UNIT II - PLANNING

MEANING OF PLANNING

Planning is an important managerial function and is the primary function of management. It involves
deciding in advance what is to be done, who is going to do it and how it is to be done. So it the process by
which goals are set and the means to achieve them are determined.

DEFINITION OF PLANNING

According to Killen, “Planning is the process of deciding in advance what is to be done, who is to do it,
how it is to be done and when it is to be done”.

NATURE OF PLANNING

Intellectual process: Planning is an intellectual process. It requires careful thought and analysis on the part of
the manager. Several factors have to be considered before plans are devised.

Continuous process: Planning is a continuous process. Right from the start of a firm till its end, planning is
required. The manager should constantly plan for the future.

Based on facts: Planning is based on facts.Planning is not based on guess work or vague assumptions. It is
based on relevant and reliable information.

Flexibility: Plans must be flexible. The reason is plans are laid for the future and future is uncertain. Plans have
to be flexible in order to suit changing conditions.

Forward looking: Planning involves looking ahead into the future. It is carried out to achieve objectives in the
future. Planning helps a firm to bridge the gap between the present and the future.

Goal oriented: Planning is focused on achievement of goals. It helps to achieve goals in an efficient and
effective manner.

Involves choice: Planning involves choice among alternative courses of action. The alternatives are evaluated
and the most suitable among them is chosen. Plans refer to decisions taken after evaluating alternatives.

Integrated process: The various divisions of an organization have plans of their own. These different plans are
inter related in nature. They have to be integrated to achieve the objectives of the organization.

IMPORTANCE OF PLANNING

1. Planning provides Direction:

Planning is concerned with predetermined course of action. It provides the directions to the efforts of
employees. Planning makes clear what employees have to do, how to do, etc. By stating in advance how work
has to be done, planning provides direction for action. Employees know in advance in which direction they have
to work. This leads to Unity of Direction also.
2. Planning Reduces the risk of uncertainties:
Organizations have to face many uncertainties and unexpected situations every day. Planning helps the
manager to face the uncertainty because planners try to foresee the future by making some assumptions
regarding future keeping in mind their past experiences and scanning of business environments. The plans are
made to overcome such uncertainties. The resources are kept aside in the plan to meet such uncertainties.

3. Planning reduces over lapping and wasteful activities:

The organizational plans are made keeping in mind the requirements of all the departments. The
departmental plans are derived from main organizational plan. As a result there will be co-ordination in
different departments.

4. Planning Promotes innovative ideas:

Planning requires high thinking and it is an intellectual process. So, there is a great scope of finding
better ideas, better methods and procedures to perform a particular job. Planning process forces managers to
think differently and assume the future conditions. So, it makes the managers innovative and creative.

5. Planning Facilitates Decision Making:

Planning helps the managers to take various decisions. As in planning goals are set in advance and
predictions are made for future. These predictions and goals help the manager to take fast decisions.

6. Planning establishes standard for controlling:

Controlling means comparison between planned and actual output and if there is variation between both
then find out the reasons for such deviations and taking measures to match the actual output with the planned.
But in case there is no planned output then controlling manager will have no base to compare whether the actual
output is adequate or not.

7. Focuses attention on objectives of the company:

Planning function begins with the setting up of the objectives, policies, procedures, methods and rules,
etc. which are made in planning to achieve these objectives only. When employees follow the plan they are
leading towards the achievement of objectives. Through planning, efforts of all the employees are directed
towards the achievement of organizational goals and objectives.

TYPES OF PLANNING

ON THE BASIS OF NATURE

 Operational Plan: Operational plans are the plans which are formulated by the lower level management
for short term period of up to one year. It is concerned with the day to day operations of the
organization. It is detailed and specific. It is usually based on past experiences. It usually covers
functional aspects such as production, finance, Human Resources etc.
 Tactical Plan: Tactical plan is the plan which is concerned with the integration of various
organizational units and ensures implementation of strategic plans on day to day basis. It involves how
the resources of an organization should be used in order to achieve the strategic goals. The tactical plan
is also known as coordinative or functional plan.
 Strategic Plan: Strategic plan is the plan which is formulated by the top level management for a long
period of time of five years or more. They decide the major goals and policies to achieve the goals. It
 takes in a note of all the external factors and risks involved and makes a long-term policy of the
organization. It involves the determination of strengths and weaknesses, external risks, mission, and
control system to implement plans.

ON THE BASIS OF MANAGERIAL LEVEL

 Top level Plans: Plans which are formulated by general managers and directors are called top-level
plans. Under these plans, the objectives, budget, policies etc. for the whole organization are laid down.
These plans are mostly long term plans.
 Middle-level Plans: Managerial hierarchy at the middle level includes the departmental managers. A
corporate has many departments like purchase department, sales department, finance department,
personnel department etc. The plans formulated by the departmental managers are called middle-level
plans.
 Lower level Plans: These plans are prepared by the foreman or the supervisors. They take the existence
of the actual workplace and the problems connected with it. They are formulated for a short period of
time and called short term plans.

