Planning

*Concept, need, nature, Management By Objectives (MBO)

- Process of MBO - Benefits of MBO, Planning and
Performance, Goals and Plans, Types of Goals, Types of
Plans, Setting Goals and Developing Plans, Approaches to
Setting Goals, Developing Plans, Approaches to Planning,
Planning Effectively in Dynamic Environments. (6)
*Concept of Planning:
*Planning is the fundamental management function, which
involves deciding beforehand, what is to be done, when
is it to be done, how it is to be done and who is going to do
it.
*Planning is nothing but thinking before the action takes
place.
*Planning requires that managers be aware of
environmental conditions facing their organization and
forecast future conditions. It also requires that managers be
good decision makers.
*Planning involves setting objectives and determining a
course of action for achieving those objectives.
*Definition of Planning:
*According to Louis A Allen - "Management planning involves the
development of forecasts, objectives, policies, programmes,
procedures, schedules and budgets".
*According to The oHaimann - "Planning is deciding in advance
what is to be done. When a manager plans, he projects a course of
action, for the future, attempting to achieve a consistent, co-
ordinated structure of operations aimed at the desired results".
*According to Koontz O'Donnel - "Planning is an intellectual
process, the conscious determination of courses of action, the basing
of decisions on purpose, acts and considered estimates".
*According to Terry and Franklin-“Planning is selecting
information and making assumptions regarding the future to
formulated activities necessary to achieve organizational objectives.”
*According to Henry Fayol- “ Planning is deciding the best
alternatives among others to perform different managerial operations
in order to achieve the pre-determined goals.”
*Nature or Characteristics of Planning:
(1) Planning – An Intellectual Process: Planning requires
application of mind involving foresight, intelligence,
imagination & sound judgment. planning requires logical
and systematic thinking based on analysis of facts and
forecasts rather than a guess work. It requires thinking about
„what, how, when, by whom‟ etc. Decision making requires
competence, ability and experience.
(2) Planning – A Primary Function: All the management
activities start with planning. All other functions like
organizing, staffing, directing and controlling are based on
planning. It precedes the execution of all other managerial
functions and allows managers to organize, staff, direct and
control the activities in a better way so as to achieve
organizational goals.
(3) Planning – A Continuous Function of Management:
Planning process begins with the establishment of an
organization and continues as long as the enterprise is in
existence. It is to be performed in all situations and at all
levels of work. Planning is done for specific period, as soon
as existing period get complete there is a requirement of
new plans again.
(4) Planning – A Pervasive Function: Planning is not only
the function of top management or any particular
department. It is required at all levels of management be it
higher level, middle level or lower level; and even at all
departments of an organization. However, the scope and
nature of planning is different at different levels and in
different departments.
(5) Flexibility: Planning should proact and react to the
environmental changes. Liberalisation, privatisation and
globalisation make the external environment more dynamic.
This in turn results in high competitiveness and customer-
centred production and marketing.
(6) Future-oriented: It is a process of looking ahead. Earl
Strong says, “Planning is anticipating.” Hamilton
Church writes, “Planning is, in essence, the exercise of
foresight.” It is looking into the future before the situation
actually occurs.
(7) Planning is Goal-Oriented: An enterprise in established
with some pre-determined objectives and planning tells us how
to achieve those objectives. First of all the objectives of the
organisation are determined and then planning is made to
achieve them. Therefore, it is clear that planning without some
objectives is meaningless.
*Need of Planning:
1. It Helps to Set the Right Goals: While a plan is a course
of action towards the realization of the goal, it also
supports smart goal setting. planning helps to critically
assess the goal to see if it‟s realistic. It facilitates decision
making and allows setting a time frame by predicting when
the company can achieve its goal.
2. It Sets Objectives and Standards for Controlling: A
primary function of strategic formal planning is providing
direction to lower-level managers, allowing the
development of tactical goals. Planning also sets the
standards for assessing performance. Without such
standards, managers wouldn‟t be able to intervene and take
corrective actions to stay on track
3. It Reduces Uncertainty: The uncertainty of the future
puts the great risk on business sustainability, for it is
always difficult to manage through change. No organization
can control the economic and competitive environment;
thus, the ability to anticipate challenges and have
contingency plans in place is the best alternative.
