CHAPTER TWO

2. PLANNING FUNCTION

2.1 The Concept of Planning

Planning is the process of deciding in advance about the short and long run objectives of the
organization and selecting a course of action for accomplishing those goals. The primary purpose
of planning is to reduce the risk surrounding future operations. Thus, planning is also defined as
the process of preparing for change and coping with uncertainty by formulating the means for
attaining goals. It is anticipatory decision making that establishes organizational goals and
specifies the methods of achieving them.

2.2. The Nature of Planning

The concept of planning can be better understood by discussing its characteristics. Thus, a look at
the essential nature of planning is very important.
1. Planning is a continuous process:
Planning deals with the future and the future is full of uncertainties. Effective plans have no end
points. It is always subject to a revision. Plans tend to be a statement of future intentions relating to
objectives and means of their attainment. They need frequent revision in response to changes in the
internal and external environment of the enterprise. Therefore, planners should make the
systematic analysis of the changing environment and continuously monitor it to capitalize
opportunities and anticipate emerging threats.
2. Planning involves interdependent set of decisions and concerns all managers:
Planning occurs across various units or departments and involves many persons to meet
organizational goals, minimize conflicts, and solve complex problems. If plans are to succeed, the
planning team should be established from various departments and work effectively. Poor
communication and a high level of distrust among the organizational members will lead to poor
planning. Thus, planning is not the responsibility of the top management or the staff-planning
department only. All those who are responsible for the achievement of results have an obligation to

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plan into the future. However, managers at higher levels devote a larger part of their time to
planning than that of managers at lower levels.
3. Planning commits the Organization into the future:
An organizations objectives, strategies, policies, operation plans and actions affect its future status
as decisions made and activities undertaken at present and continue to’ have their impact in the
future. Some plans have an immediate effect while others affect the organization in the long run.
4. 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. the plans of
each 1owr -level are aggregated into the plans of successively higher component to form a
hierarchy. As shown in the figure below. Unit plans are summed up to from sectional plans and
these in turn form departmental plans. Finally, the different divisional when summarized at
corporate level, they form corporate plans.

Corporate plans

Departmental/divisional plans

Sectional plans

Unit plans
Fig. Hierarchy of plans
5. Planning is the antithesis status quo:
Planning is a dynamic process. It is affected by unforeseen environmental changes. Therefore, it
needs continual examination of the future; estimating and anticipating it, prepare the organization
to cope with the challenges and take advantage of the opportunities created, and constantly
searching for more effective methods that improve results. Corporate plans
2.3. The Importance of Planning
1. Planning helps organizations succeed. Organizations that emphasize planning have shown to
have higher sales and profits than those that do not. Planning enables managers to, identity and
sequence needs, and match those needs with the limited resources.

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2. Planning promotes efficiency. It promotes efficient utilization of resources in many ways. It
provides a basis for the allocation of resources among programs, projects, and activities.
Budgets, methods and standards promote maximum utilization of resources and minimize cost.
Policies, rules and procedures save time and effort by regulating random behaviors.
3. Planning provides basis for cooperative and coordinated effort . Planning provides the basis
for organized and coordinated effort by defining the objectives of the organization and the
means for their achievement. It directs and coordinates the efforts and resources of the
organization to an end.
4. Planning provides direction and a sense of purpose . Plans focus attention on specific targets
and direct employees effort toward important outcomes. A plan helps managers to make
decisions for the future within clearly stated goals. This shared purpose enables both managers
and employees to coordinate, unite, and guide their actions. Employees can begin to see how
their work contributes to achieve clearly specified goals of the organization and develop a
feeling for organization’s success.
5. Planning reduces uncertainties and anticipates the future . 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 expectations. Managers have to make an
estimate of future events and prepare for anticipated changes. They must 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.
6. Planning enables an organization to capitalize opportunities and face challenges . A plan
can help managers to identify threats and possible opportunities that may exist in an
organization’s environment. It makes necessary changes in is technology, products, politics,
strategies, practices, etc. This helps to take advantage of new opportunities and minimize its
losses caused by unfavorable situations called threats. Thus, changing environments can create
as well as destroy opportunities and management should anticipate opportunities and
challenges through the planning process.
7. Planning provides guidelines for decision-making. Decisions throughout the 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

