the important definition of planning:

“Generally speaking, planning is deciding in advance what is to be done” W H Newman

“Planning is the function of manner in which he decides in advance what he will do. It is a decision
making process of a special kind, its essence is futurity.” Hayness and Massie

“Planning is deciding in advance what to do, how to do, when to do and who is to do it. Planning bridges
a gap between from where we are to where we want to go” Harold . Koontz And O’Donnel.

“Planning is the selecting and relating of facts and the making and using of assumption regarding the
future in the visualization and formulation of proposed activities believed necessary to achieve desired
results” George R Terry
Planning is a process of deciding what to do and how to do it before action is required.
Planning is preparing today for tomorrow; it is the activity that allows managers to determine
what they want and how to get it: They set goals and decide how to reach them.
Planning focuses on the future: what is to be accomplished and how. Answers six basic
questions in regard to any intended activity:
 What (the goal or goals).
 When (the time frame in which it will be accomplished)
 Where (the place or places where the plans or planning will reach its conclusion).
 Who (which people will perform the tasks).
 How (the specific steps or methods to reach the goals).
 What resources (resources necessary to reach the goals).
From the above definition, we may come into conclusion that planning is predetermination of
objectives and intellectual course of action to be taken to achieved defined goal effectively and
on time. Generally, planning involves the following elements:
 Establishment of organizational objectives and policies.
 Identification of alternative courses of action and programs
 Selecting the best course of action and programme

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Nature of Planning
Discussing the following points can highlight the nature of planning.

1. The contribution of planning to purpose and objectives: Every organization is established

(exists) for the accomplishment of group purpose or objective. So, the purpose of any plan and
its derivatives or supporting plans is to facilitate the accomplishment of organizational
objectives.
2. The primacy of planning: All the five managerial functions - planning, organizing, staffing,
directing and controlling- are designed to support the accomplishment of organizational
objectives. However, planning precedes the execution of all other managerial functions, because
all other managerial functions must be planned if they are to be effective. This does not mean
that planning is the most important of all other managerial functions, because to be important or
useful all other functions have to accompany it. Although in practice all the functions mesh as a
system of action, planning is unique in that it involves establishing the objectives necessary for
all group effort. The entire gist of initiating, exercising, and activating the managerial functions
of organizing, staffing, directing and controlling is to bring the objectives formulated during
planning into fruition. In fact, the concept of especially control would be unthinkable without
planning because any attempt to control without plans is meaningless, since there is no way for
people to tell whether they are going where they want to go (the result of the task of control)
unless they first know where they want to go (part of task of planning). Plans thus furnish the
standards of control. Since planning and controlling are so much inseparable, they are treated as
the Siamese twins of management.
3. The pervasiveness /Universality of planning: Planning is a function of all managers,
although the character and breadth of planning varies with each manager’s authority and with
the nature of policies and plans outlined by superiors. That is, all managers-from presidents to
first-level supervisors plan. Even for personal life we plan. ‚It is difficult to call a person a
manager if he or she doesn't plan ‚Koontz
4. Planning and information: Basically no plan exists without information. To plan managers
have to gather relevant information from around the environment. Information is one of the
valuable resources for planning to exist.
5. Planning is a continuous process: Planning deals with the future and the future is full of
uncertainties. Hence, planning is subject to revision. It needs frequent revision in response to
changes in the internal and external environments of the organization. Therefore as far as the
organization is in operation, planning is in continuous process. The more continuous the
planning is, the higher its efficiency is.
6. Planning is a means to an end: Planning is not an end by itself. It is a means to an end
(meeting objectives). Planning is an instrument that pushes people towards the achievement of
objectives.
7. Plans are arranged in a hierarchy: Plans are first set for the entire organization. The corporate
plan then provides the framework for the formulation of divisional, departmental, and sectional
goals. Each of these organizational components sets its plans, programs, projects, budgets,
resource requirements, etc.

