CHAPTER THREE

THE PLANNING FUNCTION

I. MEANING, NATURE AND IMPORTANCE OF PLANNING

The Meaning of Planning

o Planning – is t he dynamic process of making decisions t oday about fut ure act ions; and it is a
select ion or choice among alt ernat ives as t o: What missions or object ives be achieved, What act ions
should be t aken, What organizat ional posit ions be assigned, How t he end can be achieved, When t o
achieve it , Who is t o do it , Where t o do it . It bridges t he gap bet ween where we are now and where
we want t o be.

o Planning - is preparing t oday for t omorrow; it is t he act ivit y t hat allows managers t o det ermine what
t hey want and how t o get it : They set goals and decide how t o reach t hem. Planning focuses on t he
fut ure: what is t o be accomplished and how.
Answers six basic quest ions in regard t o any int ended act ivit y:

● What (t he goal or goals).

● When (t he t ime frame in which it will be accomplished)
● Where (t he place or places where t he plans or planning will reach it s conclusion).
● Who (which people will perform t he t asks).
● How (t he specifi c st eps or met hods t o reach t he goals).
● What resources (resources necessary t o reach t he goals).

o Planning is a process of deciding what t o do and how t o do it before act ion is required.

Planning involves select ing missions and object ives and t he act ions t o achieve t o t hem; it requires decision-
making t hat is, choosing from among alt ernat ive fut ure courses of act ions. Managers who develop plans but
do not commit t hemselves t o act ion are simply wast ing t ime. The out come of t he planning funct ion is a plan,
a writ t en document t hat specifi es t he courses of act ion a fi rm will t ake.

Nat ure of Planning

Discussing t he following point s can highlight t he nat ure of planning.

1. The cont ribut ion of planning t o purpose and object ives

Every organizat ion is est ablished (exist s) for t he accomplishment of group purpose or object ive. So, t he
purpose of any plan and it s derivat ives or support ing plans is t o facilit at e t he accomplishment of
organizat ional object ives.

2. The primacy of planning

All t he fi ve managerial funct ions - planning, organizing, st affi ng, direct ing and cont rolling- are designed t o
support t he accomplishment of organizat ional object ives. However, planning precedes t he execut ion of all
ot her managerial funct ions, because all ot her managerial funct ions must be planned if t hey are t o be effect ive.
This does not mean t hat planning is t he most import ant of all ot her managerial funct ions, because t o be
import ant or useful all ot her funct ions have t o accompany it .

Alt hough in pract ice all t he funct ions mesh as a syst em of act ion, planning is unique in t hat it involves
est ablishing t he object ives necessary for all group effort . The ent ire gist of init iat ing, exercising, and
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act ivat ing t he managerial funct ions of organizing, st affi ng, direct ing and cont rolling is t o bring t he object ives
formulat ed during planning int o fruit ion. In fact , t he concept of especially cont rol would be unt hinkable
wit hout planning because any at t empt t o cont rol wit hout plans is meaningless, since t here is no way for
people t o t ell whet her t hey are going where t hey want t o go (t he result of t he t ask of cont rol) unless t hey
fi rst know where t hey want t o go (part of t ask of planning). Plans t hus furnish t he st andards of cont rol.
Since planning and cont rolling are so much inseparable, t hey are t reat ed as t he Siamese t wins of
management .

3. The pervasiveness /Universalit y of planning

Planning is a funct ion of all managers, alt hough t he charact er and breadt h of planning varies wit h each
manager’s aut horit y and wit h t he nat ure of policies and plans out lined by superiors. That is, all managers-from
president s t o fi rst -level supervisors plan. Even for personal life we plan. “It is diffi cult t o call a person a
manager if he or she doesn't plan “Koont z

4. Planning and informat ion

Basically no plan exist s wit hout informat ion. To plan managers have t o gat her relevant informat ion from
around t he environment . Informat ion is one of t he valuable resources for planning t o exist .

5. Planning is a cont inuous process

Planning deals wit h t he fut ure and t he fut ure is full of uncert aint ies. Hence, planning is subject t o revision. It
needs frequent revision in response t o changes in t he int ernal and ext ernal environment s of t he organizat ion.
Therefore, so for as t he organizat ion is in operat ion, planning is in cont inuous process. The more cont inuous
t he planning is, t he higher it s effi ciency is.

6. Planning is a means t o an end

Planning is not an end by it self. It is a means t o an end (meet ing object ives). Planning is an inst rument t hat
pushes people t owards t he achievement of object ives.

7. Plans are arranged in a hierarchy

Plans are fi rst set for t he ent ire organizat ion. The corporat e plan t hen provides t he framework for t he
formulat ion of divisional, depart ment al, and sect ional goals. Each of t hese organizat ional component s set s it s
plans, programs, project s, budget s, resource requirement s, et c.