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 organization. Through specifying the actions necessary to accomplish the goals of the
organization, planning serves as a framework for decision—making. It fort s managers to make
analytical thinking and evaluate alternatives that improve decisions.
8. Planning contributes to the performance of the other managerial functions . Goals must be
determined before decisions can be made regarding how best ‘n organize, staff, lead, and
control to achieve these goals. Once goals arc determined:
 Managers can design an organization’s structure to ensure their accomplishment.
 With this structure in place, employees ca. he recruited and selected.
 Managers can turn their attention to providing effective leadership and developing
positive interpersonal relations.
 Finally, planning serves as instrument for facilitating control and measuring
performance by setting policies. Procedures, methods, budgets standards, goals, etc in
advance. All these show the primacy f planning.
9. Planning improves communication, increases employee involvement, and source of
motivation and commitment. Planning is the basis for teamwork. It tells employees what
actions to undertake and provides the “whys” of an organization’s existence. Plans facilitate
employee’s identification with in the organization help to and motivate them by clarifying what
they should accomplish.
10. Planning helps to develop fire fighters. It can reduce the need for crisis management. Crisis
management takes place when managers do not anticipate problems but respond to them once
they have already occurred. Planning help management o look ahead, anticipate problems, and
take preemptive action to take maximum advantage of the changed situation.
2.4. Limitations of planning
Despite of its advantages, planning presents numerous shortcomings. Some of the most important
problems of planning include the following:
1. Planning is risky: It ends up with difference between success and failure. This is because
of uncertainties in the future and absence of accurate and adequate data.
2. Planning is too difficult and complicated task : It involves complex and interdependent
decisions. This requires patience and commitment from those who are involved in the
planning process. Some plans require a tremendous amount of information while there is

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limited reliable data. In addition to all these, rapid changes in technology and changes in
customer’s tastes and preferences will also make planning especially difficult and
exceptionally complex.
3. Planning is expensive and time consuming . It requires financial, physical, human, and
time resources. The collection of the necessary data from various sources, the analysis,
organizing and interpreting data requires a huge amount of financial outlay.
4. Planning is viewed as a special activity while it requires leadership . Many managers
consider planning as something outside of their regular activity. They think that planning is
useless because of uncertainties and the existence of changes in the future. Most strategic
decisions are not popular and weak support and leadership from top management can
undermine the entire planning process and plans are likely to fail. All these create
administrative problems of planning.
5. External factors can also put strain on the success of planning . Several factors such as
external impositions, government intervention, natural calamities, import-export policy,
and taxation and labor laws can limit the success of planning.
6. People would like to take care of today and hope that tomorrow will take care of itself,
which is a common error of many people.
7. The absence of contingency plans or alternative plans that can be put into effect if a
certain event occurs can disrupt the existing patterns of operation and lead to work without
plan. Contingency plans serve as insurance against obsolete plans.
8. Past decisions act as a barrier to future planning.

2.4. . Elements of Planning

1. Strategy: A strategy is a broad task or general plan of action for the achievement of
organizational objectives in uncertain and competitive environment. It determines the long-term
goals of the organization, the courses of action, and the resources necessary to achieve those
objectives. It indicates the organization's response to environmental changes and links resources
with challenges. It considers the rivals and other external factors (such as the government and
suppliers) and their counter-strategies and then selects the one, which is likely to be more effective
in reducing risk and uncertainty.