4. It Eliminates Overlapping of Wasteful Activities:
Effective planning gives clarity about the responsibilities
and expectations of each department, team, and even team
member. This helps to make sure that the activities don‟t
overlap and improves co-ordination.
5. It Ensures Efficient use of Resources: Planning makes
the use of human and material resources as efficient as
possible. By starting the management process with a good
plan that focuses on the ultimate goal and considers
available capabilities, you can see many opportunities to cut
expenses.
6. It Improves Decision Making : Planning improves
decision-making processes and time management in two
ways. First, it helps managers to keep the focus on a goal
and thus ask themselves how alternative courses of action
might facilitate or delay reach it.
*Limitations of Planning:
1. Inflexibility: The more detailed and widespread the plans are
the greater inflexibility they are. This inflexibility arises an
account of the philosophy of management. If the management
has the philosophy of production of high quality goods at high
cost.
2. Time Consuming: The management cannot prepare any plan
simply. It has to collect various information and hold discussions
with others. So, planning is a time-consuming process.
3. False Sense of Security: Future is uncertainty. Planning is
concerned with future. The management people think that there
is security, if planning is properly adhered to. But, this is not true
in practice. So, the course of action is limited and planning
becomes precise. This difficulty makes the management have a
false sense of security.
4. Time Consuming and Expensive Exercise: Planning
requires great effort from people to collect information from
various sources, analyze and interpret the data concerning past
events, current happenings and future probabilities. Planning
turns out to be an elaborate process for small concerns compared
to the benefits resulting therefrom.
5. External Constraints: External factors like political factors,
social factors, trade unions, war situations, civil disturbance,
natural calamities, change in fashion, economic recession,
inflation, monetary policies pursued by the central banking
institution of the country etc.
6. Lack of Accurate Information: Every manager prepares plan
to meet the future needs and which he does depending the
information he got on his hand. This type of forecast may not
predict the future events correctly. Plans prepared on such false
information may cause problem and put whole thing in
confusion.
*Planning Process:
1. Perception of Opportunities: Perception of
opportunities is not strictly a part of the planning process.
But this awareness of opportunities in the external
environment as well as within the organization is the real
starting point for planning. It is important to take a
preliminary look at possible future opportunities and see
them clearly and completely.
2. Establishing Objectives: The major organizational and
unit objectives are set in this stage. This is to be done for the
long term as well as for the short range. Objective specify
the expected results and indicate the end points of what is to
be done, where the primary emphasis is to be placed and
what is to be accomplished by the various types of plans.
3. Planning Premises: The next step is establishing planning
premises that is the conditions under which planning activities
will be undertaken. Planning premises are planning assumptions
the expected environmental and internal conditions. Thus
planning premises are external and internal. External premises
include total factors in task environment like political, social,
technological, competitors, plans and actions, government
policies. Internal factors include organisation‟s policies,
resources of various types, and the ability of the organisation to
withstand the environmental pressure.
4. Identification of Alternatives: Various alternatives can be
identified based on the organisational objectives and planning
premises. The concept of various alternatives suggests that a
particular objective can be achieved through various actions.
5. Evaluation of Alternatives: The various alternative
course of action should be analysed in the light of premises
and goals. There are various techniques available to
evaluate alternatives. The evaluation is to be done in the
light of various factors. The alternatives should give us the
best chance of meeting our goals at the lowest cost and
highest profit.
6. Choice of Alternative Plans: This is the real point of
decision-making. An analysis and evaluation of alternative
courses will disclose that two or more .ire advisable and
beneficial. The fit one is selected.
7. Formulation of Supporting Plan: After formulating the
basic plan, various plan are derived so as to support the
main plan. In an organisation there can be various derivative
plans like planning for buying equipment, buying raw
materials, recruiting and training personal, developing new
product etc.
