CHAPTER 3

ENTERPRISE MANAGEMENT:
PLANNING THE ENTERPRISE

Chapter Objective:
At the end of this chapter, it is expected that students will be able to prepare a business plan
based on the identified business opportunity in the preceding chapter.

PLANNING

Planning is the main function of management. Its purpose is to ensure best use of human and
economic resources in the business processes. It comes before all other activities of the business
undertaking. Moreover, it is also the process of charting out the path for attaining the ultimate
purpose of business operations by drawing the sequence of events forecast with reasonable
degree of certainty.

Planning is defined as “the thinking process, the organized foresight, the vision based on fact and
experience that is required for intelligent action.” It is careful scheduling of efforts and
investment, and the integrated mix of men, machines, money and effort to achieve an established
objective by a given time in future. It answers the following questions:
✔ What should be done?
✔ Why is action necessary?
✔ Where shall it be done?
✔ How shall it be done?
✔ Who will do it?
✔ What physical resources will be required?

It means that planning involves anticipation of future course of events. It is a process of thinking
before doing. It leads to the determination of objectives and steps necessary to achieve them.

Characteristics of Planning:

1. Primacy of Planning. Planning comes before all other managerial functions. It is nothing
but logical, because the functions of organizing, staffing, directing and control are
concerned with the accomplishment of the objectives of the business undertaking.
Planning functions occupy a unique position of primacy because it is concerned with the
establishment of the objectives necessary for all group efforts.

2. Pervasiveness of Planning. Managers at all levels of organization perform the planning

function. No doubt, the character and breadth of planning varies with the authority
delegated to managers at different levels and with the nature of policies and plans
outlined by their superiors. ‘One manager may do more planning or more important
planning’ than another manager.
 Similarly, planning by one manager may be more basic and applicable to a larger area of
the business undertaking than that of another, this all will depend upon the authority
delegated to him or the position in the organization occupied by him. But planning is a
function of every manager. All managers, right from the president to foremen perform the
function of planning.

3. Planning is directed towards efficiency. A good plan is a course of action expected to

give optimum return at the minimum costs. The efficiency of a plan is measured by the
amount of its contribution to the purpose and objectives as against the costs and other
unwanted effects involved in the formulation and operation of the plan.

This concept of efficiency takes into consideration not only the output and costs in terms
of rupees, man-hours of units of production but also the overall individual and group
satisfaction.

4. Planning is an Intellectual Process. Planning is essentially an intelligent synthesis of

present knowledge and previous experience. Planner has to choose from among
alternative courses of action the most suitable one to achieve an objective. For this
purpose, the manager developing a plan has to depend on his ‘knowledge’ and ‘know-
how’.

‘Knowledge’ here, refers to some basic body of principles, points of view, general
methods of solving a problem, and other background information related to the solution
of certain general classes of problems.

‘Know-how’ is the body of facts and skills which are acquired from practical experience
in solving specific difficulties. Usually, it cannot be acquired from books.

A manager has to integrate his intelligence, knowledge, know-how and facts in

developing a business plan.

5. Planning is Goal-Oriented. The purpose of every plan and all derivative plans is to
facilitate the accomplishment of the purpose and objectives of the business undertaking.
Plans focus attention on objectives. They forecast which actions will lead to the ultimate
objective. “Managerial planning seeks to achieve a consistent, coordinated structure of
operations focused on desired end.”

6. Planning is Futuristic. Planning is primarily concerned with looking into future. It

necessitates accurate forecasting of future situations and requirements in order to chalk
out a rational path to tackle future situations. This involves taking into consideration
correct and prospective resources of the business and make a systematic effort to look
into future. Thus, planning can be termed as ‘forward looking’ in nature.

7. Planning Involves Choice. Planning involves selection of best alternatives. Good

planning must be realistic and precise as far as the selection of the most appropriate
course of action is concerned. Planning is a decision making activity which has evolved
 due to the existence of various alternatives available and the need to evaluate and select
the most suitable alternative.