As shown in t he fi gure below, unit plans are summed up t o form sect ional plans and t hese in t urn form
depart ment al plans. Finally, t he different divisional plans when summarized at corporat e level, form corporat e
plan.
Fig. Hierarchy of plans
Corporat e/St rat egic plans

Depart ment al/divisional plans

Sect ional plans

Operat ional plans

The Import ance of Planning

1. It provides direct ion and sense of purpose

It is t hrough planning t hat we can est ablish our object ives. Plans focus at t ent ion on sepicifc t arget s and
direct employees effort t oward import ant out comes. Once organizat ions known what t hey can do and can't do
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over t he fut ure, t hey began t o set object ives based on t heir capacit y and t he order of act ivit ies needed t o
accomplish t heir object ives. It provides direct ion and a common sense of purpose. This shared purpose enables
bot h employees and managers t o coordinat e, unit e, and guide t heir act ions.

2. It reduces uncert aint ies and ant icipat es t he fut ure/ preparing for change
Planning is based on syst emat ic and careful forecast s of fut ure st at es of t he economy, market s, t echnology,
et c t o reduce uncert aint ies t o t he ext ent t hey occur according t o expect at ion. Thus, it is while planning t hat
t he manager should consider t he pot ent ial areas for changes in t he fut ure; rat her t han merely react ing t o it .
Managers should cope wit h changes in t heir own organizat ions and funct ions in t heir environment t hrough
planning. Ant icipat ing and preparing for possible fut ure changes enables managers t o cont rol t heir
environment . In so doing, planning answers “what -if” quest ions. In planning, managers develop several " what
if" quest ions in order t o reduce t he risk of unpredict able fut ure, so far as we plan for t he fut ure. By asking
what if quest ions managers develop alt ernat ives.

3. It provides basis for cont rolling

St andards /cont rolling mechanisms/ are developed during planning. It specifi es what is t o be accomplished
and provides a st andard for measuring progress.

4. If forces managers see t he organizat ion as a syst em

While planning managers have t o consider part s because t he plan of one part (depart ment ) affect s t he
operat ion of t he whole organizat ion so far as part s of an organizat ion are int erdependent .

5. It promot es effi ciency
Planning provides t he opport unit y for a great er ut ilizat ion of t he available organizat ional resources - because
in planning we det ermine how many resources are necessary t o reach t he goals, and how t o use t hese
resources.

6. It provides t he base for cooperat ive and coordinat ed effort s

Management exist s because t he work of individuals and groups in organizat ions must be coordinat ed, and
planning is one import ant t echnique for achieving coordinat ed effort . Planning provides t he basis for
organized and coordinat ed effort by defi ning t he object ives of t he organizat ion and t he means for t heir
achievement .

7. Developing managers
The act of planning involves high level of int ellect ual act ivit y. Those who plan must be able t o deal wit h
abst ract and uncert ain ideas and informat ion. Planners must t hink syst emat ically about t he present and t he
fut ure. Through planning, t he fut ure st at e of t he organizat ion can be improved if it s managers t ake an act ive
role in moving t he organizat ion t oward t hat fut ure. Planning t hen implies t hat managers should be proact ive
and make t hings happen rat her t han react ive and let t hings happen. Through act of planning, managers not
only develop t heir abilit y t o t hink fut urist ically but , t o t he ext ent t hat t heir plans are effect ive, t heir
mot ivat ion t o plan is reinforced. Also, t he act of planning sharpens manager's abilit y t o t hink as t hey consider
abst ract ideas and possibilit ies for t he fut ure. Thus, bot h t he result and t he act of planning benefi t bot h t he
organizat ion and it s managers.

8. It provides guideline for decision making

Decisions in an organizat ion will be made in alignment wit h t he plans and in accordance wit h desired
out comes. Managers make decisions on problems of recurring nat ure based on st rat egies and policies of t he
organizat ion. Through specifying t he act ions necessary t o accomplish t he goals of t he organizat ion, planning
serves as a framework for decision-making. It forces managers t o make analyt ical t hinking and evaluat e
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alt ernat ives t hrough improved decisions.

Limit at ions of Planning

a. Planning is risky
This is because of uncert aint ies in t he fut ure and absence of accurat e and adequat e dat a.

b. It is a diffi cult and complicat ed t ask

Planning involves complex and int erdependent decisions. Thus requires pat ience and commit ment from t hose
who are involved in t he planning process. In addit ion t o t his, rapid changes in t echnology and cust omers’
t ast es and preferences will also make planning diffi cult and except ionally complex.

c. It is expensive and t ime consuming

Planning requires fi nancial, physical, human, and t ime resources. The collect ion of t he necessary dat a from
various sources, t he analysis, organizing and int erpret ing dat a consume t ime and requires a huge amount of
fi nancial out lay.

d. It is affect ed by ext ernal fact ors

Ext ernal fact ors can put st rain on t he success of planning. These fact ors could be ext ernal imposit ions,
government int ervent ion, nat ural calamit ies, import -export policies, t axat ion and labor laws t hat can limit t he
success of planning.

II. ORGANIZATIONAL OBJECTIVES

●Objectives are t he import ant ends of planning t oward which organizing, st affi ng, leading and
cont rolling are aimed.
●Objectives are t he import ant ends t oward which organizat ional and individual effort s or act ivit ies are
direct ed.
●Object ives are essent ial st art ing point s in planning because t hey provide direct ion for all ot her
managerial act ivit ies.
●While ent erprise object ives are t he basic plan of t he fi rm, depart ment may also have it s own
object ives. It s object ives nat urally cont ribut e t o t he at t ainment of ent erprise object ives, but t he
t wo set s of object ives may be ent irely different .
E.g. Object ive of Business – To make a cert ain profi t by producing a given line of home ent ert ainment
equipment .
Object ive of manufact uring depart ment - To produce t he required number of TV set s of given design
and qualit y at a given cost .

