Chapter Three

The Planning Function

PRESENTATION BY:
EMNET N.

Concepts and need for Planning

Concepts of Planning
Planning – is the primary/mandatory managerial function
-is the process of setting objectives and determining the steps needed to attain
them.
 is systematic preparation for tomorrow, today
Is all about placing an organization on the right track
 is an orderly process that allows managers to determine what they
want and how they get it
deals with ends (what is to be done)
Cont…
 Planning answers six basic questions in regard to any intended
activity (objective). what ,when, where, who, how and how much
 in planning managers:
 assess the future
 Determine objectives of the organization and develop the overall
strategies.
 determine resources needed to achieve the objectives
Features of plans
Among others, planning
 Is a mandatory managerial function
 Is the first managerial function
 Is aimed at specifying objectives to be attained
 Requires allocation of resources
 May face challenges from the external environment
 Need for planning
 Planning is important for every organization irrespective of its size,
objectives, and location.
 Because decisions without planning would become random this may
lead to failure of entire organization.
 Planning is important for several reasons:
1. It provides direction for an organization by
specifying objectives
2. It reduces risk and uncertain of the future
3. It allows organizational members to concentrate on
common organization's objective
4. It provides criteria for decision making
5. It provides basis for control or it facilitates control
Issues in formulation of plans
 Availability of resources/budget allocation
 Long term thinking
 Availability of competent man power
 Willingness of top management
 Willingness of employees
 Benefits to be gained (expected outcome)
 Challenges to be faced
 Competitors reactions
 Possibility of being copied by rival companies
 Cost of formulating the plan
 Being a paper/committee work
 Specifies objectives to be attained
Issues in implementation of plans
 Budget allocation
 Awareness creation among many people
 Coordination among many people
 Focusing on actual job rather than on paper work
 Periodic review and evaluation and follow up
 Leadership being important
 Facilitates the means of attaining objectives
 Linking rewards with performances
 Types of Plans
 Plan can be classified in to different types based on various
criteria (basis):
repetitiveness,
time dimension and
scope or breadth dimension
 Classification of plans based on repetitiveness
 On the basis of repetitiveness plans can be classified in to two:
single use plans
standing plans
 I, Single use plans
 Single use plans are those plans which have no more use after
objective is accomplished.
 Relatively for short period of time.
 Are non- recurring in nature.
 They include: programs , projects, and Budgets.
 Program :- is set of goals, policies, procedures, rules,
job assignments, resources to be employed, and
other elements necessary to carry out a given course of action.
 is set of activities used to accomplish objectives or used to solve
some problem
 Single use Plans…
 project :-is specific action plan formulated to
complete various aspects of a program which can be
distinctly identified as a clear-cut grouping of activities with
definite objectives and completion time.
 Budget :- is a statement of expected results expressed in
numerical terms.
 Even if budget is often thought as control technique, it is also a
plan since it sets forth objective to attain.
 Some times called as 'numerical plan' as they are quantitative in
nature.
II,standing plans….
 Standing plans are type of plans which can be used again and again
once they made.
 They remain useful for long period in dealing with repetitive
situations . They include: -
 policies,
 procedure,
 Method and
 rules
II,standing plans….
 Policies:- are guidelines to decision making.
 Policies establish abroad framework with in which managers at
different levels make decisions.
 are general guide to thinking and action
 Policies are important for an organization as they:
 provide guidance to decision making
 Channels all decisions toward the attainment of objectives.
 Ensure consistency and uniformity in decision making
II,standing plans….
 Procedures :- are sequences of steps or activities involved in
making decisions or performing other tasks.
 Used for orderly performance and coordination of various
organizational activities.
 avoid random actions and operations.
 contribute in consistency of organizational activities by providing
steps.
II,standing plans….
 Methods:- are sub-units of procedure
 clearly show how a step of procedure should be performed
 They indicate the techniques to be employed make the procedure
effective
 Rules :- are on-going specific plans influencing human behavior
or conducts at work place.
 are fixed plans and define what should and what should not be
done. (Guide to action).
 Unlike polices, rules don't allow for interpretation or decisions.
Decisions are needed only in making the rules.
 Classification of plans

