UNIT II

PLANNING
Introduction:-
Planning is the beginning of the process of management. Planning is a way of life. It is a
way of organizational life. Every person plans, as does every organization; but every planning
effort is unique to the planner and the situation. Planning begins with a goal or an end-state or
targeted outcome that the organization wishes to achieve. It bridges the gap from where we are to
where we want to go.

Meaning:-
Planning involves selecting missions and objectives and the action to achieve the
organizational goal; It requires decision making, that is choosing from among alternative future
courses of action.
Planning is an intellectually demanding process, it requires that we consciously determine
courses of action and base our decisions on purpose, knowledge, and considered estimates.

Definition:-
According to koontz and O’donnell, “Planning is deciding in advance what to do, how to
do it, when to do it, and who is to do it. It is the selection from among alternatives of future
courses of action for the enterprise as a whole and each department within it. Plans invoice
selecting enterprise objectives and determining ways of achieving tem”.
In the words of Terry, “planning is the selecting and relating of facts and the making and using of
assumptions regarding the future in the visualization and formulation of proposed activities
believed necessary to achieve desired results”.

According to Koontz and O’Denell, “Planning is deciding in advance what to do, how to
do it, when to do it, and who is to do it. It is the selection form among alternatives of future
courses of action for the enterprise as a whole and each department within it. Plans involve
selecting enterprise objectives and determine ways of achieving them”.

In the words of Terry, “Planning is the selecting and relating of facts and the making and
using of assumptions regarding the future in the visualization and formulation of proposed
activities believed necessary to achieve desired results”.

Nature of Planning:-
We can highlight the essential nature of planning by examining its three major aspects

1. Its contribution to purpose and objectives: Every plan and all its supporting plans
should contribute to the accomplishment of the purpose and objectives of the enterprise.
This concept derives from the nature of the organized enterprise, which exists for the
accomplishment of group purpose through deliberate cooperation.
2. The primacy of planning: Planning logically precedes the execution of all other
managerial functions. Although all the functions intermesh is practice as a system of
action, planning is unique in that it establishes. The objectives necessary for all group
effort. Planning and control are especially inseparable – the Siamese twins of
management unplanned action cannot be controlled, for control involves keeping
 activities on course by correcting deviations from plans. Any attempt to control without
plans would be meaningless.
3. Efficiency of Plans: The efficiency of a plan is measured by the amount it contributes to
purpose and objectives as offset by the costs and other unsought consequences required to
formulate and operate it. A plan can contribute to the attainment of objectives, but at too
high or unnecessarily high costs. This concept of efficiency implies the normal ratio of
input to output but goes beyond the usual understanding of inputs and outputs in terms of
dollars, labour-hours or inputs of production to include such values as individual and
group satisfactions.
Need for Planning:-
In the turbulent socioeconomic environment of modern times, planning has become a
requisite for the survival ad growth of business enterprises. It is necessary to plan due to the
following reasons.

1. To offset uncertainty and change: Change and economic growth bring opportunities but
they also bring risk. Planning helps to minimize risk while taking advantage of opportunities.
2. To focus attention on objectives: Planning focuses attention on the results desired. It
reduces unnecessary pressures of immediacy. Planning serves as a bridge between present
and future.
3. To gain economical operation: It minimizes costs due to its emphasis on efficiency and
contingency. It substitutes goal directed effort for uncoordinated piecemeal activity, even
flow of work for uneven flow and deliberate decisions for snap judgments.
4. To facilitate control: Planning provides the standards with which actual performance can be
measured and corrective action taken wherever necessary.
5. To encourage innovation and creativity: It helps the enterprise to remain competitive in the
industry by suggesting new lines of action or improvements in the existing actions.