These t wo object ives are consist ent , but t hey differ in t hat t he manufact uring depart ment alone cannot ensure
accomplishing t he company’s object ives.
Goals and object ives can be used int erchangeably.

●Mission/Purpose - denot es t he reason for t he exist ence of an organizat ion.

- denot es t he organizat ions fundament al reason for exist ence.
Purpose and mission can be used int erchangeably.

●Target – ident ifi es specifi c qualit at ive or quant it at ive ends (point s).

In short Mission/ purposes, object ive, goals/ Target s differ in scope.

Purpose/missions ( object ive ( Target s/goals

Nat ure of Object ives

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 1. Goals are predet ermined or st at ed in advance.
2. Goals describe fut ure desired result s t oward which present effort s are direct ed.
3. Goals should be specifi c and measurable. If possible, goals should be expressed in quant it at ive
t erms.
4. Goals should have defi ned t ime period. They should specify t he t ime period over which goals will
be achieved and measured. However, t he long-range object ives should provide t he direct ion for
short -range object ives.
5. Object ives should be cont inually adjust ed in light of environment al changes. However, t oo
frequent changes and adjust ment s may cause confusion and disrupt ion of plans, st rat egies,
policies, budget s, et c.
6. Goals should be challenging but realist ic. If a goal is t oo diffi cult employees may give up. If t oo
easy, and rout ine t ype t hey may not feel mot ivat ed. Therefore, goals should be set wit hin t he
exist ing resource base and not beyond t he depart ment ’s t ime, equipment , labor, and fi nancial
resources. This gives workers job sat isfact ion and a great desire t o work hard. A diffi cult job is
somet hing beyond t he resource capacit y of t he organizat ion and t he individual employee. It
ends up wit h failure t o achieve t he st at ed goals.
7. Object ives have hierarchy
In planning, broader and more comprehensive object ive wit h long t ime frame will be formulat ed at t he very
t op. These t op-level object ives must successfully be broken down t o more specifi c and short sight ed sub-
object ives because moving t he organizat ion t o goal at t ainment calls for achieving t hese sub-object ives
which are t he means by which object ives are at t ained. Each level of object ive st and as ends relat ive t o t he
levels below it and as a means relat ive t o t he level above it .

In short , like all management act ivit ies object ives have hierarchy. It ranges from t he broadest
organizat ional object ives t o specifi c /individual object ives. Organizat ions t ypically have t hree levels of
goals: st rat egic, t act ical, and operat ional.

Strategic goals - are broadly defi ned t arget s or fut ure end result s set by t op-level management . Such goals
t ypically address issues relat ing t o t he organizat ion as a whole rat her t han specifi c divisions or
depart ment s and may somet imes be st at ed in fairly general t erms. St rat egic goals are somet imes called
offi cial goals because t hey are formally st at ed by t op management .

Tactical goals - are t arget s or fut ure end result s usually set by middle management for specifi c depart ment s
or unit s. Goals at t his level spell out what must be done by various depart ment s t o achieve t he result s
out lined in t he st rat egic goals. Tact ical goals t end t o be st at ed in more measurable t erms t han is
somet imes t rue of st rat egic goals.

Operational goals - are t arget s or fut ure end result s set by lower management t hat address specifi c,
measurable out comes required from lower levels.

The t hree levels of goals can be t hought of as forming a hierarchy of goals. Wit h a hierarchy, goals at each
level need t o be synchronized so t hat effort s at t he various levels are channeled ult imat ely t oward
achieving t he major goals of t he organizat ion. In t his way, t he various levels of goals form a means-end
chain, in which t he goals at t he operat ional level (means) must be achieved in order t o reach t he goals at
t he t act ical level (end). Likewise, t he goals at t he t act ical level (means) must be reached in order t o achieve
t he goals at t he st rat egic level (end).
8. Mult iplicit y of object ives
Even t hough t here is only one broad and overall organizat ional object ive, t here are ot her mult iple (many) object ives
t hat are under t he umbrella of t he overall plan which are direct ed t o at t ain t he overall plan. It would have been
relat ively easy t o achieve an object ive and it s sub-object ive had an organizat ion had only a single basic object ive. Bu
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 in realit y organizat ions do have a mult it ude of object ives and any at t empt t o disregard t his fact can invit e failure t o
organizat ions.

E.g. Organizat ional (Broad) object ive: profi t maximizat ion

Sat isfact ion of cust omers
Ot her object ives Research & development
Employee development

9. Int egrat ing charact er

In order t o achieve t he broad organizat ional object ive t here should be harmony or int egrat ion among
object ives.
Mult iple Object ives ( Int egrat ion ( Net work of object ives

10. Net work of object ives

Object ives of an organizat ion form net work, t hat is, object ives are int errelat ed and int erdependent . The union
of t he individual object ives t o form an overall object ive makes net work of object ives. If t here were no net work
of object ives, it would be very diffi cult t o achieve organizat ional object ives because people wit h t heir
individual object ive will pursue t heir act ivit y as right and coordinat ion can never be possible.