Classification of plans based on time dimension

Basically planning deals with future and the future is measured in time.
Hence it is convenient and acceptable to think of different kinds of
planning in terms of the time periods for which the planning is
intended.
Taking time in consideration a plan can be categorized in to three
 Long range plans
 Intermediate plans
 short range plans
 Long range plans
 Long range plans are those plans which have longer time horizon.
 they are concerned with distant future than immediate future. The
time may range from 5to 10 years
Intermediate plans

 Intermediate range plans are those plans with a time horizon

between one and five years.
 They range between long and short-term plans.
short range plans

 Short range plans are those plans with time dimension it is not
possible to have aright time horizon guide line.
 For a plan to be short range or long range, it depends on the size
of an organization and nature of business of an organization.
 So short range plan for one organization may be an intermediate
or long range plan for the other organization.
Classification of plans based on scope
(Breadth)/levels of management
 Based on their scope or breadth plans can be classified
in to three types:
strategic plans
tactical plans, and
operational plans.
Strategic plans: Performed by top-level management
 Mostly long range in its time frame
 Expressed in relatively general terms
 provides general future based direction to organization
 Tactical plans

 Tactical planning is the process of developing action plans through

which strategies are executed.
 Tactical plan- is a plan used to develop means needed to activate
and implement strategy.
 Tactical plans:
 performed by middle level managers
 Have shorter time frame, more detail and narrower scope than
strategic plans
 Guide subunits of an organization
 Operational plans

Operational planning is the process of setting short-range objectives

and determining in advance how they will be accomplished.
 Operational plans:
 are first line managers' tools for exciting daily, weekly, and monthly
activities.
 performed by operational level managers.
 are Specific and more detail than others.
 Planning Process

 Planning is not something which is made all once at a time.

 A person involved in planning pass through number of steps to
make effective plans
 The steps generally involved in planning are:
 environmental Analysis and forecasting
 Establishing objectives
 determining alternative course of Action
 evaluating the alternatives
 Select the best alternatives
 Implementing the plan
 Controlling and evaluating the results
Step 1. environmental Analysis and forecasting

 awareness of environment, both internally and externally.

 It involves continual assessment of the environment to determine
 strengths
 weaknesses

 to be aware of
 opportunities
 threats

 Based on this analysis of internal and external environment

forecasting (predicting) of different environmental factors such as
economics, technological, social, political etc can be made to assist
real planning.
Step-2. Establishing objectives

 establish objectives for the enterprise and then for each

subordinate work unit.
 Objectives are established at all levels of the structure, beginning
at the top level and running down to first line
Step 3. determining alternative course of Action

 Identifying alternative ways for reaching objectives.

 When developing alternatives a manager should try to create as
many roads to each objective as possible.
 In fact, in most cases the challenging is not to find alternative ways
but to decide which ones are best.
 To decide on best ones it requires evaluation.
Step 4. evaluating the alternatives

 Evaluating each alternative to select the best one to achieves

objectives.
 In evaluating, managers should assess cost (disadvantages) and
benefits (advantages) of all alternatives.
 The assessment may include both financial and non financial
considerations.
Step 5. Select the best alternatives

 After evaluating all possible alternatives, managers will select

alternative that remains better than others.
 It may be an alternative with least disadvantages and most
advantages.
Step 6. Implementing the plan

 After the alternative course of action selected, it is important to

develop an action plan to execute the plan.
 In this step method for implementation will be suggested.
Step 7. Controlling and evaluating the results

 Once the plan is implemented it needs monitoring.

 monitor the progress being made,
 evaluate the reports made based on results, and
 make any necessary modifications, because factors in environment
are constantly changing, plans must be modified to cope up with
changes.
Discussion questions
 Get prepared in advance in group of five students critically
analyze the planning process of the organization your
familiar with.
 Strength and weakness of the planning process of the
organization.