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2. Policy: is a general statement that serves as guide to decision making. Policies prescribe
parameters within which certain decisions are to be made. They set limits on employee actions.
They always contain an element of discretion for the decision maker. Managers must exercise
desecration in their application as they are broad guidelines and subject to different interpretations.
For example, a policy may stat that "preference will be given to different interpretations. For
example, a policy may state that "preference will be given to hiring electricians" or " in matters of
promotion, preference will be given to seniority." Note that the extent and degree of preference is
unspecified allowing a measure of managerial latitude. Policies do not tell a manager what he
should do or how should he act in specific situations. They simply set the boundaries within which
the decision maker can operate.
3. Procedure: is a series of steps to be used in achieving certain objectives. It sets the activities
needed to accomplish a specific goal in an established order. They are very specific and typically
apply to individual jobs. 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, hiring, bidding, and billing activities require to set specific procedures.
Procedures are similar to policies in that both are intended to influence decisions. compared to
policies, procedures leave little room for discretion. They provide assurance that all similar
situations will be handled in the same manner. Thus, procedures make activities more routine and
managers to concentrate on solving problems that require more thought. Procedures, however,
should be reviewed periodically to ensure their appropriateness. Standard operating procedures
can become simply absolute practices if not revised.
Procedures provide the following advantages:
4. Rules: are statements that either prescribe or prohibit action by specifying what an individual
may or may not do in a given situation. They are implemented regardless of the specific
individuals involved. They do not provide any exception and do not need any decisions. As such,
rules specify required any exception and do not need any decisions. As such, rules specify required
personal conduct or behavior. Compared to policies and procedures, rules are narrow in scope,
specific in their application, and allow few or no deviations from a stated statement. They are
usually accompanied by specifically stated penalty clauses for non-performance or violations.
They are usually accompanied by specifically stated penalty clauses for non-performance or

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violations. They are guides to action and normally described as specific action while procedures
pertain to a series of steps or activities.
Rules have the benefit or regulating and predicting behavior in organizations but at the same time
they restrict initiative. In highly bureaucratic organizations, rules tend to become an end in them.
Deviations from rules results no penalties and needs to be defended.
5 Methods: are standard ways of performing tasks involved in operations. It is the prescribed
manner of performing each task, expenditure of time, effort and other resources involved. It
indicates the tasks necessary at each step and specifies in detail how each step is to be performed
efficiently. Uniformly and with quality. Methods are normally confined within one department and
to the efforts of each employee in a specific task. Materials and working areas need to be designed
with a view of eliminating excessive stoppage, bending over, walking and waiting time. Methods
speed up the work by developing "one best way" of a single operation.
6. Standards: are units for measuring performance. They are established to measure the time,
quantity, quality or wastage level, and cost of work. However, all kinds of jobs do not lend
themselves to quantitative measurement. For such activities subjective standards are
established and used to measure performance. Note that standards are established and used
when performance can be measured.
However, standards do not take into account individual differences in ability, competence,
attitudes as well as the changed conditions.
7. Budgets: are numerical plans that deal with the future allocation and utilization of various
resources to different activities in the organization. Most people think of budgets in financial or
monetary terms and define it as a financial plan listing the funds assigned to a particular
program, project, division or product and anticipate profits, revenues, and expenditures.
However, budgets are also used to control the allocation and utilization of labor, raw materials,
floor-space, machine hours, and son on. Non-financial budgets, therefore, include sales,
production materials, manpower, performance, time and space, etc budgets, Budgets, thus,
serve as a control device for feedback and evaluation purpose. They exercise control by
allocating resource, across departments in advance and by specifying how these resources are
to be utilized. They provide standards against which planned performance can be compared to
actual performance. It helps to preserve the organizations resources and promote efficiency.

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8. Programs: are large-scale planned activities, which have distinctive mission, time schedule,
and assignment of responsibilities. They are typically intended to accomplish a specific goal
within a fixed time and designed to carry out a major course of action for the organization
although their nature and complexity vary widely. Programs consist of objectives policies,
procedures, and methods so arranged and designed to provide a course of action to achieve
goals. Programs are means of achieving some desired results within the scheduled time.
Examples include energy conservation program designed to reduce dependence on foreign oil,
plant expansion program to increase manufacturing firm's daily output construction of new
buildings, opening a new sales branch, organizational change, affirmative action or safety
programs, etc. Programs are major undertakings, may take several years to complete and often
require the creation of a separate organization. They are large in scope and may be associated
with several projects. Some of the activities involved in designing programs include
9. Projects: Is usually a component part of a specific program. They are less complex and narrow
in scope than program and require fewer resources. Projects are often undertaken to perform a
specific activity that is not part of the normal production process. They are assigned to project
mangers who are fully responsible for execution and completion projects have the following
major characteristics of programs.