11. Primacy of object ives

Object ives are primary t o organizat ion because t hey are t he very reason for t he exist ence of an organizat ion.

Benefi t s of Object ives

i. Object ives provide basis for t he performance of all managerial funct ions. They serve
as a benchmark for t he formulat ion of plan, policies, st rat egies, rules, budget s,
procedures, et c. Organizing exist s when t here are object ives and courses of act ion
required for implement ing plans, organizing signifi es t he need for st affi ng by
creat ing jobs and posit ions and coordinat ing all organizat ional effort s t o desired
result s.

[Link] ives provide guidelines for act ion. They help clarify expect at ions. When goals
are set , organizat ion members are more likely t o have a clear idea of t he major
out comes t hat t hey are expect ed t o achieve. Wit hout goals, organizat ion
members can all be working very hard but may collect ively accomplish very lit t le
as if t hey were rowers independent ly rowing t he same boat in different direct ions
and t oget her making very lit t le progress. Goals direct and channel employees’
effort s by describing fut ure desired result s. They provide focus and direct ion for
employees by prescribing what ‘should be’ done. And, t hey also help t o allocat e
resources and t ell employee how and where t o direct t heir st rongest effort s.
Goals are basic for cooperat ive and organized effort .

iii. Object ives can limit employee act ivit ies. They serve t o prescribe what ‘should
be done’ and ‘ what should not be done’ by t he employees.

iv. Object ives provide a unique ident it y for organizat ions. Organizat ions have
unique charact erist ics. They have t heir own values and ident it ies t hat help one t o
different iat e t hem from ot hers in t he indust ry.

v. An organizat ion’s goal can serve as a source of employee mot ivat ion. It helps t o
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 uplift t heir morale. By present ing a challenge, goals t ell what charact erizes success
and how t o achieve it . Accomplishment of organizat ional goals provides
employees a sense of achievement and sat isfact ion. The added mot ivat ion
develops from meet ing goals, feeling a sense of accomplishment , and receiving
recognit ion and ot her rewards for reaching t arget ed out comes. On t he ot her hand,
managing employees based on t he accomplishment of object ives rat her t han on
t he t asks and act ivit ies of every worker (management by object ives-MBO) can
serve as an incent ive t o employees.

vi. Object ives provide performance st andards and bases for cont rol. Cont rol is t he
funct ion of measuring, comparing and evaluat ing performance against
predet ermined st andards. Thus, cont rol will be meaningless in t he absence of
st andards provided by object ives.

How Goals Facilit at e Performance

In order t o make use of goals, managers need t o underst and just how goals can facilit at e performance. Goals
facilit at e performance if t hey have t he following component s: goal cont ent , goal commit ment , work behavior,
and feedback.

Goal Cont ent : Goals t hat are effect ive in channeling effort t oward achievement at t he st rat egic, t act ical, and
operat ional levels have a cont ent t hat refl ect s fi ve major charact erist ics. Goals should be challenging,
at t ainable, specifi c and measurable, t ime limit ed, and relevant .

Goal commit ment : A crit ical element in using goals effect ively is get t ing individuals and/or work groups t o be
commit t ed t o t he goals t hey must carry out . Goal commit ment is one's at t achment t o, or det erminat ion t o
reach, a goal. Wit hout commit ment , set t ing specifi c, challenging goals will have lit t le impact on performance.
Research indicat es t hat fi ve major fact ors posit ively infl uence goal commit ment : supervisory aut horit y, peer
and group pressure, public display of commit ment , expect at ions of success, and incent ives and rewards.

Work Behavior: Given goals and commit ment , how does t he goal-set t ing process ult imat ely infl uence
behavior? Research so far suggest s t hat goal cont ent and goal commit ment affect an individual's act ual work
behavior by infl uencing four work behavior fact ors: direct ion, effort , persist ence and planning.
Direct ion: Goals provide direct ion by channeling at t ent ion and act ion t oward act ivit ies relat ed t o t hose goals,
rat her t han t o ot her act ivit ies. Thus goals t o which we are commit t ed can help us make bet t er choices about
t he act ivit ies t hat we will undert ake.
Effort : In addit ion t o channeling act ivit ies, goals t o which we are commit t ed boost effort by mobilizing
energy. As indicat ed by t he research on goal set t ing, individuals are likely t o put fort h more effort when goals
are diffi cult t han when t hey are easy.g
Persist ence: Persist ence involves maint aining direct ion and effort on behalf of a goal unt il it is reached, a
requirement t hat may involve an ext ended period of t ime. Commit ment t o goals makes it more likely t hat we
will persist in at t empt ing t o reach t hem.
Planning: In addit ion t o t he relat ively direct effort s on direct ion, effort and persist ence, goals also have an
import ant indirect effect on work behavior by infl uencing planning. Goal set t ing affect s planning because
individuals who have commit t ed t hemselves t o achieving diffi cult goals are likely t o develop plans or met hods
t hat can be used t o at t ain t hose goals. Wit h easy goals, however, lit t le planning may be necessary.