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 The Importance of Planning
1. It provides direction and sense of purpose
It is through planning that we can establish our objectives. Plans focus attention on specific
targets and direct employees effort toward important outcomes. Once organizations known
what they can do and can't do over the future, they began to set objectives based on their
capacity and the order of activities needed to accomplish their objectives. It provides direction
and a common sense of purpose. This shared purpose enables both employees and managers to
coordinate, unite, and guide their actions.
2. It reduces uncertainties and anticipates the future or preparing for change
Planning is based on systematic and careful forecasts of future states of the economy, markets,
technology, etc to reduce uncertainties to the extent they occur according to expectation. Thus, it
is while planning that the manager should consider the potential areas for changes in the future;
rather than merely reacting to it. Managers should cope with changes in their own organizations
and functions in their environment through planning. Anticipating and preparing for possible
future changes enables managers to control their environment. In so doing, planning answers
“what-if” questions. In planning, managers develop several "what if" questions in order to
reduce the risk of unpredictable future, so far as we plan for the future. By asking what if
questions managers develop alternatives.
3. It provides basis for controlling
Standards /controlling mechanisms/ are developed during planning. It specifies what is to be
accomplished and provides a standard for measuring progress.
4. It forces managers to see the organization as a system
While planning managers have to consider parts because the plan of one part (department)
affects the operation of the whole organization so far as parts of an organization are
interdependent.
5. It promotes efficiency
Planning provides the opportunity for a greater utilization of the available organizational resources -
because in planning we determine how many resources are necessary to reach the goals, and
how to use these resources.
6. It provides the base for cooperative and coordinated efforts: Management exists because the
work of individuals and groups in organizations must be coordinated, and planning is one
important technique for achieving coordinated effort. Planning provides the basis for organized
and coordinated effort by defining the objectives of the organization and the means for their
achievement.
7. Developing managers: The act of planning involves high level of intellectual activity. Those
who plan must be able to deal with abstract and uncertain ideas and information. Planners must
think systematically about the present and the future. Through planning, the future state of the
organization can be improved if its managers take an active role in moving the organization
toward that future. Planning then implies that managers should be proactive and make things
happen rather than reactive and let things happen. Through act of planning, managers not only
develop their ability to think futuristically but, to the extent that their plans are effective, their

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motivation to plan is reinforced. Also, the act of planning sharpens manager's ability to think as
they consider abstract ideas and possibilities for the future. Thus, both the result and the act of
planning benefit both the organization and its managers.

8. It provides guideline for decision making: Decisions in an organization will be made in

alignment with the plans and in accordance with desired outcomes. Managers make decisions on
problems of recurring nature based on strategies and policies of the organization. Through
specifying the actions necessary to accomplish the goals of the organization, planning serves as a
framework for decision-making. It forces managers to make analytical thinking and evaluate
alternatives through improved decisions.

Planning Process/ Steps of Planning

Like other managerial activities, planning has its own processes or series of steps. These steps
are interrelated and there is no rigid boundary between or among these steps, and one is the
base for the other.
1. Analyze Opportunities: Generally, this is not a step of planning. It is known as pre-step of
planning. It is essential to make a successful plan. The management has to analyze strengths;
weakness, opportunities and threats (SWOT) of changing environment of the business. Here,
strengths and weaknesses are internal environment of the enterprise like availability of
materials, machines, manpower, organizational structural technology etc. In the similar manner,
opportunities and threats are external environment and affected by many factors like
government rules, economic condition, competitors strategy customers taste, social and cultural
believes etc. it is essential to make detail study about the above factors and should be pointed
clearly.
2. Establishing objectives: As objectives provide the direction for all other managerial
functions, especially planning, objective setting is an important first step in the planning
process. Objectives specify the expected results and indicate the end points of what is to be
done, where the primary emphasis is t be placed, and what is to be accomplished by the
network of strategies, policies, procedures, rules, budgets, and programs. They provide the
direction necessary for achievement and without them there is little to keep a manager from
simply wandering in all directions. Objectives are then, the ‘guiding light’ for the entire
management process.

Objective setting is a three steps process, which involves assessing the present situation,
anticipating future conditions, and then setting the objectives. It is only after the managers have
at least the rudimentary knowledge about their capabilities and available opportunities that
objective setting does make sense.

Organizations do not have one set of objectives, which each manager attempts to achieve.
Rather, setting objectives involves establishing objectives for the entire organization, each
subordinate work unit, and the long range as well as the short range. The hierarchy of objectives
starts at the top of the organization with overall organizational objectives and proceeds
downwards with narrower and more specific objectives for each level managers, derived from
the objectives at the level
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Objectives developed by organizational levels and peer managers should be compatible with
one another. Top-level management should set the stage for goal setting by lower level
management, thereby ensuring maximum use of resources. Enterprise objectives give direction
to the major plans which define the objective of every major department. Major department
objectives, in turn, control the objectives of subordinate departments and so down the line.

