CHAPTER 3 : PLANNING

Q1. WHAT ARE THE IMPORTANCE AND BENEFITS OF PLANNING ? (10M)

Planning is important for efficient use of resources. All organizations, large and small, have
limited resources. The planning process provides the information top management needs to
make effective decisions about how to allocate the resources in a way that will enable the
organization to reach its objectives. Productivity is maximized and resources are not wasted
on projects with little chance of success.

Other than that, planning is important for establishing organizational goals. Setting goals that
challenge everyone in the organization to strive for better performance is one of the key
aspects of the planning process. Goals must be aggressive, but realistic. Organizations cannot
allow themselves to become too satisfied with how they are currently doing – or they are
likely to lose ground to competitors. The goal setting process can be a wake-up call for
managers that have become complacent. The other benefit of goal setting comes when
forecast results are compared to actual results. Organizations analyze significant variances
from forecast and take action to remedy situations where revenues were lower than plan or
expenses higher.

In addition, planning is also important for managing risk and uncertainty. Managing risk is
essential to an organization’s success. Even the largest corporations cannot control the
economic and competitive environment around them. Unforeseen events occur that must be
dealt with quickly, before negative financial consequences from these events become severe.
Planning encourages the development of “what-if” scenarios, where managers attempt to
envision possible risk factors and develop contingency plans to deal with them. The pace of
change in business is rapid, and organizations must be able to rapidly adjust their strategies to
these changing conditions.

Beside that, planning is important for team building and cooperation. Planning promotes team
building and a spirit of cooperation. When the plan is completed and communicated to
members of the organization, everyone knows what their responsibilities are, and how other
areas of the organization need their assistance and expertise in order to complete assigned
tasks. They see how their work contributes to the success of the organization as a whole and
can take pride in their contributions. Potential conflict can be reduced when top management
solicits department or division managers’ input during the goal setting process. Individuals
are less likely to resent budgetary targets when they had a say in their creation.

Last but not least, planning also important to creating competitive advantages. Planning helps
organizations get a realistic view of their current strengths and weaknesses relative to major
competitors. The management team sees areas where competitors may be vulnerable and then
crafts marketing strategies to take advantage of these weaknesses. Observing competitors’
actions can also help organizations identify opportunities they may have overlooked, such as
emerging international markets or opportunities to market products to completely different
customer groups.

Q2. EXPLAIN THE SIX STEPS IN THE MANAGEMENT BY OBJECTIVES (MBO)

PROCESS.

MBO or management by objectives is defined as a comprehensive managerial system that

integrates many key managerial activities in a systematic process and that is consciously
directed toward the effective and efficient achievement of organizational and individual
objectives. The first step of the MBO process is define organizational goals. Goals are critical
issues to organizational effectiveness and they serve a number of purposes. Organizations can
also have several different kinds of goals, all of which must be appropriately managed. A
number of different kinds of managers must be involved in setting goals. The goals set by the
superiors are preliminary, based on an analysis and judgement as to what can and what should
be accomplished by the organization within a certain period.

Second step is define employees objectives. After making sure that employees managers have
informed of pertinent general objectives, strategies and planning premises, the manager can
proceed to work with employees in setting their objectives. The manager asks what goals the
employees believe they can accomplish in what time period and with what resources. They
will discuss some preliminary thoughts about what goals seem feasible for the company or
department.
Third step is continuous monitoring performance and progress. MBO process is not only
essential for making line managers in business organizations more effective but also equally
important for monitoring the performance and progress of employees. For monitoring
performance and progress the followings are identifying ineffective programs by comparing
performance with pre-established objectives, using zero-based budgeting, applying MBO
concepts for measuring individual and plan, installing effective controls and other.

The fourth step is performance evaluation. Under this MBO process performance review is
made by the participation of the concerned managers.

The fifth step is providing feedback. The filial ingredients in an MBO program are
continuous feedback on performance and goals that allow individuals to monitor and correct
their own actions. This continuous feedback is supplemented by periodic formal appraisal
meetings in which superiors and subordinates can review progress toward goals, which lead
to further feedback.

The last step of MBO process is performance appraisal. Perfomance appraisals are a regular
review of employee performance within organizations. It is done at the last stage of the MBO
process.