Feedback: feedback t o employees as t o t heir performance will let t hem know if t hey have worker as t o t he
expect at ion. By comparing t heir performance wit h t he set goals, managers should give feedback on
employees’ performance t hat will help t hem evaluat e t hemselves and direct t heir effort t owards achievement .

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CHAPTER 3: PLANNING
III. The Planning Process

Like ot her managerial act ivit ies planning has it s own processes or series of st eps. These st eps are
int errelat ed and t here is no rigid boundary bet ween or among t hese st eps, and one is t he base for t he ot her.

1. Est ablishing object ives

As object ives provide t he direct ion for all ot her managerial funct ions, especially planning, object ive set t ing is
an import ant fi rst st ep in t he planning process. Object ives specify t he expect ed result s and indicat e t he end
point s of what is t o be done, where t he primary emphasis is t be placed, and what is t o be accomplished by
t he net work of st rat egies, policies, procedures, rules, budget s, and programs. They provide t he direct ion
necessary for achievement and wit hout t hem t here is lit t le t o keep a manager from simply wandering in all
direct ions. Object ives are t hen, t he ‘guiding light ’ for t he ent ire management process.

Object ive set t ing is a t hree st eps process, which involves assessing t he present sit uat ion, ant icipat ing fut ure
condit ions, and t hen set t ing t he object ives. It is only aft er t he managers have at least t he rudiment ary
knowledge about t heir capabilit ies and available opport unit ies t hat object ive set t ing does make sense.

Organizat ions do not have one set of object ives, which each manager at t empt s t o achieve. Rat her, set t ing
object ives involves est ablishing object ives for t he ent ire organizat ion, each subordinat e work unit , and t he
long range as well as t he short range. The hierarchy of object ives st art s at t he t op of t he organizat ion wit h
overall organizat ional object ives and proceeds downwards wit h narrower and more specifi c object ives for each
level managers, derived from t he object ives at t he level

Object ives developed by organizat ional levels and peer managers should be compat ible wit h one anot her. Top-
level management should set t he st age for goal set t ing by lower level management , t hereby ensuring
maximum use of resources. Ent erprise object ives give direct ion t o t he major plans which defi ne t he object ive
of every major depart ment . Major depart ment object ives, in t urn, cont rol t he object ives of subordinat e
depart ment s and so down t he line.

2. Developing premises
Planning premises are assumpt ions about t he environment wit hin which t he plan is t o be carried out . Once
object ives are est ablished managers have t o invest igat e t he company's environment t o know fact ors t hat
facilit at e or block t he at t ainment of t hese object ives. This involves examining t he ext ernal and int ernal
fact ors which affect t he performance of t he organizat ion: t he ext ernal environment (for Treat s and
Opport unit ies) t hrough PEST analysis and int ernal environment (for St rengt hs and Weaknesses) t hrough Self-
Audit .

● St rengt hs are int ernal compet encies possessed by t he organizat ion in comparison wit h t he
compet it ors. These include st ruct ure and policies of t he organizat ion, locat ion, fi nancial soundness,
knowledge of personnel, qualit ies of facilit ies, and so on.
● Weaknesses are at t ribut es of t he organizat ion which t end t o decrease it s compet ence in comparison
t o it s compet it ors.
● Threat is reasonably probable event s which if it were t o occur, would produce signifi cant damage t o
t he organizat ion.
● Opport unit y is a combinat ion of circumst ances, t ime, and place which if accompanied by a cert ain
course of act ion on t he part of t he organizat ion, is likely t o produce signifi cant benefi t s.

The key element of planning at t his st age is forecast ing. It is based on t he forecast s made in different areas
t hat premises are made.
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CHAPTER 3: PLANNING
Because t he fut ure is so complex, it would not be profi t able or realist ic t o make assumpt ions about every
det ail of t he fut ure environment of a plan. Therefore, premises are, as a pract ical mat t er, limit ed t o
assumpt ions t hat are crit ical, or st rat egic, t o a plan, t hat is, t hose t hat most infl uence it s operat ion.

3. Det ermining alt ernat ive courses of act ions

Alt ernat ives are courses of act ions t hat are available t o a manager t o reach a goal. In developing alt ernat ives,
a manager should t ry t o creat e as many roads t o t he object ive as possible. Usually t he most common problem
is not fi nding alt ernat ives but reducing number of alt ernat ives so t hat t he most promising may be analyzed.

4. Evaluat ing alt ernat ive courses of act ion

Having sought out alt ernat ive courses, managers evaluat e t he benefi t s, cost s and effect s of alt ernat ive
courses in light of t heir weight t o goals and premises. Because t here are so many alt ernat ive courses in most
sit uat ions and t here are numerous variables and limit at ions t o be considered, evaluat ion can be exceedingly
diffi cult . This is a st ep in planning process t hat operat ions research and mat hemat ical as well as comput ing
t echniques have t heir primary applicat ion t o t he fi eld of management .

5. Select ing a course of act ion

This is t he point at which t he plan t o be adopt ed is chosen or select ed. It is t he real point of decision-making.
The analysis of each alt ernat ive’s disadvant ages, benefi t s, cost s and effect s should result in det ermining one
course of act ion t hat appears bet t er t han t he ot hers. If no one alt ernat ive emerges as clearly t he best ,
considerat ion should be given t o combining part s or t he ent ire cont ent of t wo or more alt ernat ives. What ever
t he course chosen, it should be one t hat gives you t he most advant ages and t he fewest serious disadvant ages.

