Chapter -03

Planning

Learning Outcomes
After completing this chapter, you will be able to;
✓ Define the term planning
✓ Describe the importance of planning
✓ Explain the types of planning
✓ Describe the innovative approaches to planning

3.1. Introduction
You may think that “planning” isn’t something that’s relevant to you right now. But when you
figure out your class schedule for the next term or when you decide what you need to do to
finish a class project on time, you’re planning. And planning is something that all managers
need to do. Although what they plan and how they plan may differ, it’s still important that they
do plan. In this chapter, we present the basics: what planning is, why managers plan, and how
they plan.

3.2. Definition
Planning is the first and foremost function of management. Planning is an attempt to anticipate
the future in order to achieve better performance.

According to Koontz and O’Donnel;

“Planning is deciding in advance what to do, how to do it, when to do it and who is to do it. It
bridges the gap from where we are and to where we want to go. It is in essence the exercise of
foresight”.

According to M.S. Hardly;

“Planning is deciding in advance what is to be done. It involves the selection of objectives,
policies, procedures and programs among alternatives.

According to Heying and Massie;

“Planning is that function of the manager in which he decides in advance what he will do. It is
a decision-making process of a special kind. It is an intellectual process in which creative mind
and imagination are essential”.

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3.3. Importance of planning
Planning is important because of the following reasons.
➢ Primacy of planning: Planning is the first and foremost function of management, other
functions follow planning.
➢ To minimize risk and uncertainty: The organization continuously interacts with the external
dynamic environment where there is great amount of risk and uncertainty. By planning,
manager can reduce the risk and uncertainty.
➢ To focus attention on objectives: Planning focuses on organizational objectives and
direction of action for achieving these objectives.
➢ To facilitate control: Control involves the measurement of actual performance, comparing
it with the standards and initiating corrective action if there is deviation.
➢ To increase organizational effectiveness: Effectiveness implies that the organization is able
to achieve its objectives within the given resources.

3.4. Types of planning

Planning can be classified on the basis of coverage of activities, importance of contents,
approach adopted, time dimension, degree of formalization in planning process and frequency
of planning.
➢ Corporate and functional planning: The planning activities at the corporate level which
cover the entire organizational activities are known as corporate planning. Functional
planning which is derived from corporate planning is undertaken for each major function
of the organization like production, marketing, finance etc.
➢ Strategic and operational planning: Strategic planning sets future directions of the
organization in which it wants to proceed in future. Strategic planning involves a time
horizon of more than one year. The time horizon in operational planning is less than one
year. Operational planning is undertaken out of the strategic planning.
➢ Long- and short-term planning: The long-term planning is strategic in nature and involves
more than one-year period and can extend to 15 to 20 years or so. Short term planning
usually covers one year.
➢ Proactive and reactive plans: Managers adopting proactive changes do not wait for
environment to change, but take action in advance of environmental changes. In reactive
planning response comes after environmental changes take place.

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➢ Formal and informal planning: Large organizations undertake planning in a formal way
through a separate corporate planning cell. Informal planning is undertaken generally by
small organizations. This planning process is based on manager’s experience, intuitions.
➢ Standing and single use plans: Standing plans provide guidelines for further course of
action and are used over a period of time. Standing plans are designed for situations that
recur often enough to justify a standardized approach. Standing plans include mission,
objectives, strategies and policies.
On the other hand, single use plans are designed for specific end; when that end is reached,
the plan is dissolved or formulated again for next end. Examples of such plans are project,
budgets, quotas, targets etc. Single use plans are generally derived from standing plans.

3.5. Hierarchies of plans

There are several levels of planning based on the importance and frequency of planning.

Figure – 04: Hierarchies of plans

Mission
Objectives/Goals

Strategies
Policies

Procedures & rules

Programs
Budgets
Quotes & targets

Mission
Mission has external orientation and relates the organization to the society in which it operates.
A mission statement links the organization activities to the needs of the society and legitimates
its existence.
Objectives/Goals
According to Mc Farland, “Objectives are the goals, aims or purposes that the organizations
wish to achieve over varying periods of time”.

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Strategies
A strategy is a plan which considers environmental opportunities and threats and the
organizational strengths and weakness and provides an optimal match between the firm and
external environment.
Policies
According to George R Terry, “Policy is a verbal, written or implied overall guide, setting up
boundaries that supply the general limits and directions in which managerial action will take
place”.
Procedures
Policies are carried out by means of more detailed guidelines called procedures. A procedure
provides a detailed set of instructions for performing a sequence of actions involved in doing a
certain piece of work.
Rules
Rules are detailed and recorded instructions that a specific action must or must not be
performed in a given situation.
Program
A program is a sequence of activities directed towards the achievement of certain objectives.
A program is action based and result oriented.
Budgets
A budget is a statement of expected results expressed in quantitative terms i.e. rupees, man
hours, product units

3.6. Planning for a turbulent environment

Three approaches that help brace the organization for unexpected – even unimaginable – events
are contingency planning, building scenarios and crisis planning
➢ Contingency planning
Contingency plan defines company responses to be taken in the case of emergencies, setbacks,
or unexpected conditions. To develop contingency plans, managers must identify important
factors in the environment, such as possible economic downturns, declining markets, increases
in the cost of supplies, new technological developments or safety accidents. Managers then
forecast a range of alternative responses to the most likely high-impact contingencies, focusing
on the worst case.