ON THE BASIS OF TIME

 Long Term Plan: Long-term plan is the long-term process that business owners use to reach their
business mission and vision. It determines the path for business owners to reach their goals. It also
reinforces and makes corrections to the goals as the plan progresses.
 Intermediate Plan: Intermediate planning covers 6 months to 2 years. It outlines how the strategic plan
will be pursued. In business, intermediate plans are most often used for campaigns.
 Short-term Plan: Short-term plan involves pans for a few weeks or at most a year. It allocates resources
for the day-to-day business development and management within the strategic plan. Short-term plans
outline objectives necessary to meet intermediate plans and the strategic planning process.

ON THE BASIS OF USE

 Single Plan: These plans are connected with some special problems. These plans end the moment of the
problems to be solved. They are not used, once after their use. They are further re-created whenever
required.
 Standing Plan: These plans are formulated once and they are repeatedly used. These plans continuously
guide the managers. That is why it is said that a standing plan is a standing guide to solving the
problems. These plans include mission, policies, objective, rules and strategy.

STEPS IN PLANNING

Step 1: Determination of goals or objectives

The first step is determining the goals or objectives for the entire organisation. Goals can be set to make
use of opportunities or to solve a problem.
 Determination of goals or objectives

Determining the planning premises

Deciding the Planning Period

Identifying alternative courses of action

Evaluation of alternatives

Choice of an alternative

Preparation of derivative plans

Periodic Review

Step 2: Determining the planning premises

Planning premises refers to the assumptions made about environmental factors. It comprises of two
components. They are (a) internal premises (b) External premises. Internal premises are assumptions made
about the internal environment factors such as suppliers, employees, etc. External premises are assumptions
made about the external environment factors such as legal environment, political environment, technological
environment, etc.

Step 3: Deciding the Planning Period

The third step is to decide the planning period. Operational planning focuses on the short term, while
strategic planning focuses on the long term.

Step 4: Identifying alternative courses of action

Alternative courses of action should be identified. This would provide more flexibility to the
management in deciding a course of action.

Step 5: Evaluation of alternatives

The benefits and drawbacks of each alternative has to be analyzed. It should be verified whether the
organisation has the resources to carry out the alternative. Alternatives have to be evaluated taking into account
the objectives set.
Step 6: Choice of an alternative

The alternative which can help in efficient achievement of objectives should be chosen. Managers have
to be very careful in this step. If it is a wrong choice of the alternative, then it will lead to failure.

Step 7: Preparation of derivative plans

The plans developed for the various levels down the organization are called derivative plans. The plan
set for the organization has to be broken down into departmental plans, unit plans and individual plans.

Step 8: Periodic Review

Periodic reviews have to be conducted. This will help us to implement the required corrective action
when there is any deviation.

METHODS OF PLANNING

 Mission or Purpose
 Objectives
 Goals
 Strategies
 Policies
 Procedures
 Rules
 Budgets

MISSION

Mission states the purpose for the existence of an organization. It describes clearly why it exists? What it
wants to be? And whom it wants to serve? To be successful a mission should be translated into everyday
actions. A mission statement basically defines two things:

o The products and services it offers

o The strength through which it tries to succeed.

OBJECTIVES

Objectives are the ultimate goals towards which the activities of the organization are directed at.
Objectives are the end point of planning. They determine the organization structure, the kind of personnel to be
recruited, the control systems to be established, etc. Objectives have a hierarchy. Organizational objectives are
at the top, followed by departmental objectives, then objectives of each unit or section, then comes the
individual objectives.

GOALS

Goals are the targets or ends that a manager or organization wants to reach. They should be specific and
challenging. They should have a clear time frame and should be properly communicated to the people who are
responsible for achieving them.
STRATEGIES

The word strategy is derived from the Greek word ‘strategia’ which means the art of directing military
forces. Strategy is basically a well defined plan to defend or defeat rivals and achieve success. Strategies are
long term plans to stay ahead of the competition. They help a firm to gain competitive advantage.

POLICIES

Policies are guidelines which aid the achievement of organizational objectives. Policies should be
framed after conducting an analysis of the objectives of the organization. They should be in tune with the
organizational mission. There are different types of policies such as:

o Financial policies
o Marketing policies
o Quality policies
o Research policies
o Development policies

PROCEDURES

Procedures are guides to action. Procedures specify the sequence of steps or operations that need to be
performed in order to achieve a given objective. It helps to reduce errors and omissions and also helps to
improve the quality of work.

RULES

Rules are plans that specify what is to be done in a given situation. They are rigid in nature and do not
allow for judgment or discretion. Rules are essential for maintaining discipline in the organization. Deviating
from rules would result in penalty or punishment.