6. Formulat ing derivat ive plans

At st ep 5 planning is ended. Formulat ing derivat ive plans means formulat ing ot her plans based on one major
plan.

7. Numberizing plans by budget ing

Numberizing plans is convert ing t hem int o budget s. Plans will have meaning when t hey are changed int o
numbers. Budget ing is t he means of adding various plans t oget her and set import ant st andards against which
planning process can be measured.

8. Implement ing t he plan

Aft er t he opt imum alt ernat ive has been select ed, t he manager needs t o develop an act ion plan t o implement
it . This is a st ep where by t he ent ire organizat ion will be in mot ion or real operat ion. All t he planning in t he
world will not help an organizat ion realize object ives if plans cannot be implement ed. Implement at ion
involves det ermining who will be involved, what resources will be assigned, how t he plan will be evaluat ed,
and t he report ing procedure.

9. Cont rolling and evaluat ing t he result s

Once t he plan is implement ed, t he manager must monit or t he progress t hat is being made, evaluat e t he
report ed result s, and make any modifi cat ions necessary. The environment t hat a plan is const ruct ed in is
const ant ly changing, so t he plans may have t o be modifi ed. Or modifi cat ion may be needed because a plan was
not quit e “perfect ” when it was implement ed. Hence, managers need t o make cert ain t hat t he plan is going
according t o expect at ions and making necessary adjust ment s.

IV. Types of Plans

Plans can be classifi ed on different bases or dimensions. These are:
- Scope/breadt h dimension,
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 - Time dimension, and
- Use/repet it iveness

i. Scope/Breadt h Dimension
Scope refers t o t he comprehensiveness of t he plan, or it refers t o t he level of management where plans are
formulat ed. This dimension creat es hierarchy of plans. Based on scope/breadt h we can classify plans int o:
St rat egic, Tact ical and Operat ional.

St rat egic Plan: is organizat ion wide plan t hat is formulat ed or developed by t op-level management in
consult at ion wit h t he board of direct ors and middle level management . It applies t o t he ent ire organizat ion.
- Looks ahead over t he next t wo, t hree, fi ve or more years.
- Develops t he direct ion for t he ent ire organizat ion.
- Is primarily concerned wit h solving long-t erm problems associat ed wit h ext ernal environment al infl uences.
- Est ablishes overall object ives and posit ions for an organizat ion in t erms of it s environment .

The following are dist inguishing charact erist ics of st rat egic plan.
1. It requires looking out side t he organizat ion for t hreat s and opport unit ies.
2. It requires looking inside t he organizat ion for st rengt hs and weaknesses
3. It t akes a longer view, i.e. it covers a relat ively long t ime horizon > 5 years.
4. It t ends t o be t op management responsibilit y, but it refl ect s a ment alit y useful at all levels.
5. It is expressed in relat ively general non-specifi c t erms.

St rat egic plans address such quest ions as:

- What business are we in?
- What business should we be in?
- Where will we be in t en years if we cont inue doing what we are now doing?
The difference bet ween a fi rm would like t o be (where we want t o be) and where it will be if it does not hing is
called t he Planning gap. St rat egic planning is primarily concerned wit h closing t hat gap.
● The success or failure of an organizat ion depends up on t he success or failure of st rat egic plans. It makes
premises for t act ical plans.

Tact ical Plan: refers t o t he implement at ion of act ivit ies and t he allocat ion of resources necessary for t he
achievement of t he organizat ion’s object ives.
- is an int ermediat e plan t hat helps t o reduce long range planning int o int ermediat e one by increasing t he
amount of specifi cit y and making t he act ions goal orient ed. Tact ical plans are specifi c and more goal
orient ed t han st rat egic plans. Middle level management in consult at ion wit h lower level management
develops t hem.
-Tact ical plans are t he means chart ed t o support t he implement at ion of t he st rat egic plans and
achievement of t act ical goals. They are concerned wit h short er t ime frames and cover a narrower scope
(narrower range of act ivit ies).
-St ruct ures a fi rm’s resources t o achieve maximum performance.
-Concerned wit h what t he lower level unit s wit hin each division must do, how t hey must do it , and who
will have t he responsibilit ies for doing it .
-Tact ical plans make premises for operat ional plans.
-is narrower in scope t han st rat egic plan and wider t han operat ion plan; but more det ailed t han st rat egic
plan and less det ailed t han operat ional plan
E.g. what is t he best pricing policy?
Which cit y or t own is suit able for market ing our product s?

Operat ional Plan: is concerned wit h t he day t o day act ivit ies of t he organizat ion and is made at t he lower level
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management in consult at ion wit h middle level management . Operat ional plans spell out specifi cally what must
be accomplished t o achieve specifi c/operat ional goals. It is concerned wit h t he effi cient , day-t o-day use of
resources allocat ed t o a depart ment manager’s area of responsibilit y.
- Operat ional plans have relat ively short t ime frame (< 1 yr). It is t he most det ailed (more specifi c) and
narrowest plan compared t o t he above t wo; because it is t o be implement ed day-t o-day.

