CHAPTER TWO
THE PLANNING FUNCTION
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Topics
• Meaning and nature of planning
• Importance of planning
• Limitations of planning
• Organizational objectives(reading assignment)
• The planning process
• Types of plans
• Characteristics of a good plan
• Skills required in planning
– forecasting
– decision making
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Meaning of Planning
• Is the dynamic process of making decisions today
about future actions.
– It is a selection or choice among alternatives.
– Is preparing today for tomorrow
– It is the activity that allows managers to determine what
they want and how to get it.
– Planning focuses on the future: what is to be accomplished
and how.
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…Planning
• Answers six basic questions:
–What (the goal or goals).
–When (the time frame in which it will be accomplished)
–Where (the place or places where the plans or planning will reach its
conclusion).
–Who (which people will perform the tasks).
–How (the specific steps or methods to reach the goals).
–What resources (resources necessary to reach the goals).
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Nature of Planning
• Nature includes:
– The contribution of planning to purpose and objectives
– The primacy of planning
– The pervasiveness /Universality of planning
– Planning and information
– Planning is a continuous process
– Planning is a means to an end
– Plans are arranged in a hierarchy
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…Nature
Hierarchy of plans:
Corporate
Departmental/divisional plans
Sectional plans
Unit plans
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The Importance of Planning
• Significance includes:
– It provides direction and sense of purpose
– It reduces uncertainties and anticipates the future/
preparing for change
– It provides basis for controlling
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…Importance
– It forces managers to see the organization as a system
– It promotes efficiency
– It provides the base for cooperative and coordinated efforts
– Developing managers
– It provides guideline for decision making
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Limitations of Planning
• Limitations:
– Planning is risky
– It is a difficult and complicated task
– It is expensive and time consuming
– It is affected by external factors
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The Planning Process
1. Establishing objectives
• Are ends of planning toward which organizing, staffing,
leading and controlling are aimed.
• Are essential starting points in planning because they provide
direction for all other managerial activities.
• Objectives can be found at different levels but are consistent to
each other.
• Goals and objectives can be used interchangeably
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…Differences B/N
• Mission/Purpose - denotes the reason for the existence of an
organization.
– Purpose and mission can be used interchangeably.
• Target – identifies specific qualitative or quantitative ends
(points).
• In short Mission/ purposes, objective, goals/ Targets differ in
scope.
• Purpose/missions objective Targets/goals
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Nature of Objectives
• Nature includes:
– predetermined or stated in advance.
– describe future desired results toward which present efforts
are directed
– should be specific and measurable
– should have defined time period
– should be continually adjusted in light of environmental
changes
– should be challenging but realistic
– Objectives have hierarchy
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Nature…
• Objectives have hierarchy
• Organizations typically have three levels of goals: strategic,
tactical, and operational.
Strategic goals
– broadly defined targets or future end results
– set by top-level management
– address issues relating to the organization
– sometimes called official goals
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Nature…
Tactical goals
• Are targets or future end results usually set by middle
management.
• Set for specific departments or units.
• Stated in more measurable terms than is sometimes true of
strategic goals.
Operational goals
• are targets or future end results set by lower management
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Nature…
– Multiplicity of objectives
• Multiple (many) objectives that are under the umbrella
of the overall plan.
— Integrating character
• Multiple Objectives Integration Network of
objectives
— Network of objectives
• are interrelated and interdependent.
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Nature…
– Primacy of objectives
• Are primary to organization because they are the very
reason for the existence
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Benefits of Objectives
• Benefits include:
—Provide basis for the performance of all managerial
functions.
—Objectives provide guidelines for action.
—Objectives can limit employee activities.
—Objectives provide a unique identity for organizations
—Serve as a source of employee motivation.
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Benefits of Objectives
– Provide performance standards and bases for control.
• Measuring, comparing and evaluating performance
against predetermined standards.
Reading assignment
How Goals Facilitate Performance
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…The Planning Process
2. Developing premises
• Are assumptions about the environment within which the plan
is to be carried out.
• Involves examining the external and internal factors:
– the external environment (for Treats and Opportunities) through
PEST analysis and
– internal environment (for Strengths and Weaknesses) through
Self-Audit
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…The Planning Process
– key element of planning at this stage is forecasting.
– Premises are limited to assumptions that are critical, or strategic,
to a plan, that is, those that most influence its operation.
3. Determining alternative courses of actions
• Alternatives are courses of actions that are available to a manager to
reach a goal.
• Reducing number of alternatives so that the most promising may be
analyzed
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…The Planning Process
4. Evaluating alternative courses of action
• Managers evaluate the benefits, costs and effects of alternative
courses in light of their weight to goals and premises.