8. Planning is a Flexible and a Continuous Process. Planning is flexible, as it is based on

future conditions which are always dynamic. Consequently, planning cannot be executed
on the basis of a rigid framework. In fact, there should be enough scope for revaluation
and review according to changes in conditions in order to make planning more effective.

Planning is a continuous activity, as execution of one plan will be followed by another plan
being undertaken to meet the challenges of the dynamic business environment. The
management cannot plan once for all. There is always a need for continuous revision of old
plans and implementation of new ones.

Steps Taken for Planning:

1. Establishing Objectives. The first step in planning is the statement of objectives to be

achieved by the business. It should be known to every member of the concern as to what
are its purposes and objectives. Objectives indicate what basically is to be done. Where
the preliminary stress is to be placed and what is to be accomplished by the network of
policies, procedures, rules, strategies, budgets and programs.

2. Establishing Planning Premises. It is to establish, obtain agreement to use and

disseminate critical planning premises. There are forecast data of a factual nature,
applicable basic policies and existing company plans. Premises then are planning
assumptions, the future setting in which planning takes place in other words, the
environment of plans.

3. Determining Alternative Courses. In planning it is to search for and examine

alternative courses of action especially those not immediately clear. There is seldom a
plan for which reasonable alternatives do not exist.

4. Evaluating Alternative Courses. Having sought out alternative courses and examined
their strong and weak points the other step is to evaluate them by weighing the various
factors in the light of premises and objectives.

5. Selection from the Alternatives. Selecting the course of action, is the point at which
plan is adopted … the real point of decision making. An analysis and evaluation of
alternative courses will disclose that two or more courses are available, and the manager
may decide to follow several courses rather than one best course.

6. Formulation of Derivative Plans. As soon as the best program is decided upon, the next
task is to work out its details, formulate the steps in full service to break it down for each
section or department, for each product and component of a product and for each month,
quarter, week ultimately, the manager will get the final plan of action in concrete terms.
 7. Communication of Plans. It is necessary that the plans are properly and effectively
communicated to all the managers concerned.

PLANNING VS. CONTROLLING

“Planning is Looking Ahead and Control is Looking Backward”. To plan really means to look
ahead in the future. It stands for determining the course of action to be pursued to achieve the
desired goals. It implies an orderly approach to the task in hand. In the words of Koontz and
O’Donnel: “In the absence of proper planning business decisions would become just random
and ad hoc choices.”

Without planning if one goes, it is just like a pilot flying a plane without having in mind as to
where he has to go. Planning further takes care of the future uncertainty. Good management is
always one which is by objectives.

By planning, manager is focused on the formulation of the policies or objectives. This then
compels him to decide in clear-cut terms to chalk out a course of action to be pursued for the
accomplishment of the enterprise ‘objectives’. Planning rests on thinking before acting. So truly
planning is looking ahead.

Further, control-as another managerial function—really means looking back as it stands for
“measurement of accomplishment against the standards laid earlier in the plans”. Fundamentally,
control is the activity that guides activity towards some pre-Determined goal. Thus, control
means “comparing operation results with the plans and taking corrective action when results
deviate from the plans”.

In the context of the control process a manager’s role is to make plans, make all the preparations
for putting into effect, order actions, and then keep a watch on the way the things proceeds.
Deviation found anywhere should be corrected. In this sense, therefore, the entire control process
is looking back.

Importance of Planning:

1. Planning Helps in Achieving Objectives. Good and effective management is

management by objectives. By focusing attention on organizational goals, planning
assists the management to coordinate the resources of organization more efficiently. It
also enables the manager to chalk out in advance a “blue print” of sequence of action to
be pursued for realization organizational goals and to avoid needless overlapping of
activities.

2. Planning Minimizes Risk & Uncertainty. By providing a rational procedure for making
decisions and accurate forecasting, planning assists the management, and organizations in
minimizing risk and uncertainty arising out of future events.