3. Developing Premises: Planning premises are assumptions about the environment within
which the plan is to be carried out. Once objectives are established managers have to investigate
the company's environment to know factors that facilitate or block the attainment of these
objectives. This involves examining the external and internal factors which affect the
performance of the organization: the external environment (for Treats and Opportunities)
through PEST analysis and internal environment (for Strengths and Weaknesses) through Self-
Audit.
 Strengths are internal competencies possessed by the organization in comparison with the
competitors. These include structure and policies of the organization, location, financial
soundness, knowledge of personnel, qualities of facilities, and so on.
 Weaknesses are attributes of the organization which tend to decrease its competence in
comparison to its competitors.
 Threat is reasonably probable events which if it were to occur, would produce significant
damage to the organization.
 Opportunity is a combination of circumstances, time, and place which if accompanied by a
certain course of action on the part of the organization, is likely to produce significant benefits.
The key element of planning at this stage is forecasting. It is based on the forecasts made in
different areas that premises are made.
Because the future is so complex, it would not be profitable or realistic to make assumptions
about every detail of the future environment of a plan. Therefore, premises are, as a practical
matter, limited to assumptions that are critical, or strategic, to a plan, that is, those that most
influence its operation.
4. Determining alternative courses of actions: Alternatives are courses of actions that are
available to a manager to reach a goal. In developing alternatives, a manager should try to create
as many roads to the objective as possible. Usually the most common problem is not finding
alternatives but reducing number of alternatives so that the most promising may be analyzed.
5. Evaluating alternative courses of action: Having sought out alternative courses, managers
evaluate the benefits, costs and effects of alternative courses in light of their weight to goals and
premises. Because there are so many alternative courses in most situations and there are
numerous variables and limitations to be considered, evaluation can be exceedingly difficult.
This is a step in planning process that operations research and mathematical as well as
computing techniques have their primary application to the field of management.
6. Selecting a course of action: This is the point at which the plan to be adopted is chosen or
selected. It is the real point of decision-making. The analysis of each alternative’s disadvantages,
benefits, costs and effects should result in determining one course of action that appears better

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than the others. If no one alternative emerges as clearly the best, consideration should be given
to combining parts or the entire content of two or more alternatives. Whatever the course
chosen, it should be one that gives you the most advantages and the fewest serious
disadvantages.
7. Formulating derivative/action plans: At step 5 planning is ended. Formulating derivative
plans means formulating other plans based on one major plan.
8. Numbering plans by budgeting: Numberzing plans are converting them into budgets. Plans
will have meaning when they are changed into numbers. Budgeting is the means of adding
various plans together and set important standards against which planning process can be
measured.
9. Implementing the plan: After the optimum alternative has been selected, the manager needs
to develop an action plan to implement it. This is a step where by the entire organization will be
in motion or real operation. All the planning in the world will not help an organization realize
objectives if plans cannot be implemented. Implementation involves determining who will be
involved, what resources will be assigned, how the plan will be evaluated, and the reporting
procedure.
10. Controlling and evaluating the results: Once the plan is implemented, the manager must
monitor the progress that is being made, evaluate the reported results, and make any
modifications necessary. The environment that a plan is constructed in is constantly changing,
so the plans may have to be modified. Or modification may be needed because a plan was not
quite ‚perfect‛ when it was implemented. Hence, managers need to make certain that the plan is
going according to expectations and making necessary adjustments.

Types of Plans
Plans can be classified on different bases or dimensions. These are: Scope/breadth dimension,
Time dimension, and Use/repetitiveness.
 Scope/Breadth Dimension: Scope refers to the comprehensiveness of the plan, or it refers to
the level of management where plans are formulated. This dimension creates hierarchy of
plans. Based on scope/breadth we can classify plans into: Strategic, Tactical and Operational.
a) Strategic Plan: is organization wide plan that is formulated or developed by top-level
management in consultation with the board of directors and middle level management.
It applies to the entire organization. Strategic plan:
 Looks ahead over the next two, three, five or more years.
 Develops the direction for the entire organization.
 Is primarily concerned with solving long-term problems associated with external
environmental influences.
 Establishes overall objectives and positions for an organization in terms of its environment.

The following are distinguishing characteristics of strategic plan.