E.g. –What product ion t echnique is best ?

- What mat erials are needed for operat ion?

● Unless operat ional goals are achieved in organizat ions, t act ical and st rat egic plans will not be
successful and goals at t hose levels will not be achieved.

ii. Time Dimension

Time dimension refers t o t he t ime periods for which t he planning is int ended. Based on t he lengt h of t ime a
plan covers, we do have t hree t ypes of plans: Long-range (fi ve years or more), medium-range (bet ween one and
fi ve years) and short -range plans (one year or less).

● Time dimension and scope dimension are t he same except t he former is about t he lengt h of t ime t hat
t he plan covers and t he lat er about t he level of management where t he plan is formulat ed.

All st rat egic plans are long-range plans.

All t act ical plans are medium-range plans.
All operat ional plans are short -range plans.

iii. Use Dimension

Use dimension refers t o t he ext ent t o which plans will be used on a recurring basis, i.e. based on how
repeat edly/frequent ly a given plan is used. Based on t his dimension we do have t wo t ypes of plans: st anding
plans and single use plans.

St anding Plans: are plans t hat provide an ongoing guidance for performing recurring act ivit ies.
- They are plans which are formulat ed t o be used again and again for t he day-t o-day operat ion of t he
organizat ion. That is, repet it ive sit uat ions or act ions require t he development of such plans. They become
necessary when t he same kinds of act ions are t o be t aken over and over again. St anding plans become
valuable under relat ively st able sit uat ions.
Once est ablished, st anding plans allow managers t o conserve t ime used for planning and decision-making
because similar sit uat ions are handled in a predet ermined, consist ent manner.
E.g. A bank can more easily approve or reject loan request s if crit eria are est ablished in advance t o evaluat e
credit rat ings, collat eral asset s, and relat ed applicant informat ion.
The major t ypes of st anding plans are policies, rules and procedures.

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 a. Policies: is a general guide t hat specifi es t he broad paramet ers wit hin which organizat ion members are
expect ed t o operat e in pursuit of organizat ional goals.
-Policies are general st at ement s or underst andings which guide or channel t hinking and act ions in decision-
making t o achieve organizat ional object ives.
Not all policies are “st at ement s”, t hey are oft en merely implied from t he act ions of managers.

Policies have t he following charact erist ics:

1. Policies defi ne an area wit hin which a decision is t o be made and ensure t hat t he decision will be
consist ent wit h and cont ribut e t o an object ive.
2. Policies help t o decide issues before t hey become problems; make it unnecessary t o analyze t he same
sit uat ion every t ime it comes up and unify ot her plans.
3. Policies t ell us what t o do in a general sort of way.
4. Policies provide discret ion wit hin limit s since t hey are guides t o decision-making. Policy is a means of
encouraging discret ion and init iat ive, but wit hin limit s. The amount of freedom will nat urally depend up on
t he policy and in t urn will refl ect posit ion and aut horit y in t he organizat ion.
5. Policies must be fl exible.

● Policies are usually est ablished formally and deliberat ely by t op managers of t he organizat ion. They can
also emerge informally and at lower levels in t he organizat ion from a seemingly consist ent set of
decisions on t he same subject made over a period of t ime.

Policies are est ablished at t he t op because:

a. They feel it will improve t he effect iveness of an organizat ion.
b. They want some aspect of t he organizat ion t o refl ect t heir personal values (E.g. Dress codes)
c. They need t o clear up some confl ict or confusion t hat has occurred at a lower level in t he
organizat ion.
Examples of policy:
1. Except for t oken gift s of purely nominal or advert ising value, no employee shall accept
any gift from any supplier at any t ime.
2. Hiring universit y t rained engineers
3. To promot e from wit hin
4. We accept ret urned merchandise

b. Rules: spell out specifi c required act ion or non-act ions, i.e., act ions t hat must be or must not be t aken,
allowing no discret ion, in a given sit uat ion.
E.g. No smoking, cheat ing is prohibit ed.
● A rule is an ongoing, specifi c plan for cont rolling human behavior and conduct at work.
● The purpose of policies is t o guide decision-making by marking off areas in which managers can use
t heir discret ion. Alt hough rules also serve as guides, t hey allow no discret ion in t heir applicat ion.
● Rules are t he most explicit of st anding plans and are not guides for t hinking or decision-making.
Rat her, t hey are subst it ut es for t hem. The only choice a rule leaves is whet her or not t o apply it t o a
part icular set of circumst ances.

c. Procedures: are st at ement s t hat det ail t he exact manner in which cert ain act ivit ies must be accomplished.
They put t he precise order of act ivit ies t o be carried out t o do a t ask and t hus, procedures are chronological
sequences of required act ions. They provide det ailed st ep-by-st ep inst ruct ions as t o what should be done.
Procedures prescribe exact ly what act ions are t o be t aken in a specifi c sit uat ion and specify t he chronological
sequence of act ivit ies. For example, mat erial procurement , universit y admission, bidding, et c.