Systematic planning helps to predict and deal with future contingencies, thus enabling the
management to cope the challenges of a dynamic and ever changing environment.
 Constructive planning minimizes the dangers and risks of future losses to be suffered on
account of insufficient information and lack of direction and foresightedness.

3. Planning Facilitates Control. Planning involves setting of goals which become standard
against which actual performance can be measured and evaluated. The function of
controlling is to ensure that the activities conform to the plans. Thus, effective controlling
is not possible without meaningful planning which serves as the basis to monitor,
measure, evaluate and control achievement of organizational objectives.

4. Planning Helps in Securing Effective Coordination. Planning determines the course of

activities of different units of organization in such a way that minimum co-ordination
between physical and human resources is achieved. When various departments in an
organization work in accordance with an overall plan, harmony and co-ordination is
achieved. It can be said that if co-ordination is essence for management, planning is the
base for it.

5. Planning Leads to Economy in Operation. Planning is a mental exercise which

involves selection of best possible course of action. On one hand it ensures optimum
utilization of scarce resources at minimum cost and on the other hand eliminates
duplication and overlapping of efforts. By replacing confusion and disorder with co-
operation and co-ordination planning helps in channelizing the energies towards
efficiency in operations.

6. Planning Facilitates Decision-Making. A plan cannot be said to exist unless a decision

relating to utilization of resources, direction of future course of events and choosing the
best alternative has not been made.

Decision-making which can be defined as the selection of a course of action from

different available alternatives can be identified as core of planning. Planning facilitates
the process of decision-making by allowing the managers the freedom to make choice in
evaluation and selection of the best alternatives in relation to the set targets.

7. Planning Promotes Creativity. Management being an art, provides the managers the
opportunity to suggest ways and means in achieving higher targets. Sound planning
induces creative thinking and action amongst the employees to avail the available
opportunities in such a way that novel ideas, methods and techniques emerge leading to
growth and prosperity of the organization.

8. Planning Improves Morale and Motivation. Planning makes a systematic arrangement

for disposal of financial and non- financial benefits to the workers of employees. Thus,
meeting their emotional and psychological needs. It also enhances their morale by
creating a consistent work environment aimed at achievement of organizational goals.

Limitations of Planning
 Planning does not guarantee 100% success in the business, it has limitations too. The
main limitations of planning are given below:

1. It has been thought as a time-consuming and expensive device. The framing of plans
involves money, energy and also, risk without giving any guarantee as to the
realisation of assured goals.
2. Smaller business concerns which are short of capital and which expect quick results
cannot afford to have a planning programme.
3. It leads to possible results and not assured gains.
4. It makes the entire organisational set-up rigid.
5. Forecasting methods, statistical data supplied are all inaccurate and the results of
operations research cannot be applied to all cases that come under planning.

THE BUSINESS PLAN

A business plan is a very important strategic tool for every entrepreneur. A good business plan
not only helps entrepreneurs to focus on the specific steps necessary for them to make business
ideas succeed, but it also helps them to achieve both their short-term and long-term objectives.

A business plan is an entrepreneur’s guide, or roadmap, blueprint in the conduct of the affairs of
the business. It will also serve as a monitoring tool in evaluating the performance of the business
later on. A business plan also help minimize if not totally eliminate costly mistakes caused by
actions which are not planned well.

Venture capitalist and Silicon Valley pioneer Eugene Kleiner once stated that writing a business
plan forces you into disciplined thinking. An idea may sound great, but when you put down all
the details and numbers, it may fall apart.

While a business plan is absolutely essential in entrepreneurship, not every entrepreneur sees the
need for it. Many are reluctant to have their plan written down. In fact, there are numerous
articles online claiming that the business plan is dead or irrelevant. Of course not everyone
agrees with that because entrepreneurship is not just all about planning, it also needs
commitment in the execution of the plans. According to Peter F. Drucker, “Unless commitment
is made, there are only promises and hopes; but no plans”

Before writing a business plan, it is important to consider two important factors:

1. Who will be the reader?

- If you are interested in raising capital, it is very likely that investors will be your target
audience. If you are interested in partnerships or joint ventures, your potential business
partners will be your audience.
2. What response do you want from them?
- Depending on your target audience, focus on the key message you want them to receive
in order to get the response you want.