Importance of planning:
Without planning business decisions would become random and hoc choices four concrete
reasons for the paramount importance of the planning function are as follows.

a. Minimizes Risk and Uncertainty: In today’s increasingly complex organizations institution

alone can no longer be relied upon as a means for making decisions. This is one reason why
planning has become so important. By providing a more rational, fact-based procedure for
making decisions, planning allows managers and organizations to minimize risk and
uncertainty. Planning does not deal with future decisions but with the futurity of present
decisions.

b. Leads to success: Planning leads to success by going beyond mere adaptation to market
fluctuations. It proacts, it involves an attempt to shape the environment on the belief that
business is not just the creation of environment but its creator as well.

c. Focuses Attention on the Organization: Planning helps the manager to focus attention on
the organization’s goals and activities. This makes it easier to apply and coordinate the
resources of the organization is forced to embrace identical goals and collaborate in
achieving them. It also enables the manager to chalk-out in advance an orderly sequence of
 steps for the realization of an organization’s goals and to avoid a needless overlapping of
activities.

d. Facilitates Control: In planning, the manager sets goals and develops plans to accomplish
these goals. These goals and plans then become standards or benchmarks against which
performance can be measured. The function of control to the plans. Thus, controls can be
exercised only if there are plans.

Purpose of planning:-
Planning is an intellectually demanding process; it requires the conscious determination
of courses of action and the basing of decisions on purpose, knowledge and considered estimates.

1. The purpose of every plan and all derivative plans is facilitate the accomplishment of
enterprise purpose and objectives. This principle derives from the nature of organized
enterprise, which exists for the accomplishment of group purpose through deliberate
cooperation.
2. Effective plans coordinate organizational work and eliminate unproductive effort.
3. Planning forces people to continually address their efforts to the most important work
rather than the least important.
4. Planning needs to minimize risk while taking advantage of opportunities. It keeps
management alert to environmental changes and manages the uncertain future in a useful
way.
5. Planning encourages innovation and creativity.

Planning process:
1. Informal planning: It is the institute reaction to a situation.

2. Formal planning: It is a structured process of investigation and action.

a) Future oriented: The successful manager must look into the future in order to determine
what needs to be alone and how it must be done before the situation actually occurs.
b) Decision oriented: The planning process involves decisions making that specifies actions
necessary to achieve future end states.
c) Goal oriented: The planning process is focused on those efforts necessary to achieve
future end states (Schermerhorn 1989).
 By identifying what must be done and how it must be done, planning sets the stage and
becomes the very foundation for the other key managerial practices of organizing, leading and
controlling.

The Organization Mission

Purpose Premises Values Directions

Strategic goals Strategic plans

Tactical goals Tactical plans

Operational goals Operational plans

The organizational planning process:

The overall framework for organizational planning process is illustrated in the above
figure. The beginning point for the process is the determination of the organizations missions
which depicts its purposes, premises, values and directions.
Once the missions’ statement is formalized the planning process becomes a parallel flow of
stated goals and the plans for their achievement. The mission statement sets the stage for
strategic goals and strategic plans which become the primary inputs for the establishment of
tactical goals. Then, tactical goals and the original strategic plans determine the basic nature of
tactical plans. Similarly, the tactical plans and tactical goals help determine operational goals.
Tactical plans and operational goals then shape operational plans. And, finally organizational
goals and plans at all three levels serve as sources of feedback for future planning activities.
Objectives:-

The management process begins with a mission statement and setting up the of
organizational objectives. Objectives give meaning and purpose to the organization without
objectives, organization would be purposeless and chaotic. Good management is always
management by objectives. Objectives determine the scope of future events. They determine
what action to take today to obtain results tomorrow.
Meaning:
Objective means end point of a management programme. An objective indicates the
results that an organization expects to achieve in the long-run. It is the end results, the end point,
something that you aim for, and try to reach.

Objectives were defined as the important ends toward which organizational and
individual activities are directed.

Importance of objectives:-
Objectives are essential to organizations. All organizations are goal-seeking that is, they
exists for the purpose of achieving some goals efficiently and effectively. Objectives affect the
size, shape and design of the organization and they are important in motivating and directing
personnel.