1. It requires looking outside the organization for threats and opportunities.
2. It requires looking inside the organization for strengths and weaknesses
3. It takes a longer view, i.e. it covers a relatively long time horizon > 5 years.

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 4. It tends to be top management responsibility, but it reflects a mentality useful at all levels.
5. It is expressed in relatively general non-specific terms.
Strategic plans address such questions as:
- What business are we in?
- What business should we be in?
- Where will we be in ten years if we continue doing what we are now doing?
The success or failure of an organization depends up on the success or failure of strategic plans.
It makes premises for tactical plans.

b) Tactical Plan: refers to the implementation of activities and the allocation of resources
necessary for the achievement of the organization’s objectives. It is an intermediate plan that
helps to reduce long range planning into intermediate one by increasing the amount of
specificity and making the actions goal oriented. Tactical plans are specific and more goals
oriented than strategic plans. Middle level management in consultation with lower level
management develops them. Tactical plans are the means charted to support the
implementation of the strategic plans and achievement of tactical goals. They are concerned
with shorter time frames and cover a narrower scope (narrower range of activities). It structures
a firm’s resources to achieve maximum performance. Tactical plan concerned with what the
lower level units within each division must do, how they must do it, and who will have the
responsibilities for doing it. Tactical plans make premises for operational plans. Tactical plans is
narrower in scope than strategic plan and wider than operation plan; but more detailed than
strategic plan and less detailed than operational plan.
E.g. what is the best pricing policy? Which city or town is suitable for marketing our products?

c) Operational Plan: is concerned with the day to day activities of the organization and is made
at the lower level management in consultation with middle level management. Operational
plans spell out specifically what must be accomplished to achieve specific/operational goals. It is
concerned with the efficient, day-to-day use of resources allocated to a department manager’s
area of responsibility. Operational plans have relatively short time frame (< 1 yr). It is the most
detailed (more specific) and narrowest plan compared to the above two; because it is to be
implemented day-to-day.
E.g. –What production technique is best? What materials are needed for operation?
Unless operational goals are achieved in organizations, tactical and strategic plans will not be
successful and goals at those levels will not be achieved.
 Time Dimension
Time dimension refers to the time periods for which the planning is intended. Based on the
length of time a plan covers, we do have three types of plans: Long-range (five years or more),
medium-range (between one and five years) and short-range plans (one year or less). Time
dimension and scope dimension are the same except the former is about the length of time that
the plan covers and the later about the level of management where the plan is formulated.
All strategic plans are long-range plans.
All tactical plans are medium-range plans.
All operational plans are short-range plans.

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  Use Dimension
Use dimension refers to the extent to which plans will be used on a recurring basis, i.e. based on how
repeatedly/frequently a given plan is used. Based on this dimension we do have two types of
plans: standing plans and single use plans.

1. Standing Plans: are plans that provide an ongoing guidance for performing recurring
activities. They are plans which are formulated to be used again and again for the day-to-day
operation of the organization. That is, repetitive situations or actions require the development of
such plans. They become necessary when the same kinds of actions are to be taken over and
over again. Standing plans become valuable under relatively stable situations. Once established,
standing plans allow managers to conserve time used for planning and decision-making because
similar situations are handled in a predetermined, consistent manner.
E.g. A bank can more easily approve or reject loan requests if criteria are established in advance
to evaluate credit ratings, collateral assets, and related applicant information.
The major types of standing plans are policies, rules and procedures.
a. Policies: is a general guide that specifies the broad parameters within which organization
members are expected to operate in pursuit of organizational goals.
- Policies are general statements or understandings which guide or channel thinking and actions
in decision-making to achieve organizational objectives.
Not all policies are ‚statements‛, they are often merely implied from the actions of managers.