The most common components of a Business Plan

 The business plan is composed of the following:
a. Executive Summary
b. Marketing Plan
c. Production or Procurement Plan
d. Organizational Plan
e. Financial Plan
f. Social Plan

A. The Executive Summary – this summarizes the business plan. This part will give the reader
an idea what the business plan is all about.

The Executive Summary is composed of the following:

a. Background or Rationale – brief idea of the business you are planning and what are your
compelling reasons for coming up with the business idea and what do you hope to
achieve in the implementation of the business plan.
b. Objectives of the business – this will show the specifics of the things you hoped for and
wanted to achieve in the business.
c. Profile of the owner or manager – this portion highlights the competencies or the
qualifications of the owner or manager. The profile may not readily answer the
qualification requirements of the business but it will guide the entrepreneur on what to
hire later on in the business.

B. The Marketing Plan – in this subject, we will just make use of the 4 P’s of Marketing.

The marketing plan highlights the following:

a. Product – this describes the goods or services that you are going to sell in the business.
This is further classified into:

1. Primary Product – this would refer to the major product that the business will carry
(breads for bakery or hair cut for a barbershop)
2. Secondary Product – this would refer to the products that compliments your primary
product (soft drinks for the bakery or shampoo in a barbershop)

b. Place – this defines the channel of distribution. This would answer how we plan our
products to reach our target markets. The different channel of distribution are the
following:

Without intermediaries:
1. Direct or Personal Selling

With intermediaries:
 2. Agent
3. Wholesaler
4. Retailer
5. Distributorship

There are 3 things to consider in planning your distribution channel:

1. Price of the product – if the cost of production is already high, you may consider
shortening the chain of distribution because more intermediaries would mean more
mark ups added in the selling price before it reaches the final consumer.
2. Technicality of the product – if the product is highly technical, you may also
consider shortening the chain of distribution because product information may be
altered as it passes the chain before it reaches the final consumer or user.
3. Perishability of the product – if the product is highly perishable, it is also advisable
to shorten the chain of distribution. Keep in mind that highly perishable products
demands an effective and efficient distribution channel and logistics.

c. Promotion – this part talks about our plan how to make our target market or customer
know our product or business. This will highlight our awareness campaign for the
consuming public. The various ways of promoting the enterprise are the following:

1. Referrals – words of mouth is said to be very effective in product promotion. A

satisfied customer becomes an instant product endorser for free. A more high-tech,
fastest and cheaper form of referral is through text brigades, emails, or sharing it via
social media.

2. Advertisements – form of promoting the business which can be costly sometimes.

Advertisements may be in the form of print or audio-visual. Print Ads are done
through leaflets or flyers, tarpaulins, billboards, newspapers or magazines. It may also
be done online through the webpage of reputable companies or organizations.

3. Product Display – this is in the form of product exhibits inside business

establishments or during festivals where people can see the product.

4. Publicity - “gimmicks” are sometimes employed in product promotion. This is

sometimes in the form of celebrity endorsers or brand ambassadors. This is also done
sometimes by sponsoring civic oriented activities like fun-run for a cause or clean-up
drive for a cause.

5. Product Add-ons or Freebies – this is usually done by attaching the product to a

more matured or saleable product. In this way, the product is introduced.

d. Price – this refers to the value attached to the product. This part of the marketing plan
will contribute a lot in attaining your objectives. Careful planning of the price is
important because most of the consumers are “price-conscious”.

In planning for the price, the following pricing techniques are considered:
 1. Prevailing Market Price or the suggested retail price in the market
2. Cost plus the desired mark-up technique
3. Demand oriented pricing
4. Competition oriented pricing

C. The Production Plan – this is applicable if the business is into manufacturing. This will
discuss the description of the products and all materials, equipment, machines, processes,
production cycle, and utilities needed to produce the product.