Areas needing objectives:-

Peter Drucker, while working as a consultant for General Electric, identified eight key areas
in which organizations establish objectives. These areas are:

1. Market standing
2. Productivity
3. Physical and financial resources
4. Profitability
5. Innovation
6. Managerial performance and development
7. Worker performance and attitude
8. public and social responsibility

Worker performance Public and social Market standing

And attitudes responsibility

Managerial performance Objectives Productivity

And development

Innovation Profitability Physical and financial resources

Nature of objectives:
1. Objectives form a hierarchy: In many organizations, objectives are structured in a
hierarchy of importance. The hierarchy or objective in an organization is described through
means ends chain. Understanding the means-ends chain helps us to see how broad goals are
translated into operational objectives. In the organization the relationship between means and
ends in hierarchical goals established at one level require certain means for their
accomplishment.
2. Objectives form a network: The concept of network of objectives implies that once
objectives are established for every department and every individual in an organization, these
subsidiary objectives should contribute to meet the basic objectives of the total organization.

3. Multiplicity of objectives: Organizations purpose multifarious objectives. At every level in

the hierarchy goals are likely to be multiple. This objective can be broken down into a group
of objectives for managers of functional departments like product, advertising, research,
promotion. In order to meet the conflicting demands for various internal and external groups,
organizations generally purpose of multiple objectives.

4. Long and short-range objectives: Organizational objectives are usually related to time
long-range objectives extending over five or more years are the ultimate or ‘dream’
objectives for the organization. The short-range and medium range objectives are the means
for achieving long term goals and the long term goals supply a framework within which the
lower level goals are designed.

Types of plans:-
Management must deal with three basic types of organizational plans. They are strategic
plan, tactical plan, and operational plan.
1. Strategic plans: A strategic plan is a statement of how the organization will utilize its
resources and conduct its activities in order to achieve strategic goals. Strategic plans are
established by the top management and board of Directors at the divisional levels. It covers
the long term and specifies actions to be taken form five to ten years into the future.
Considerable risk-assessment and risk-taking is not uncommon. Because of this long-term
uncertainty strategic planner and need large amount of information, especially with regard to
the future of the external environment.
2. Tactical plans: Tactical plans are established to attain tactical goals and to implement
particular segments of the organization’s strategic plan. The tactical plan defines the actions
of major department and other sub-unit that are required in the execution of a strategic plan.
Compared strategic plans, tactical plans cover a shorter time frame within the overall scope
and timing as set by the strategic plan.

3. Operational plans: Operational plan are developed by lower management in order to

establish actions that are necessary for the achievement of operational goals and for the
support of tactical plans. As a rule, operational plans cover rather short time frames and
serves department manager is guide for day-to-day operations. The operational planner deals
with relative certainty and little risk-taking. Operational plans are stated in specific,
quantitative terms related to normal departmental activities.
Steps in Planning:-
1. Establishing verifiable goals or set of goals to be achieved: The first step in planning is to
determine the enterprise objectives. These are most often set by upper level or top managers.
Usually after a numbers of possible objectives have been carefully considered. The type of
goal selected will depend on a number of factors. The basic mission of the organization, the
value its managers hold and the actual and potential abilities of the organization.
2. Establishing planning premises: The second step in planning is to establish planning
premises, on the basis of which the plan will be ultimately formulated. Planning premises are
vital to the success of planning as they supply pertinent facts and information relating the
future such as population trends, the general economic conditions, production costs and
prices, probable competitive behaviours, capital and material availability, governmental
control and so on.

3. Deciding the planning period: Once upper-level managers have selected the basic long-
term goals and the planning premises, the next task is to decide the period of the plan.
Businesses vary considerably in their planning periods, company’s generally base their
period on a future that can reasonably be anticipated other factors which influence the choice
of a period are as follows: a) Lead time in development and commercialization of a new
product, b) Time required to recovers capital investment for the pay-back period and c)
Length of commitments already made.

4. Finding alternative courses of action: The forth step in planning is to search for an
examine alternative course of action. For instance, technical know-how may be secured by
engaging a foreign technician or by training staff aboard.

5. Evaluating and selecting a course of action: Having sought alternative courses the fifth
step is to evaluate them in the light of the premises and goals and to select the best course or
courses of action. This is done with the help of quantitative techniques and operations
research.

6. Developing derivative plans: Once the plan has been formulated, its broad goals must be
translated into day-to-day operations of the organization. Middle-end lower-level managers
must draw up the appropriate plans, programmes and budgets for their sub-units. These are
described as derivation plans. In developing these derivative plans, lower-level managers
take steps similar to those taken by upper-level managers selecting realistic goals, assessing
their sub-units; particular strengths and weaknesses and analyzing those parts of the
environment that can affect them.