N.B you may rename the organization for Security purpose

 Mission, goals, objectives, and targets
 These words are often the most confusing words in
management filed. They are some what similar but not
exactly the same in their meanings.
 Mission :-refers to the main reason why the organization is
established.
 it indicates purpose for existence of an organization
 relates organization to external environment.
 Goal :- is expected (desired) performance to be
accomplished but it is not set specifically
 It is desired future outcome that an organization strives to
achieve generally.
 mission goals, objectives, and targets…
 Objective : is expected (desired) performance expressed in
specific and measurable terms (manner).
 Target : is expected performance set for specific individual in an
organization.
 is more specific in nature than objectives.
 The difference between goals
,objectives and targets.
 Goals are milestone to reach.
Example Ethiopia wants to be the world's best
producer of coffee.
 Objectives are usually the written steps to achieve goals.
Example to increase coffee production by 20% per
annum.
 Targets are usually numerical objectives.
December sales of $200,000 per sales person is a
target.
Characteristics of good (effective)
objective…
 effective objectives should be SMART
 Specific:- Objectives should state the exact level of
performance expected specifically.
 Measurable:-as much as possible objectives should be
expressed quantitatively.
 therefore, it is possible to easily determine whether or not
goals have been achieved.
Characteristics of good (effective)
objective…
 Appropriate:-objectives should be prepared in suitable,
acceptable. and achievable manner.
 Realistic and challenging:- objectives should be
attainable or real rather than fantasy. It also better to have
challenging objectives as far as they could motivate workers if
attained.
 Time bound :-objectives should be set with in specific time
limits or target dates for their attainment.
 Planning techniques
 Managers can improve the quality of their planning by applying
variety of Planning tools and techniques .The important fanciful
of planning is management by objectives (MBO).
Management by objective (MBO)
 MBO is the technique in which managers and their subordinates
together set objectives for subordinates ,periodically evaluate the
performance and reward effective workers etc.
 Elements of MBO
1. Top level goal setting: effective MBO begins with the
objective being set by top managers which is open for
discussion by managers and subordinates to reach up
on the common objectives.
2. individual targets:-in an effective MBO each
manager and subordinate has clearly defined
responsibilities or expected results
3. Participation:- both managers and subordinates are
participating in objective setting.
4. Autonomous of individuals:-Once the objective is
set, subordinates have a right to select methods of
attaining the objectives.
 Elements of MBO…
5.performance review:- managers and subordinates periodically
meet to review progress toward the objectives
6. Reward:-those individuals who meet the objectives in
performance review are rewarded. The rewords may be
recognition, praise, pay increase etc
 Steps in MBO

 Effective MBO passes through different steps:

Setting individual objectives and plans
 with each subordinate the manager jointly set objectives.
 the participation of subordinates in the objective setting
process is away of strengthen their commitment to achieve
their goals.
Giving feedback and evaluating performance
 Employees must know how much they are progressing toward
their objectives.
 Thus, managers and subordinates should meet frequently to
review progress and evaluate performance
 communication is key factor in determining success or failure
of MBO
Steps in MBO…

Rewarding according to performance

 employees' performance should be measured against their
objectives.
 Employees who meet their objectives should be rewarded
through recognitions, praises, Pay rises and so on .
Benefits and limitations of MBO

Benefits
MBO uplifts workers motivation
MBO allows managers and subordinates share
experience
Limitation
It consumes much time
Barriers in planning
 Accidental Budget shortages
 Misuse of allocated budgets
 Existences of gap between plans formulated and implemented
 Limited commitments of management employees
 Limited commitment of non management employees
 Reactions made by competitors/agents/brokers/suppliers
 Changes in government investment policies
 Changes in economic systems
 Government turnover
 Lack of employees participation in planning formulation processes
Cont’d
 Sudden increment in prices of raw materials
 Sudden increments in prices of construction materials
 Incompetency of plan formulators
 Incompetency of plan implementers
 Sudden changes in customers demand for a product
 Natural catastrophe
 Priorities given to MNCs rather than local companies
 Frequent changes in credit policies
 Lack of action – orientation and training for managers.
 Abstinence from linking rewards with performances
 Difficulty of the nature of the job to be carried out
 Attitudes of Management
Barriers in planning
 Changes in customers demand
 Changes in degree of local competition, etc…
. Design of Poor planning system

• The design of the of poor planning system may be product the

following roadblocks
• Lack of rewards.
• Managerial rewards are quite often interlinked to short term
results of their performance.
• Lack of participation.
• People who are not involved in planning tend to reset the planning
process.
• Planning imposed from above (by higher authorities) often leads to
resentment and resistance among those forced to execute.
• Lack of specific objectives. Planning can not be effective unless goals
are specific clear and actionable
Cont’d
 Competence of the planner.
 A planner must posses not only skill, but intelligence
and breadth of vision, and for long- range master
planning must have the ability to forecast.
 Lack of action – orientation and training for managers.