• So many alternative courses in most situations
– there are numerous variables and limitations to be considered,
evaluation can be exceedingly difficult.
– Operations research and mathematical as well as computing techniques
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…The Planning Process
5. Selecting a course of action
• The plan to be adopted is chosen or selected and real point of
decision-making.
6. Formulating derivative plans
• At step 5 planning is ended.
• Formulating other plans based on one major plan.
7. Numberizing plans by budgeting
• Plans is converting them into budgets
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…The Planning Process
8. Implementing the plan
• Is a step where by the entire organization will be in motion or real
operation.
• Involves:
– Implementation involves determining who will be involved,
– what resources will be assigned,
– how the plan will be evaluated, and
– the reporting procedure.
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…The Planning Process
9. Controlling and evaluating the results
• The manager must monitor the progress that is being made,
evaluate the reported results, and make any modifications
necessary.
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Types of plans
• Plans can be classified on different bases or dimensions.
• These are:
– Scope/breadth dimension,
– Time dimension, and
– Use/repetitiveness
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Types of plans
1. Scope/breadth dimension,
• Scope refers to the comprehensiveness/width of the plan
• It refers to the level of management where plans are
formulated.
• Classify plans into:
• Strategic,
• Tactical and
• Operational.
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Types of plans
Strategic plans
• Organization wide plan
• Formulated or developed by top-level management
• It applies to the entire organization.
• Primarily concerned with solving long-term problems
• Establishes overall objectives and positions
• Develops the direction for the entire organization.
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Types of plans
Strategic plans
• Distinguishing characteristics of strategic plan:
– looking for threats and opportunities.
– Looking for strengths and weaknesses
– It takes a longer view, i.e. time horizon > 5 years.
– It tends to be top management responsibility, but it reflects
a mentality useful at all levels.
– It is expressed in relatively general non-specific terms.
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Types of plans
Tactical Plan
• Is an intermediate plan that helps to reduce long range
planning into intermediate one.
• Specific and more goal oriented than strategic plans.
• Middle level management in consultation with lower level
management develops them.
• Are concerned with shorter time frames and cover a narrower
scope (narrower range of activities).
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Types of plans
Tactical Plan
• Characteristics:
– Focuses on the implementation of activities and the allocation of
resources
– are the means charted to support the implementation of the strategic
plans and achievement of tactical goals
– Concerned with what the lower level units
– Each division must do, how they must do it, and who will have the
responsibilities for doing it.
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Types of plans
Operational Plan
• Is concerned with the day-to-day activities of the organization
• Is made at the lower level management in consultation with
middle level management.
• Concerned with the efficient, day-to-day use of resources
allocated .
• Operational plans have relatively short time frame (< 1 yr).
• It is the most detailed (more specific) and narrowest plan
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Types of plans
Time Dimension
• Refers to the periods for which the planning is intended.
• Based on the length of time a plan covers, we do have three
types of plans:
• Long-range (five years or more),
• Medium-range (between one and five years) and
• Short-range plans (one year or less).
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Types of plans
Use Dimension
• Refers to the extent to which plans will be used on a recurring
basis.
• Based on this dimension we do have two types of plans:
—Standing plans, and
—Single use plans.
• Based on how repeatedly/frequently a given plan is used.
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Types of plans
Standing Plans
• Provide an ongoing guidance for performing recurring
activities.
• Standing plans become valuable under relatively stable
situations.
• Conserve time used for planning and decision-making
because similar situations.
• Are handled in a predetermined, consistent manner.
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Types of plans
• The major types of standing plans are policies, rules, and
procedures.
Policies
• Is a general guide that specifies the broad parameters within
which people are expected to operate.
• General statements or understandings which guide or channel
thinking and actions.
• Not all policies are “statements”, they are often merely implied
from the actions of managers.
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Types of plans
• Characteristics of policies:
– Define an area within which a decision is to be made and
ensure that the decision will be consistent.
– Help to decide issues before they become problems.
– Tell us what to do in a general sort of way.
– Means of encouraging discretion and initiative, but within
limits.
– Policies must be flexible.
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Types of plans
Rules
• Spell out specific required action or non-actions.
• Actions that must be or must not be taken, allowing no
discretion, in a given situation.
• Is an ongoing, specific plan for controlling human behavior
and conduct at work.
• Policies is to guide decision-making by providing limits;
although rules are guidelines they do not allow discretion
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Types of plans
Procedures
• are statements that detail the exact manner in which certain
activities must be accomplished.