2.5 : The planning Process

2.5.1 Steps in the Planning Process
In order to understand the managerial role in planning, the following sequential steps are
needed in the planning process. Although the steps do not necessarily occur in a linear fashion,
they must all be included in order to make the planning process effective.
[Link] Setting Objectives
You have seen the impotence of setting objectives. As they provide the direction for all other
managerial planning. Objective setting is essentially a three-step process as indicated following
figure.

Assessing the Anticipating Setting objectives

Present situation Future conditions

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 [Link] Assessing the Present Situation
The first step in setting objectives is a careful study of the present performance.
The first step in setting objectives is a careful study of the present performance.
Assessment of the present situation involves the following steps.
1. Identification of performance areas;
2. Determining performance standard; and
3. Evaluating present performance.
A. Identification of performance areas: requires a thought analysis of all areas of
performance to determine what actually is and is not achieved. since managerial job, exist to
produce output or results needed to achieve overall organizational objectives, the vital and
first step for managers in assessing their job. Identifications of performance areas in a
managerial job is a matter of identifying the major areas of work that are important specific,
and unique areas of output or results that the job exists. Therefore, identifying the
performance areas of job is matter of deciding what output or results the job should
contribute to its unit.
B. Determine performance standard: is important to appraise the present performance
meaningfully. Performance standards are scales or yardsticks that can be used to measure
activity or outputs in a particular job assignment. It is difficult but not impossible to develop
performance standards for all performance areas in managerial jobs. Though not all aspects
of performance can be measured objectively; all managerial performance areas produce
outputs.
C. Evaluating present performance is relatively an easier task if the first two-steps are
property done. That is, once performance areas have been identified and performance
standards for each area have developed, assessment of performance is a matter of collecting
the information needed to determine the level of performance in each area. At the end of the
assessment process, managers will have a fairly clear idea of their present performance level
in each of their performance areas.

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[Link] Anticipating future conditions
The second step in the objective setting process is predicting of systematically anticipating future
conditions. Whatever objectives are set must be achieved in the future under conditions of
uncertainty.
The condition under which managers operate in the future will affect not only the objectives they
set but also the ways the managers must follow to achieve them. No one can predict the future with
certainty but you, as a manager, should try to determine those conditions, which will have
significant impact on your particular areas of performance. Such forecasting may involve the
collection and analysis of predictive information or it may involve only some serious thinking
about how things are likely to be in the future. The main thing for mangers is to set objectives and
develop plans for achieving them, based on some assumptions about the future that seems realistic
to them in light of available information.

2.6: Types of Plans

Overview
Organizations are engaged in quite large number of varying activities, which call for setting
different plans. As a result, they devise different methods of classifying plans. Accordingly,
answer can be classified in organization in for dimensions. These disunion; are time, use, scope,
and degree of flexibility.
On the basis of time, plans could be divided into three as short-range, intermediate-range, and
long-range. The other is use dimension where plans are classified according to their frequency of
use as standing and single-use plans. The scope dimension divides plans into two as strategic and
tactical on the basis of the resources they involve and the areas they cover. Finally, plans are
classified based on the degree of flexibility as variable, alternative, and supplementary.
2.6.1 The Time Dimension of Plans
The time required and available to conduct the different activities of an organization varies widely.
Thus, ‘time is one of the most critical, most elusive, and most often abused of all
Because of the time gap between the long-range plans and the short-range plans, there is a need to
establish a solid link to fill the gap. A common way to do this is disintegrating the long- range
plans into intermediate-range plans which in turn be disintegrated further in to short- range plans.
By doing so, it is possible to fill the time gap between the long-range and the short-range plans.
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2.6.2 Long-range Plans
Long-range plans extend as far ahead as it is possible to specify the desired end results. This
usually means as far ahead as we are able to make definite commitments of funds. The time period
of long-range plans is usually more than five year. Long-range plans are intended as guidelines.
They provide a set of constraints within which we can develop with confidence our intermediate-
range and short-range plans with specific commitments to action.
The time period of long-range plane varies with the enterprise. Many planners project a period at
least as far ahead as will be required to secure the desired economic return from the investment in
resources. For example, if a new machine is installed, the plan for its, use should extend over the
number of years required to justify the investment.
The table below shows the different planning time horizons with their corresponding examples:
TIME HORIZON EXAMPLES