8. Establishing Sequence of Activities: After formulating
basic and derivative plans, the sequence of activities is
determined so those plans are put into action. After
decisions are made and plans are set, budgets for various
periods and divisions can be prepared to give plans more
concrete meaning for implementation.
*Management by Objectives (MBO):
*Peter F. Druker gave the concept Management By
Objectives(MBO) in the year 1954.
*Management by objectives (MBO) is a strategic
management model that aims to improve organizational
performance by clearly defining objectives that are agreed to
by both management and employees.
*According to the theory, having a say in goal setting and
action plans encourages participation and commitment
among employees, as well as aligning objectives across the
organization.
*Critics of MBO argue that it leads to employees trying to
achieve the set goals by any means necessary, often at the
cost of the company.
*Process of MBO:
1. Define organization goals: Setting objectives is not only critical to
the success of any company, but it also serves a variety of purposes. It
needs to include several different types of managers in setting goals.
The objectives set by the supervisors are provisional, based on an
interpretation and evaluation of what the company can and should
achieve within a specified time.
2. Define employee objectives: Once the employees are briefed about
the general objectives, plan, and the strategies to follow, the managers
can start working with their subordinates on establishing their
personal objectives. This will be a one-on-one discussion where the
subordinates will let the managers know about their targets and which
goals they can accomplish within a specific time and with what
resources. They can then share some tentative thoughts about which
goals the organization or department can find feasible.
3. Continuous monitoring performance and progress:
Though the management by objectives approach is
necessary for increasing the effectiveness of managers, it is
equally essential for monitoring the performance and
progress of each employee in the organization.
4. Performance Evaluation: As per the basic concept of
MBO, the performance evaluation comes under the
responsibility of concerned managers and is made by their
participation. Keep in the mind, performance evaluation is
one of the most important factors of the organization that
can help to operate certain objectives smoothly.
5. Providing Feedback: The psychologically influential
factor of MBO is constantly providing feedback to
employees regarding their performance and individual goals
so that they can monitor, correct and extra improve their
skills and mistakes. the feedback is provided in periodic
meetings where supervisors and their subordinates review
the performance and progress towards the achievement of
goals.
*Advantages of MBO:
1. Improved Performance: MBO is basically a result
oriented process. Its main focus is on setting and controlling
goals. Managers are encouraged to do detailed planning.
They concentrate on the important task of improving
performance by reducing the costs and harnessing the
opportunities. Improved planning will lead to improved
productivity arid more profits.
2. Greater Sense of Identification: The individual
members of the organization have a greater sense of
identification with the company goals. With MBO, the
subordinates feel proud of being involved in the
organizational goals. This improves their morale and
commitment to the organizational objectives.
3. Maximum Utilization of Human Resources: Since the
goals are set in consultation with the subordinates, these are
more difficult to achieve and more challenging than if the
superiors had imposed them. In addition, since these goals
are fixed according to the particular abilities of the
subordinates, it obtains maximum contribution from them
and thus it leads to maximum utilization of human
resources.
4. No Role Ambiguity: There is no role ambiguity or
confusion in the organization, because specific and clear
goals are set for the organization, for the division for the
departments and for the individual members. Both the
managers and the subordinates know what they have to do
and what is expected of them.
5. Improved Communication: In MBO, there is improved
communication between the management and the
subordinates. This continuous two way communication
helps in clarifying any ambiguities, refining and modifying
any processes or any aspects of objectives.
6. Improved Organizational Structure: In MBO, the
whole of organizational structure is redesigned because of
the revision of job descriptions of various positions as a
result of resetting of the individual goals. All this helps in
improving the organizational structure as a result of location
of the problem and weak areas of the organization.
*Approaches to Planning:
1. Top-Down Approach: In a centralized company, such planning is
done at the top of the corporation and the departments and outlying
activities are advised straightway what to do. In a decentralized
company, the CEO or the President may give the divisions guidelines
and ask for plans. The plans after review at the head office are sent
back to the divisions for modifications or with a note of acceptance.
2. Bottom-up Approach: As is well known that thinking and doing
are interrelated, in this approach efforts are made to involve those
persons in planning who will be assigned their implementation also.