BUDGETS

A budget is a quantitative statement specifying the results to be achieved in a future time period. They
serve as standards with which actual performance can be compared. Budgets can be prepared for various areas
of a business. For e.g. Production budget, Sales budget, Cash budget, etc.

DECISION MAKING

MEANING OF DECISION MAKING

Decision making means to select a course of action from two or more alternatives. It is done to achieve a
specific objective or to solve a specific problem. It is basically goal oriented.

DEFINITION OF DECISION MAKING

According to George R. Terry, “Decision Making is the selection based on some criteria from two or
more possible alternatives”.
 TYPES OF DECISIONS

1. Programmed and non-programmed decisions:

Programmed decisions are concerned with the problems of repetitive nature or routine type matters. A
standard procedure is followed for tackling such problems. These decisions are taken generally by lower level
managers. Decisions of this type may pertain to e.g. purchase of raw material, granting leave to an employee
and supply of goods and implements to the employees, etc. Non-programmed decisions relate to difficult
situations for which there is no easy solution.

2. Routine and strategic decisions:

Routine decisions are related to the general functioning of the organisation. They do not require much
evaluation and analysis and can be taken quickly. Ample powers are delegated to lower ranks to take these
decisions within the broad policy structure of the organisation.Strategic decisions are important which affect
objectives, organizational goals and other important policy matters. These decisions usually involve huge
investments or funds. These are non-repetitive in nature and are taken after careful analysis and evaluation of
many alternatives. These decisions are taken at the higher level of management.

3. Tactical (Policy) and operational decisions:

Decisions pertaining to various policy matters of the organization are policy decisions. These are taken
by the top management and have long term impact on the functioning of the concern. For example, decisions
regarding location of plant, volume of production and channels of distribution (Tactical) policies, etc. are policy
decisions. Operating decisions relate to day-to-day functioning or operations of business. Middle and lower
level managers take these decisions.

4. Organizational and personal decisions:

When an individual takes decision as an executive in the official capacity, it is known as organizational
decision. If decision is taken by the executive in the personal capacity (thereby affecting his personal life), it is
known as personal decision.

5. Major and minor decisions:

Another classification of decisions is major and minor. Decision pertaining to purchase of new factory
premises is a major decision. Major decisions are taken by top management. Purchase of office stationery is a
minor decision which can be taken by office superintendent.

6. Individual and group decisions:

When the decision is taken by a single individual, it is known as individual decision. Usually routine
type decisions are taken by individuals within the broad policy framework of the organization.Group decisions
are taken by group of individuals constituted in the form of a standing committee. Generally very important and
pertinent matters for the organization are referred to this committee. The main aim in taking group decisions is
the involvement of maximum number of individuals in the process of decision- making.
 PROCESS OF DECISION MAKING

1. Identify the decision

To make a decision, you must first identify the problem you need to solve or the question you need to
answer. Clearly define your decision. If you misidentify the problem to solve, or if the problem you’ve chosen
is too broad, you’ll knock the decision train off the track before it even leaves the station.If you need to achieve
a specific goal from your decision, make it measurable and timely so you know for certain that you met the goal
at the end of the process.

2. Gather relevant information

Once you have identified your decision, it’s time to gather the information relevant to that choice. Do an
internal assessment, seeing where your organization has succeeded and failed in areas related to your decision.
Also, seek information from external sources, including studies, market research, and, in some cases, evaluation
from paid consultants.
3. Identify the alternatives

With relevant information now at your fingertips, identify possible solutions to your problem. There is
usually more than one option to consider when trying to meet a goal—for example, if your company is trying to
gain more engagement on social media, your alternatives could include paid social advertisements, a change in
your organic social media strategy, or a combination of the two.

4. Weigh the evidence

Once you have identified multiple alternatives, weigh the evidence for or against said alternatives. See
what companies have done in the past to succeed in these areas, and take a good hard look at your own
organization’s wins and losses. Identify potential pitfalls for each of your alternatives, and weigh those against
the possible rewards.Depending on the decision, you might want to weigh evidence using a decision tree. The
example below shows a company trying to determine whether to perform market testing before a product
launch. The different branches record the probability of success and estimated payout so the company can see
which option will bring in more revenue.

5. Choose among alternatives

Here is the part of the decision-making process where you, you know, make the decision. Hopefully,
you’ve identified and clarified what decision needs to be made, gathered all relevant information, and
developed and considered the potential paths to take. You are perfectly prepared to choose.

6. Take action
Once you’ve made your decision, act on it! Develop a plan to make your decision tangible and
achievable. So once the best alternative is chosen, all you have to do is implementation.

7. Review your decision

After a predetermined amount of time—which you defined in step one of the decision-making process—
take an honest look back at your decision. Did you solve the problem? Did you answer the question? Did you
meet your goals?If so, take note of what worked for future reference. If not, learn from your mistakes as you
begin the decision-making process again.