Chapter Two

Planning

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill

Companies, All Rights Reserved.
 What Is Planning?
• Planning
 Planning is the primary function of management.

 It focuses on the future course of action.

 A primary managerial activity that specifies the objectives to

be achieved in future and selects the alternative course of
action to reach defined objectives. Thus, it involves:
• Defining the organization’s goals

• Establishing an overall strategy for achieving those goals

• Developing plans for organizational work activities.

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 What Is Planning?

• “Determination of future course of actions in advance”

• It is the blue print of action and operation.

• Planning is intellectual process which is concerned with

deciding in advance what, when, why, how, and who shall do
the work.

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 Definitions
• “Generally speaking, planning is deciding in advance
what is to be done”
-W H Newman
• “Planning is deciding in advance what to do, how to do,
when to do and who is to do it. Planning bridges a gap
between from where we are to where we want to go”
-Harold, Koontz and O’Donnel
• “Planning is that function of manner in which he decides
in advance what he will do. It is a decision making
process of a special kind, its essence is futurity.”
-Hayness and Massie
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 Why Do Managers Plan?
• Purposes of Planning
 Provides direction
 Reduces uncertainty
 Minimizes waste and redundancy
 Sets the standards for controlling
• Benefits of planning
 Goal Focus
 Minimize Uncertainty
 Improve efficiency
 Facilitates to Control
 Innovation and Creativity
 Better Coordination
 Ensures Commitment
 Aid to Business Success
 Brings Systematization
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 How Do Managers Plan?
• Elements of Planning
 Goals (also Objectives)
• Desired outcomes for individuals, groups, or entire
organizations
• Provide direction and evaluation performance
criteria
 Plans
• Documents that outline how goals are to be
accomplished
• Describe how resources are to be allocated and
establish activity schedules

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 FEATURES OF PLANNING
1. Primary / Core function of management
❖ what happens if planning is wrong?

2. Quite adaptive to nature

❖ Plans changes with the change in external environment
like competitors policies, strategies, consumer’s taste

3. Pervasive
❖ Done in all organization whether small or big, business or
non- business
❖ Used in all levels of organization

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 FEATURES OF PLANNING
4. Goal oriented
❖ Planning lays down the goals and ways to achieve it

5. Efficient
❖ Time and money are spent on planning to earn future
gains

6. Flexible
❖ Future is uncertain
❖ Flexible plans required if unexpected changes take place
in future
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 FEATURES OF PLANNING
7. Intellectual Process
❖ Managers cannot plan until and unless they analyze the
firm’s past ,present and future.
❖ requires foresightedness, imagination , intuition,
judgement

8. Decision making

8. Feedback
❖ Controlling function gives feedback to managers about
the efficiency of plans.

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Types of Plans

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 Types of Plans

• Strategic Plans
 Apply to the entire organization.
 Establish the organization’s overall goals.
 Seek to position the organization in terms of its
environment.
 Cover extended periods of time.
• Operational Plans
 Specify the details of how the overall goals are to
be achieved.
 Cover short time period.
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 Types of Plans (cont’d)
• Long-Term Plans
 Plans with time frames extending beyond three
years
• Short-Term Plans
 Plans with time frames on one year or less
• Specific Plans
 Plans that are clearly defined and leave no room
for interpretation
• Directional Plans
 Flexible plans that set out general guidelines,
provide focus, yet allow discretion in
implementation.
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 Types of Plans (cont’d)

SHORT RANGE PLANS

1 Year

Long •5 +
Range Years
Plans

Intermedi • 1-5
ate Plans years

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Exhibit 7–3 Specific Versus Directional Plans

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 Types of Plans (cont’d)

• Single-Use Plan
 A one-time plan specifically designed to
meet the need of a unique situation.
• Standing Plans
 Ongoing plans that provide guidance for
activities performed repeatedly.

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Establishing Goals and Developing
Plans
• Traditional Goal Setting
 Broad goals are set at the top of the organization.
 Goals are then broken into sub-goals for each
organizational level.
 Assumes that top management knows best because
they can see the “big picture.”
 Goals are intended to direct, guide, and constrain
from above.
 Goals lose clarity and focus as lower-level managers
attempt to interpret and define the goals for their
areas of responsibility.

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Exhibit 7–4 The Downside of Traditional Goal Setting

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Exhibit 7–7 Planning in the Hierarchy of Organizations

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 Contemporary Issues in Planning

• Criticisms of Planning
 Planning may create rigidity.
 Plans cannot be developed for dynamic
environments.
 Formal plans cannot replace intuition and
creativity.
 Planning focuses managers’ attention on today’s
competition not tomorrow’s survival.
 Formal planning reinforces today’s success, which
may lead to tomorrow’s failure.
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 Planning Process:
How does a manager Plan?
Establish objectives
Develop Strategies

Determination of
Reviewing the premises
planning process
Determination of
alternatives