Bottom-up approach may also be referred to as participating planning
where rough estimates made at the lower levels of management and
then these are communicated to higher levels. The top level
management reviews the figures received from lower levels and then
approves the plans.
4. Team Approach: In team approach more and more managers are
involved in formulating plans. Those managers who are associated in
planning process will be helpful in implementing them. The managers
associated with different activities are asked to prepare tentative plans
for their areas and then submit the proposals to their Chief Executive.
The final approval of plans is given by the Chief Executive. The team
of managers works as a brain of the Chief Executive and suggests
various proposals.
3. Composite Approach: Composite approach is a combination of top-
bottom and bottom-up approaches. In composite approach top
executives provide guidelines, parameters and limitations under which
middle and lower level managers are expected to formulate tentative
plans which are communicated to top level managers for review and
approval. The top executives have the final authority for making plans.
This approach has the advantage of involving lower level managers in
thinking process and prepare tentative plans in given parameters.
*Planning and Performance:
*A question generally arises whether the organizations
undertaking planning outperform those which do not formally
plan. The performance of those organizations which formally
plan has been found better in comparison. It cannot blanketly be
said that organizations formally planning always outperform
those that do not.
*Various studies on the impact of planning on performance
have shown the following conclusions:
(i) Formal planning is associated with higher profits, higher return
on assets and other positive financial results.
(ii) The quality of planning process and the appropriate
implementation of the plans probably contribute more to high
performance than does the extent of planning.
(iii) In those organizations where planning does not lead to
higher performance, the environment was the culprit. The
government regulations, labour unions and other such
adverse situations were responsible for limiting the
performance of organizations.
* Reasons of failure of planning:
1. Not understanding the environment or focusing on
results.: Planning teams must pay attention to changes in the
business environment, set meaningful priorities, and
understand the need to pursue results.
2. Partial commitment.: Business owners/CEOs/presidents
must be fully committed and fully understand how a strategic
plan can improve their enterprise. Without this knowledge,
it‟s tough to stay committed to the process.
3. Not having the right people involved. Those charged
with executing the plan should be involved from the onset.
Those involved in creating the plan will be committed to
seeing it through execution.
4. Having the wrong people in leadership
positions.: Management must be willing to make the tough
decisions to ensure the right individuals are in the right
leadership positions. The “right” individuals include those
who will advocate for and champion the strategic plan and
keep the company on track.
5.Ignoring marketplace reality, facts, and
assumptions. Don‟t bury your head in the sand when it
comes to marketplace realities, and don‟t discount potential
problems because they have not had an immediate impact on
your business yet. Plan in advance and you‟ll be ready when
the tide comes in.
6. No accountability or follow through. Be tough once the
plan is developed and resources are committed and ensure
there are consequences for not delivering on the strategy.
*Making Planning effective :
1. Well-Defined Objectives: For efficient planning well-
defined objectives are needed. Objectives are to be rational
and understandable. They should be realistic and idealistic.
This will ensure a sense of direction for the organisation and
facilitate control and co-ordination.
2. Management Information System: For development of
plans, collection of data, analysis and selection of the right
alternative is needed. Not for developing but also for
evaluation of plans management needs information. So by
providing correct and reliable information the development
of good plans can be facilitated.
3. Top-Level Initiative: To make planning effective they are
originate at the top. The top management is to take initiative in
planning and must support it and it should enlist the support of
lower level executives. The lower level may be allowed to submit
their plans to the top executives for approval and consideration.
4. Planning should be Flexible: Its execution should be oriented
to events. In case of changing events alternate or contingent plans
should be kept ready for changes. They should be developed step
by step.
5. Integration of Long-Term and Short-Term Plans: Both short
and long term plans are to be prepared and integrated to achieve
objectives of the organisation. They should be prepared and
integrated to achieve the objectives of the organisation. Perfect
co-ordination between the two types of planning is to be
achieved.