7. Measuring and Controlling the process: Obviously it is foolish to let a plan run it course
without monitoring its progress. Hence the process of controlling is a critical part of any
plan. Managers need to check the progress of their plans so that they can (a) take what eve’s
remedial action is necessary to make the plan work (b) change the original plan if it is
unrealistic.

Policy Making:-
Policy Meaning: A basic statement that guides decision making. It provides a standing answer to
recurring questions.
A policy is a basic statement that guides decision making. It tells people what they may
or may not do. It directs the way in which activities are to be achieved.
Definition: According to George [Link], “Policy is a verbal, written or implied overall guide,
setting up boundaries that supply the general limits and direction in which managerial action will
take place”.

Importance of Policies:-
Policies are useful instructional devices. A policy may be specific in its instructions.
Policies provide standing answers to recurring questions and specify steps to be taken in making
decisions. Policies reduce chance of misinterpretation, misrepresentation sand friction. Managers
and subordinates can act with confidence. By adopting policies, a manager can provide guidance
to his subordinates. The routine, standard problems can be disposed of by lower level people
quickly. Thus policies permit managers to transfer some of the recurring problems to
subordinates. In a way policies are important management tools that facilitate some transfer of
decision making to lower level of the organization.

Types of policies:-
Policies may be variously classified on the basis of sources, functions or organizational level.

1. Classification on the basis of sources: On this basis, policies may be divided into
originated, appealed, implied and externally imposed policies.
a. Originated Policies: These are policies which are usually established formally and
deliberately by top mangers for the purpose of guiding the action of their subordinates and
also their own. These policies are generally set down in print and embodied in a manual.
b. Appealed Policies: Appealed policies ate those which arise from the appeal made by a
subordinate to his superior regarding the manner of handling a give situation. When decisions
are made by the superior on appeals made by the subordinates, they become precedents for
future action.
c. Implied Policies: There are also policies which are stated neither in writing nor verbally.
Such policies are called implied policies. Only by watching the actual behaviour of the
various superiors in specific situations can the presence of the implied policy be ascertained.

d. Externally imposed policies: Policies are some times imposed on the business by external
agencies such as government trade associations and trade unions.

2. Classification on the basis of functions: On the basis of business functions, policies may be
classified into production, sales, finance, and personnel policies etc. Every one of these
functions will have a number of policies.
For example, the sales functions may have policies relating to market, price, packaging,
distribution channel, commission to middlemen etc.
The production function may have policies relating to the method of production, output
inventory, research etc., the financial function may have policies relating to capital structure,
working capital, internal financing, dividend payment etc. the personnel function may have
policies relating to recruitment, training, working conditions, welfare activities etc.,

3. Classification on the basis of organizational level: On this basis, policies range from major
company policies through major departmental policies to minor or derivative policies
applicable to the smallest segment of the organization.
Principles of Policy Making:-
While formulating policies the following guidelines should be followed:

i. The policy statement should be clear, definite and understandable to every one in
the bank.
ii. Every policy must contribute towards the achievement of bank’s objectives.
iii. Different policies should be consistent with one another.
iv. Policies of the bank should be flexible. However, policies should be reasonably
permanent or stable so as to avoid uncertainty and indecision.
v. Policies should, as far as possible be in writing.
vi. Policies should be explained, interpreted and taught to the staff so as to ensure
effective implementation.
vii. Policies should be based on facts and sound judgment about the resources and
environment of the bank.
viii. Policies should be reviewed and revised from time to time.

Policy Formulation: Process of Policy Formulation:-

Policy formulation is basically a decision making process and it requires judgment and
experience. The main steps in policy making process are as follows.

Organization’s objectives values and strategies

Policy alternatives

Evaluation of policy alternatives

Choice of policy and review

1. Definition of Policy Area: First of all the areas in which policies are required are defined
keeping in view the objectives, values and environment of the organization.

2. Identification of Policy Alternatives: Policy alternatives are generated on the basis of

environmental analysis, self appraisal and past experience.