The production plan discusses the following:

1. Product Specification – this is written statement of an item's required characteristics
documented in a manner that facilitate its procurement or production.
2. Production Materials, Equipment, Machineries, Tools, Furniture and Fixtures – this
enumerates the “inputs” and other resources to be used in producing the products into
finished goods, including its quantity and price,
3. Production Process - the process a product or service takes in order for it to become
ready for customers to buy.  Production will certainly depend on the type and nature of
your proposed business. Generally, a manufacturer will have a more sophisticated
production process compared to a retailer or service provider. This is not to say that retail
and service based businesses are simple, but rather, these types of businesses usually
require fewer "processes".
4. Other supplies – this enumerate the supplies needed which would not form part of the
finished product. This may include the labels and packages of the product sold to
consumers.
5. Production facilities and utilities – facilities and utilities to be used in the production
process such as store room, production area, packaging area, and water, electricity and
communication respectively are listed in this section.
6. Production schedule – this discusses the time utilized in producing the product and how
often will the business plan to produce (daily, every other day etc)

The Procurement Plan – if the business is into merchandising (buy and sell), this plan is
prepared in lieu of the production plan. The procurement plan shows the items to be bought
in order for the enterprise conduct its business operation. It is the output of procurement
planning which is the process of deciding what to buy, when and from what source.

The procurement plan will be composed of the following:

1. Planned Inventory list – this enumerates goods the business would buy and stock for
resale, where to buy it and its quantity and estimated prices.
2. Procurement Schedule – this details how often and when the business will purchase
inventories.
For #s 3 to 5 : discussion is same with that of the Production Plan
3. Equipment, Machineries, Tools, Furniture and Fixtures –
4. Facilities and Utilities
5. Other Supplies
D. The Organization Plan – this summarizes the information about the structure of the
business and the team that would be involved.

The organizational plan includes the following:

1. Form of business organization – will the business be in the form of:

a. Single Proprietorship
b. Partnership
c. Corporation
d. Cooperative

2. Organizational Structure – this provides the idea about how the business is organized
and who is in-charge and who accomplishes the required task in the business. This also
discuss the roles of the people involved in the business, their qualification and expected
salaries and other benefits.

3. Pre-operating activities – through a GANTT CHART, this enumerates the activities to

be done before finally starting the business operations including its timeline.

E. The Financial Plan – this explains the total fund requirement in starting the business, where
to source it out and some financial projections so as to show the prospective financial
position and condition of the business on a later date.

The financial plan is composed of the following:

1. Total investment requirement – this sums up all the estimated cash outflows in terms of
investments and expenses for the next three or six months.
2. Source/s of Funds – this will also identify how do you plan to finance the business.
Sources of funds can be internal and external.
3. Projected Financial Statements – using your estimates, prepare a projected financial
statements such as:
a. Projected Income Statement – this will show your estimated net income under the
conditions of your estimated sales and expenses.
b. Projected Balance Sheet – this will show your projected Assets, Liabilities and
Equities over a period of time.
c. Projected Cash Flow Statement – this will show the summary of your projected
cash inflows and outflows from your, operating, financing and investing activities in
the business.
4. Projected Financial Analysis – using your projected financial statements, this will show
the perceived or anticipated performance of the business over a period of time through:
a. Return on Investment which is equal to Net Income over Total Investment. This
will give you an idea how long will you recover your investment.
b. Return on Asset which is equal to Net Income over Total Assets. This shows if your
investments in the business in terms of assets such as equipment, machines, furniture
etc are utilized to earn income for the business.
F. The Social Plan – the business will reside within a society, the owner and its employees are
all part of a society. This part of the business plan will discuss how the enterprise would like
to relate itself with the society where it belongs in terms of the preservation and promotion
of:
a. Environment
b. Cultural Heritage
c. Family Orientations
d. Economic Stability or Sustainability.

REQUIREMENT:

Prepare a Business Plan using the given format.