When we compare t he above t hree, policies, procedures and rules, we can underst and t hat all are alike in t he
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sense t hat t hey are direct ives t o guide people’s behavior t o t he desired ends and t hey are plans which are t o
be followed in t he fut ure. Conversely, procedures and rules are different from policies in t hat t he formers are
guides t o act ions while t he lat t er are guides t o t hinking. So, procedures and rules render no freedom and
hence should be used when we want t o discourage init iat ive or repress t hinking. But , policies must permit
freedom wit hin limit s and hence are used when people’s involvement , part icipat ion or init iat ive is desired.

Though bot h rules and procedures repress t hinking, t hey are different . Unlike procedures, rules (1) guide
act ions wit hout specifying a t ime sequence (2) spell out t hat a cert ain act ion must or must not be t aken.
Procedures, however, specify a t ime 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.

Single use plans: are plans aimed at achieving a specifi c goal t hat , once reached, will most likely not recur in
t he fut ure and dissolved when t hese have been accomplished.
- Are designed t o accomplish a specifi c object ive usually in a relat ively short er period of t ime and it is non
repet it ive.
- They are det ailed courses of act ion t hat probably will not be repeat ed in t he same form in t he fut ure.
The major t ypes of single use plans are programs, project s, and budget s.
E.g. A fi rm planning t o build a new warehouse-locat ion, const ruct ion cost s, labor availabilit y, zoning
rest rict ions.

a. Programs: is a comprehensive plan t hat coordinat es a complex set of act ivit ies relat ed t o a major non-
recurring goal.
- Are a complex of goals, policies, procedures, rules, t ask assignment s, st eps t o be t aken, resources t o be
employed and ot her element s necessary t o carryout a given course of act ion
- Single use plans may use st anding plans and ot her single use plans t o be effect ive.

Single use plan = St anding plans + Single use plans

● A program may be as large in scope as placing a person on t he moon or as comparat ively small as
improving t he reading level of fourt h grade st udent s in a school dist rict . What ever it s scope, it will specify
many act ivit ies and allocat ions of resources wit hin an overall scheme t hat may include such ot her single
use plans as project s and budget s.
* A program may be repeat ed wit h modifi cat ion but not as it is.

b. Project s: is a plan t hat coordinat es a set of limit ed scope act ivit ies t hat do not need t o be divided int o
several major project s in order t o reach a major non-recurring goal.
- Project s are t he smaller and separat e port ions of programs. Each project has limit ed scope and dist inct
direct ives concerning assignment s and t ime. Each project will become t he responsibilit y of designat ed
personnel who will be given specifi c resources and deadlines.
E.g. Building a warehouse can be t aken as a program. In t he warehouse example, t ypical project s might
include t he preparat ion of layout drawings, a report on labor availabilit y, and recommendat ions for
t ransferring st ock from exist ing facilit ies t o t he new inst allat ion.

c. Budget s: are st at ement s of expect ed result s expressed in numerical t erms.

- Are st at ement s of fi nancial resources set aside for specifi c act ivit ies in a given period of t ime.
- Budget is a single use plan t hat commit s resources t o an act ivit y over a given period. It may be
expressed in Birr, labor hours, unit s of product , machine hrs, or any ot her numerically measurable t erm.
- It may be referred t o as a “numberize” program.
Budget s are also cont rol devices. However, making a budget is clearly planning.

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 Charact erist ics of a Good Plan
Every sound business plan must have t hese charact erist ics:
● Object ivit y
Planning should, fi rst all, be based on object ive t hinking. It should be fact ual, logical and realist ic. It
should be direct ed t o achieving organizat ional goals rat her t han personal object ives.
● Fut urit y
Since a plan is a forecast of some fut ure act ion, it must have t he qualit y of fut urit y; ot herwise, it has lit t le
value as a basis for fut ure act ion. If a plan is t o be effect ive, it must foresee wit h reasonable accuracy t he
nat ure of fut ure event s affect ing t he indust ry and t he fi rm. The inabilit y t o foresee fut ure event s, a human
limit at ion t hat we cannot overcome, is t he weak link in planning process.
● Flexibilit y
Because no one can foresee t he fut ure, plans must have fl exibilit y. They must adjust smoot hly and quickly
t o changing condit ions wit hout seriously losing t heir effect iveness. The more diffi cult it is t o predict t he
fut ure, t he more fl exible t he plans must be.
●St abilit y
● St abilit y is relat ed t o fl exibilit y. A st able plan will not have t o be abandoned because of long-t erm
changes in t he company’s sit uat ion. It may be affect ed by long-range development s, but it should not
be changed mat erially from day t o day.
● Comprehensive
● A plan must be comprehensive enough t o provide adequat e guidance, but not so det ailed as t o be
unduly rest rict ive. It should cover everyt hing required of people, but not in such det ail t hat it inhibit s
init iat ive.
● Simplicit y and clarit y
● Alt hough a good plan must be comprehensive, it should also be simple. A simple plan seeks t o at t ain
it s object ive wit h t he fewest component s, forces, effect s and relat ionships. A plan should not be
ambiguous. Lack of clarit y makes underst anding and implement at ion diffi cult .
● Cont ingency planning is t he development of alt ernat ive plans for use in t he event t hat environment al
condit ions evolve different ly t han ant icipat ed, rendering original plans unwise or unfeasible.
● Planning st aff- is a small group of individuals who assist t op-level managers in developing t he
various component s of t he planning process.

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