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➢ Building Scenarios
Scenario building involves looking at current trends and discontinuities and visualizing future
possibilities. Rather than looking only at history and thinking about has been, managers think
about what could be.
➢ Crisis planning
Organizations should engage in crisis planning to enable them to cope with unexpected events
that are so sudden and devastating that they have the potential to destroy the organization if
managers are not prepared with a quick and appropriate response.
Crisis planning involves the two major stages of prevention and preparation.
Crisis prevention involves activities such as building relationships and directing signals from
the environment that managers undertake to try to prevent crises from occurring and to direct
warning signs of potential crises.
Crises preparation includes all the detailed planning to handle a crisis when it occurs. Three
steps in the preparation stage are;
✓ Designing a crisis management team and spokes person
✓ Creating a detailed crisis management plan
✓ Setting up an effective communication system

3.7. Innovative approaches to planning

Approaches to planning change with times.
➢ Decentralized planning means that top executives or planning experts work with managers
in major divisions or departments to develop their own goals and plans
➢ Stretch goals are reasonable yet highly ambitious and compelling goals that energize people
and inspire excellence.
➢ Business performance dashboards can help managers oversee plans and measure progress
toward goals.
➢ An intelligence team is a cross-functional group of people who work together to gain a deep
understanding of a specific competitive issue and offer insight and recommendations for
planning.

3.8. Limitations of planning

Despite the benefits of planning, some researchers think planning can hurt organizational
performance in some ways;
✓ Plans can create a false sense of certainty

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✓ Plans may cause rigidity in a turbulent environment
✓ Plans can get in the intuition and creativity

3.9. Chapter summary

Planning is an attempt to anticipate the future in order to achieve better performance. This
chapter discussed the importance of planning, types of planning and hierarchy of planning.
Then, the three approaches that help brace the organization for unexpected were described and
innovative approaches to planning to handle contemporary issues were explained. Finally this
chapter stressed that in spite of several benefits of planning, there are some disadvantages of
planning.

3.10. Chapter Review Questions

1) Define the term ‘planning’
2) What are the purposes of planning?
3) Briefly explain the types of planning
4) Briefly describe ‘hierarchy of plans’
5) What are the three approaches that help brace the organization for unexpected events
6) Briefly explain the innovative approaches to planning
7) What are the limitations of planning?

3.11. Case Study

Building a Future
Habitat for Humanity is a nonprofit, ecumenical Christian housing ministry whose mission is
to “eliminate poverty and homelessness from the world and to make decent shelter a matter of
conscience and action.” The organization was founded by Millard and Linda Fuller in 1976 in
Americus, Georgia. More than 300,000 Habitat houses have been built, sheltering more than
1.5 million people around the world. These houses can be found in all 50 states of the United
States, the District of Columbia, Guam, Puerto Rico, and more than 90 countries around the
world. “Thousands of low-income families have found new hope in this form of affordable
housing.”
Habitat’s approach is simple. Families in need of decent housing apply to local Habitat for
Humanity affiliates. Homeowners are chosen based on their level of need, their willingness to
become partners in the program, and their ability to repay the loan. And that’s the unique thing
about Habitat’s approach. It’s not a giveaway program. Families chosen to become

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 homeowners have to make a down payment and monthly mortgage payments, and invest
hundreds of hours of their own labor into building their Habitat home and helping build other
Habitat houses. Habitat volunteers provide labor and donations of money and materials as well.
(Maybe some of you have helped in a Habitat build.)
In 2009, J. Ronald Terwilliger, a former CEO of housing developer Trammell Crow Residential
Co., who also has been a long-time member of Habitat’s board of directors, made a $100
million commitment to Habitat. He says that “through his work with Habitat and in the private
sector, he’s witnessed the depths of poverty, seeing people living in cardboard shacks and
unspeakable filth, as well as the struggle for middle-class families to find affordable housing.”
According to the Center on Philanthropy at Indiana University, “It’s one of the largest gifts in
recent years to a group devoted to social services.” Terwilliger’s gift is intended to give people
a helping hand toward a decent, safe clean home. And it’s intended to send a message to other
philanthropists to “step up their giving.” As for Habitat, its CEO, Jonathan Reckford, said,
“This is a chance to have a really deep impact”. Having that type of impact when the needs
now are greater than ever is a definite planning challenge for the organization and its managers.

Source: Robins, S.P., Coulter, M., (2012). Management, (11th Ed.) Upper Saddle River, New
Jersey: Prentice Hall

Discussion Questions
1) What role do you think goals would play in planning for the wise use of this gift? List some
goals you think might be important. (Make sure these goals have the characteristics of well-
written goals.)
2) What types of plans would be needed in wisely using this gift? (For instance, long-term or
short-term, or both?) Explain why you think these plans would be important.
3) What contingency factors might affect the planning Habitat executives have to do for the wise
use of this gift? How might those contingency factors affect the planning?
4) What planning challenges do you think Habitat executives face with getting the most use out
of this gift? How should they cope with those challenges?

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