Policies have the following characteristics:

1. Policies define an area within which a decision is to be made and ensure that the decision will
be consistent with and contribute to an objective.
2. Policies help to decide issues before they become problems; make it unnecessary to analyze
the same situation every time it comes up and unify other plans.
3. Policies tell us what to do in a general sort of way.
4. Policies provide discretion within limits since they are guides to decision-making. Policy is a
means of encouraging discretion and initiative, but within limits. The amount of freedom will
naturally depend up on the policy and in turn will reflect position and authority in the
organization.
5. Policies must be flexible.
 Policies are usually established formally and deliberately by top managers of the
organization. They can also emerge informally and at lower levels in the organization from a
seemingly consistent set of decisions on the same subject made over a period of time.
Policies are established at the top because:
a. They feel it will improve the effectiveness of an organization.
b. They want some aspect of the organization to reflect their personal values (E.g. Dress codes)
c. They need to clear up some conflict or confusion that has occurred at a lower level in the
organization.
Examples of policy:
1. Except for token gifts of purely nominal or advertising value, no employee shall accept any
gift from any supplier at any time.
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 2. Hiring university trained engineers
3. To promote from within
4. We accept returned merchandise
b. Rules: spell out specific required action or non-actions, i.e., actions that must be or must not
be taken, allowing no discretion, in a given situation. E.g. No smoking, cheating is prohibited.
 A rule is an ongoing, specific plan for controlling human behavior and conduct at work.
 The purpose of policies is to guide decision-making by marking off areas in which managers
can use their discretion. Although rules also serve as guides, they allow no discretion in their
application.
 Rules are the most explicit of standing plans and are not guides for thinking or decision-
making. Rather, they are substitutes for them. The only choice a rule leaves is whether or not to
apply it to a particular set of circumstances.

c. Procedures: are statements that detail the exact manner in which certain activities must be
accomplished. They put the precise order of activities to be carried out to do a task and thus,
procedures are chronological sequences of required actions. They provide detailed step-by-step
instructions as to what should be done. Procedures prescribe exactly what actions are to be
taken in a specific situation and specify the chronological sequence of activities. For example,
material procurement, university admission, bidding, etc.
When we compare the above three, policies, procedures and rules, we can understand that all
are alike in the sense that they are directives to guide people’s behavior to the desired ends and
they are plans which are to be followed in the future. Conversely, procedures and rules are
different from policies in that the formers are guides to actions while the latter are guides to
thinking. So, procedures and rules render no freedom and hence should be used when we want
to discourage initiative or repress thinking. But, policies must permit freedom within limits and
hence are used when people’s involvement, participation or initiative is desired.

Though both rules and procedures repress thinking, they are different. Unlike procedures, rules
(1) guide actions without specifying a time sequence (2) spell out that a certain action must or
must not be taken. Procedures, however, specify a time sequence. In fact a procedure may be
looked upon as a sequence of rules. A rule, however, may or may not be part of a procedure.
2. Single use plans: are plans aimed at achieving a specific goal that, once reached, will most
likely not recur in the future and dissolved when these have been accomplished.
- Are designed to accomplish a specific objective usually in a relatively shorter period of time and
it is non repetitive.
- They are detailed courses of action that probably will not be repeated in the same form in the
future.

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 The major types of single use plans are programs, projects, and budgets.
E.g. A firm planning to build a new warehouse-location, construction costs, labor availability,
zoning restrictions.
a. Programs: is a comprehensive plan that coordinates a complex set of activities related to a
major non-recurring goal.
- Are a complex of goals, policies, procedures, rules, task assignments, steps to be taken,
resources to be employed and other elements necessary to carry out a given course of action
- Single use plans may use standing plans and other single use plans to be effective.

Single use plan = Standing plans + Single use plans

A program may be as large in scope as placing a person on the moon or as comparatively small
as improving the reading level of fourth grade students in a school district. Whatever its scope,
it will specify many activities and allocations of resources within an overall scheme that may
include such other single use plans as projects and budgets.
* A program may be repeated with modification but not as it is.
b. Projects: is a plan that coordinates a set of limited scope activities that do not need to be
divided into several major projects in order to reach a major non-recurring goal.
- Projects are the smaller and separate portions of programs. Each project has limited scope and
distinct directives concerning assignments and time. Each project will become the
responsibility of designated personnel who will be given specific resources and deadlines.
E.g. Building a warehouse can be taken as a program. In the warehouse example, typical
projects might include the preparation of layout drawings, a report on labor availability, and
recommendations for transferring stock from existing facilities to the new installation.
c. Budgets: are statements of expected results expressed in numerical terms.
- Are statements of financial resources set aside for specific activities in a given period of time.
- Budget is a single use plan that commits resources to an activity over a given period. It may be
expressed in Birr, labor hours, units of product, machine hrs, or any other numerically
measurable term.
- It may be referred to as a ‚numberize‛ program.
Budgets are also control devices. However, making a budget is clearly planning.

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