• They provide detailed step-by-step instructions as to what
should be done.
• Procedures prescribe exactly what actions are to be taken in a
specific situation
• Procedures are chronological sequences of required actions.
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Types of plans
Single use plans:
• Are plans aimed at achieving a specific goal , once reached,
will most likely not recur in the future and dissolved when
accomplished.
• To accomplish a specific objective usually in a relatively
shorter period of time and it is non repetitive.
• The major types of single use plans are programs, projects,
and budgets.
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Types of plans
Programs
• is a comprehensive plan that coordinates a complex set of
activities related to a major non-recurring goal.
• Are a complex of goals, policies, procedures, rules, task
assignments, steps to be taken, resources to be employed and
other elements necessary to carry-out a given course of
action
• Single use plan = Standing plans + Single use plans
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Types of plans
Projects
• is a plan that coordinates a set of limited scope activities that
do not need to be divided into several major projects in order
to reach a major non-recurring goal.
• Projects are the smaller and separate portions of programs.
• Each project has limited scope and distinct directives
concerning assignments and time.
• Each project will become the responsibility of designated
personnel who will be given specific resources and deadlines
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Types of plans
Budgets:
• Are statements of expected results expressed in numerical
terms.
• Are statements of financial resources set aside for specific
activities in a given period of time.
• It may be referred to as a “numberize” program.
• Budgets are also control devices. However, making a budget is
clearly planning.
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Characteristics of a Good Plan
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Skills Required In Planning
• Skills required in planning are:
– Forecasting
– Decision Making
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Skills
Forecasting:
• is the attempt to predict outcomes and future trends that can
serve as basis for planning.
• By relating the past and the present information or data,
management should be able to anticipate the future
environment.
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Skills
• Methods:
– Qualitative Forecasting: is a judgment-based forecasting
technique.
• Used when hard data are scarce or difficult to use
• Example: Executive opinion, market research and the
survey of expert opinion.
• involves the use of subjective judgments and rating
schemes
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Skills
• Quantitative Forecasting:
– Used when enough hard data exist to specify relationships
between variables.
– Example: time-series analysis, uses past or current trends
to project future events.
– It is believed that quantitative techniques are generally
more accurate than qualitative ones
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Managerial Decision Making
Decision Making:
• Is a rational choice or selection of one alternative from among
a set of alternatives.
• Is the management function that consists of choosing one
course of action from all the available alternatives.
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Managerial Decision Making
• Characteristics of decision making
– Decision-making is universal
– The critical decision-making is during planning
– Consists of three parts:
• Choosing or selecting from among alternatives
• No alternatives, there is no decision-making, rather mandatory
• When managers make decisions, they have purpose in mind.
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Managerial Decision Making
THE DECISION-MAKING PROCESS
• The process is a sequential process rather than a series of
steps:
1. Identifying problems
—The discrepancy between an actual and desired state
– Deviations from past performance
– Deviation from plan
– Outside criticism
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…PROCESS
• Type of problems:
– A crisis problem:
• A serious difficulty requiring immediate action
— A non-crisis problem
• Requires resolutions but does not simultaneously have the
importance and immediacy characteristics of a crisis.
— An opportunity problem
• Offers strong potential for significant organizational gain if
appropriate actions are taken.
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…PROCESS
• This step has three general stages:
– Scanning: Involves monitoring the work situation for changing
circumstances and the manager only vaguely aware that an
environmental change.
– Categorization: To understand and verify signs which to categorize
the situation as a problem and a no problem.
– Diagnosis: involves gathering additional information and specifying
both the nature and the causes of the problem.
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…PROCESS
2. Developing Alternatives
• Is a search process in which relevant internal and external
environment of the organization are investigated.
• Requires finding creative and imaginative alternatives using
full mental faculty.
• No major decision should be made until several alternative
solutions have been developed.
• List as many possible alternatives solutions to the problem as
you can.
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…PROCESS
3. Evaluating Alternatives
• Each alternative must be judged in terms of its consequences
for the organization.
4. Choosing an Alternative
• Managers find a solution that appears to offer the fewest
serious disadvantages and the most advantages.
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…PROCESS
5. Implementing and Monitoring the Chosen Solution
• Implementing a decision involves more than giving orders
— Resources must be acquired and allocated
• Monitoring the solution:- ensure that things are
progressing as planned and that the problem that triggered
the decision process has been resolved.
— involves periodic measurements of results
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Decision-Making Conditions
• Decisions are made under three basic conditions.:
– Condition of certainty
– Condition of risk and
– Condition of uncertainty
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Conditions
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