3. Evaluation of Alternatives: Various alternatives are analyses in terms of their consequences,

feasibility and goals.

4. Choice of Policy: The most appropriate alternative is selected as the organization’s policy.
The selected policy is implemented and it is reviewed periodically to keep it up to date.
 Policy formulation becomes as increasingly important activity as the organization balloons to
gigantic proportions. In fact, there is a direct relationship between organizational structure and
policies. The larger the organization, the more elaborate its policies.

Characteristics of an effective policy:-

Developing effective policies is a top management responsibility while developing such
policies management should observe the following things.

1. Related to objectives: The use of a policy should help I achieving the enterprise objectives.
It must be capable of relating objectives to functions, physical factors and company
personnel.

2. Easy to understand: Policies should be stated in definite, positive, clear and understandable
language. It should not defy easy interpretation and translation in to practice.

3. Precise: It should be sufficiently comprehensive and prescribe limit and yardsticks for future
action.

4. State as used well as flexible: It should be stable and amenable to change. It should be
stable enough to assure people that there will not be drastic overnight changes. It should be
flexible enough to keep the organization in tune with the times.

5. Based on facts: Policies should be constructed on the basis of Facts and sound judgment and
not on personnel feelings or opportunistic decisions.

6. Number: There should be as many policies as necessary to cover conditions that can be
anticipated but not so many policies as to become confusing or meaningless.

7. Though knowledge of internal as well as external factors: Policies should support each
other and must be supplementary to superior policies. Every policy must be the result of a
through knowledge of operations and practices covered, and the effects of the policy on
employees in all departments.

8. Just, Fair and Equitable: Policies should be just, fair and equitable to internal as well as
external groups.

9. Reasonable: Policies must be reasonable and capable of being accomplished. To gain

acceptance and commitment, the policy should be conditioned by the suggestions and
reactions of these who will be affected by the policy.

10. Review: Policy making is not a one shot deal. Once policies are formulated, it is the duty of
managers to scrutinize them at regular intervals to find out their relevance in the face of
continuous changes.
Decision Making: Decision:
A choice form available alternative, a decision represents a judgment, a financial
resolution of a conflict of needs, means or goals and a commitment to action made in the face of
uncertainty, complexity and even irrationality.

Decision making: It is the process by which individuals select a course of action among several
alternatives to produce a desired result.

Decision making process: Making a good decision is a difficult exercise. It is the product of
deliberation, evaluation and thought. To make good decisions, managers should invariably
follow a sequential set of steps

Awareness of problem

Dignose and state the problem

Develop the alternatives

Evaluate the alternatives Internal External environment

Select the best alternatives

Implement and Verify the decision

1. Awareness of a problem: The first step in the decision-making process is recognizing the
problem. The manager must become aware that a problem exists and that it is important
enough, for managerial action. To identify the gaps between the current and desired state of
affairs, managers should look for problems that need solving.
2. Diagnose and state the problem: Successful managers must have the ability to weed out
what form the chaff before deciding on a specific course of action. Once aware of a problem,
he must state the real problem.
3. Develop the alternative: Quite often, executives try to take up the first feasible option. The
statement of the problem in clear, measurable terms enables executives to develop
alternatives. Unfortunately, executives are tem pled to accept the first feasible alternative to
solve their problems quickly.
4. Evaluate the alternatives: In this steps, the decision maker tries to outline the advantages
and disadvantages of each alternative. The consequences of each alternative would also be
considered. Some times, the alternatives developed may meet internal elements but may fail
to meet the environmental conditions. In such cases, a manager may be forced to make a less
than optimal decision.
5. Select the best alternatives: In this step, the decision maker merely selects the alternative
that will maximize the results in terms of existing objectives. However, in a dynamic
environment, selection process is not as simple, as it appears to be. It may often turn out to be
a painful process.
6. Implement and verify the decision: After making a decision, the manager must implement
it. Feedback allows managers to become aware of the recent problems associated with the
solution. It permits managers to monitor the effects of their act, to gauge their success.
During this stage, the manger should also see whether the subordinates are unwilling or
unable to implement the decision.