Implantation of Evaluation of
plans alternatives

Formulation of Selecting a course

derivative plans of action
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 Analyze Opportunities
• Not a step of Planning, It is pre-step of
planning.
• Essential to make a successful plan.
• SWOT analysis
• First
First and
and real
real starting
starting point
point ofof planning.
planning.
Setting objectives

• Management
Management has has toto define
define objectives
objectives in
in clear
clear manner
manner
by
by considering
considering organizational
organizational resources
resources and and
opportunities
opportunities because
because aa minor minor mistake
mistake in in setting
setting
objectives
objectives might
might affect
affect in
in implementation
implementation ofof plan.
plan.
• Objectives
Objectives must
must bebe specific,
specific, clear
clear and
and practical.
practical.
• They
They should
should be
be time
time bound
bound and and expressed
expressed inin numerical
numerical
terms.
terms. 2 - 21
 Determination of premises
• Premises are the assumptions about the future in which the
planning is implemented.
• They provide environment and boundaries for the
implementation of plan in practical operation.
• These premises may be tangible and intangible and external.
(a) Tangible and intangible: Tangible premises involve
capital investment, unit of production, units sold, cost per unit,
time available etc. Similarly, intangible premises involve
employees moral, goodwill, motivation, managerial attitude, etc.
(b) Internal and external: Internal premises involve
money, materials, machines and managements. In the similar
manner, external factors involve competitors strategy,
technological change, government policy, social and cultural
beliefs etc.

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 Determination of alternatives

• It is essential to identify all the possible

hidden alternatives. The information
about alternative courses of action may
be obtained from primary and
secondary sources. There must be
search for the best alternative. The
management must develop alternatives
through the support of experienced and
intellectual experts in management
sectors.
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 Evaluation of alternatives

• Evaluate the alternatives from their

expected cost and benefits. This is the
logical step to evaluate each alternative
from its plus and minus points.
• Each alternative is studied and
evaluated in terms of some common
factors such as risk, responsibility,
planning premises, resources,
technology etc.
Selecting a course of action 2 - 24
Formulation of derivative plans:

• It is essential to formulate action or derivative

plans for each step of work and to all
departments of the organization. These action
plans involve formulation of policies, rules,
schedule and budget to complete defined
objectives. Thus, formulation of derivative
plans is an essential step in planning
process. It is difficult to implement main plan
without formulation of derivative plan.

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 Implantation of plans
• Without this step, other this procedure of plan will
remain as paper work.
• This step brings all the procedure of plan into action.
• For implementation plan, management has to take
some steps such as to communicate with subordinates
who initiate to plan into action; provide necessary
instruction and guidance; make arrangement of all
resources like materials, machines, money, equipments
etc; make timely supervision and control over
subordinates.

Reviewing the planning process

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 FEATURES OF GOOD PLAN

1. INTEGRATION:
⦿ There should be proper integration of short term requirements with long term
requirements
⦿ Plans must be made according to the overall organizational goals.

2. MARKET RESEARCH:
⦿ Before making PLANS, MARKET RESEARCH should be conducted.
⦿ Proper market research is important as it helps in forecasting what exactly required by
the market.

3. FINANCIAL CONSTRAINTS
1. Too much dependence on financial requirement can spoil the plan.
2. In case if the budgetary balance is disturbed, all the operations may turn out to the
problems.
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 FEATURES OF GOOD PLAN
⦿ What will be the future cost and how must benefit earned must be analysed
carefully while designing the organizational plans.

4. COORDINATION
⦿ Plan should be such that it aims to coordinate the functional areas of
organization.
⦿ Absence of coordination between functional areas can lead to the
failure of organization goals.

5. CONSISTENT
⦿ Plans should be made for a considerable period of time.
⦿ Plans must be acceptable by all . One who frames it and one who
implements it.
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 FEATURES OF GOOD PLAN
6. Flexible
⦿ Though consistent, plans should be flexible as per the environmental changes.

7. ACCEPTABLE
⦿ Plan must be acceptable by all
⦿ Plans may turn out to be failures if not implemented properly in the organization

8. PARTICIPATIVE
⦿ Practice of participation in planning promotes good ideas.
⦿ The acceptability of plans increase if the participation increases in the planning
process.
⦿ Group decision making encourages ideas/suggestions from subordinates of
different departments.
⦿ This helps in finalizing the plans

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 DECISION MAKING
⦿ It is a process of selecting a course of action out of
alternative courses to solve a problem.

⦿ Decision making arises out of a problem

⦿ Decision making and problem are inter-related to

each other

⦿ Managers identify the problems related to the

organization and solve the.

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 DECISION MAKING
1. Process of planning involves decision making
2. Both of them require creativity, innovation by
managers
3. Both of them are related to achievement of goals
4. Planning and decision making are continuous
5. Managers make plans and decide for every
situation
6. Both are based on forecasts and assumptions

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FEATURES OF DECISION MAKING
1. GOAL ORIENTED-
⦿ Purpose is to achieve goal

2. Required for every managerial function

3. Process of choosing a course of action

4. Problem solving is the basis for decision making

5. Continuous in nature
6. Intellectual in nature
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