6. Cost-Benefit Analysis: The planners are to undertake cost-
benefit analysis to ensure that the benefits of planning are more
than the cost involved in it. This can be achieved by establishing
measureable objectives, proper decision-making, reasonable
premising and formulation of derivative plans for the changing
environment.
7. Proper Forecasting: One of the important steps in planning is
forecasting. Management must have a mechanism of forecasting
changes in environment which are influenced by economic,
social, political and international factors.
8. Dynamic Managers: The managers associated with the task of
planning should be dynamic in outlook. They must have the
initiative to make business forecasts and develop planning
premises. They should always keep in mind that planning is
looking ahead and he is to prepare plans for the future which is
highly uncertain.
*The 4 Types of Plans:
1. Strategic Planning: A strategic plan is the company‟s big
picture. It defines the company‟s goals for a set period of time,
whether that‟s one year or ten, and ensures that those goals align
with the company‟s mission, vision, and values. Strategic
planning usually involves top managers, although some smaller
companies choose to bring all of their employees along when
defining their mission, vision, and values.
2. Tactical Planning: The tactical strategy describes how a
company will implement its strategic plan. A tactical plan is
composed of several short-term goals, typically carried out within
one year, that support the strategic plan. Generally, it‟s the
responsibility of middle managers to set and oversee tactical
strategies, like planning and executing a marketing campaign.
3. Operational Planning: Operational plans encompass what
needs to happen continually, on a day-to-day basis, in order to
execute tactical plans. Operational plans could include work
schedules, policies, rules, or regulations that set standards for
employees, as well as specific task assignments that relate to
goals within the tactical strategy, such as a protocol for
documenting and addressing work absences.
4. Contingency Planning: Contingency plans wait in the wings
in case of a crisis or unforeseen event. Contingency plans cover a
range of possible scenarios and appropriate responses for issues
varying from personnel planning to advanced preparation for
outside occurrences that could negatively impact the business.
Companies may have contingency plans for things like how to
respond to a natural disaster, malfunctioning software, or the
sudden departure of a C-level executive.
*Concept of Goal:
*A goal is an idea of the future or desired result that a person
or a group of people envision, plan and commit to achieve.
People endeavor to reach goals within a finite time by
setting deadlines.
*A goal, in business, describes what a company expects or
hopes to accomplish over a specific period.
*A goal is roughly similar to a purpose or aim, the
anticipated result which guides reaction, or an end, which is
an object, either a physical object or an abstract object.
*Most companies have details on their goals and
objectives in their business plan. A business plan is a
formal document that outlines a company‟s goals,
objectives, strategies, and financial forecasts.
*Features of Effective Organizational Goals:
1. Specific: Organizational goals must be precise. It must be clearly
defined and should be understood by every concerned people.
2. Measurable: Every goal should contain details about, how particular
aspects of performance will be measured. It should be measurable in
terms of quality and quantity. Measurable goals help to assess work-in-
progress of individuals and organization.
3. Acceptable: Goal should be accepted by workers, who are
responsible for achieving them. There must be participation and
agreement of both higher and lower management in goal setting process.
4. Realistic: Goal must be realistic enough, that each individual working
in an organization should have faith on its achievement. Unachievable or
unrealistic goals lead to excess expenses and even collapse of an
organization.
5. Time bound: Goal must be bound by time frame. There must be clear
estimation of time period for accomplishment of goals in future. Time
bound goals not only help to identify the necessities of promptness but
also serve as a standard for the organizational activities.
*Approaches to Setting Goals:

(a) Traditional Approach: In this approach, the objectives

are set by the people at the top of the organization for those
at the lower levels. This approach is essentially one-way and
it is called an authoritarian approach. This approach is likely
to reduce their motivation, sense of commitment and
responsibility.
(b) Management by Objectives: MBO is a technique and
philosophy of management based on converting an
organizational objective into a personal objective on the
presumption that establishing personal objectives makes an
employee committed, which leads to a better performance.
The objective setting in MBO creates an integrated
hierarchy of objectives throughout the entire organization.
MBO, the process of objective setting involves participation
and collaboration among the various levels of organization
with the intention of achieving organizational objectives.
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