Short-rang plans - Annual plans like sales plan, production plan, materials
requirements plan, operating expense budget.
- Short-term training.
Intermediate-range plans - Modernization of production equipment and office
facilities.
- Development of employees.
Long-range plans - Long-term leases of production equipment, transport
equipments, and warehouse facilities.
- Construction of new plants.
- New product development.

2.7. The Use Dimension of plans

Plans may be divided into two major categories on the basic of their usage as single-use plans and
standing plans.
1. Single -use plans
Single-use plans are predetermined courses of action developed for relatively unique, non-
repetitive situations. Thus, once used, single-use plans cannot be repeated. Rather a new plan will

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be developed to deal with the situation. The three basic types of single-use plans are programs,
projects, and budgets.
2. Standing Plans
Standing plans are predetermined course of action that are used again and again, focusing on
situations that recur repeatedly. They provide ongoing guidance for performing recurring activities
and are of particular value in relatively stable operations where similar circumstance are likely to
appear frequently. Accordingly, standing plans speed the decision making process and allow
managers to handle similar situations in a consistent manner.
3. The Scope/Breadth Dimension of Plans
This is a method of categorizing plans based on the range of activities covered. Some plans are
very broad and long range, focusing on key organizational objectives. Other types of plans specify
how the organization will mobilize its resources to achieve these objectives. The two basic types
are strategic plans and tactical plans.
1. Strategic Plans
Strategic plans determine the major objectives of an organization and the adoption of courses of
action and the allocation of resources necessary to achieve those objectives. Therefore, strategic
plans provide the organization with overall long-range direction and lead to the development of
policies.
Strategic plans focus upon what the organization will be in the future, the adoption of courses of
action and the allocation of resources necessary to achieve those objectives. They provide the
organization with overall long-range direction and lead to the development of policies.
Although strategic plans focus upon what the organization will be in the future, tactical plans
emphasize how this will be accomplished.
2. Tactical plans
Tactical plans refer to the implementation of activities and the allocation of resources necessary
1or the achievement of the organizations objectives. They typically focus upon short - term
implementation of activities and resource allocations.
Tactical plans cover a narrower range of activities and, thus, require lesser resources and affect
only particular areas. Whereas, strategic plans require more financial resource, human resource and
time as they cover a wider range of activities.

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Flexibility Dimension of Plans
Here plans are classified based on their degree of flexibility to respond to Environmental
uncertainties. The three types of plans are variable plans, alternative plans, and supplementary
plans.
1. Variable Plans
Variable plans state figures in terms of ranges to allow for the uncertainty of the environment. For
instance, the time estimated for a phase of a project might be stated as “three months plus or minus
one week.” The advantage of variable plans is that one can easily estimate the tolerable limits for
the organization.
2. Alternative Plans
They are similar to variable plans in recognizing environmental uncertainties, hut in this case, the
planner sets up two or more entirely separate plans. The plan that is finally chosen and used is the
one that most closely accounts for the circumstance that arise. This kind of planning is costly since
many alternatives are developed and some may never be used.
3. Supplementary Plans
Supplementary plans are used to reduce the constraining effects of the original plan by providing a
prearranged appeal channel. For instance, the basic plan may set a firm ceiling on expenditure in a
given area, supplementary plans allow the manager to request further resources if they are needed
later on.
2.5. Planning techniques
The techniques or guidelines to ensure successful planning are:
1. Involve the right people in the planning process
2. Write down the planning information and communicate it widely
3. State SMRT goals and objectives should be specific ,measurable ,achievable ,and realistic
and time bounded
4. build sense of accountability
5. Evaluate the planning process

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