Planning: Importance, Elements and Principles |

Function of Management

Definition and Meaning of Planning:

Planning is a major and primary function of management. No organization can operate
properly without planning.

Planning is a preparatory step for action. It means systematized pre-thinking for

determining a course of action to achieve some desired result.

Planning is essentially a process of deciding in advance what is to be done, when and

where it is to be done, and how it is to be done, and by whom. To plan is to look ahead
and chalk out the future course of operations of an enterprise.

Through planning, the manager fixes the objectives of the organization as a whole and,
in the light of this, the goals of its various departments. Then he proceeds to prepare a
kind of ‘blueprint’ mapping out the ways of attaining these objectives.

Therefore, planning may be defined as follows:

Planning is the process by which the managers of an organization set objectives, make
an overall assessment of the future, and chart the courses of action with a view to
achieving the organizational goals.

From this definition it follows that the planning process involves:

(i) The determination of appropriate goals and objectives,

(ii) The specification of the actions needed to reach the established objectives; and

(iii) The optimum period of time for achieving them.

Since planning is concerned with the identification of alternatives and selection of the
most favorable alternative, it may rightly be described as “the most basic tool of
management functions.” Thus, planning is a process of deciding the business targets and
charting out a rational path of attaining those targets.
Some important definitions of planning, given by the eminent authors are
stated below:
According to Koontz and O’Donnell, planning is “an intellectual process, the conscious
determination of courses of action, the basing of decisions on purpose, facts and
considered estimates.”

George Terry writes:

“By means of planning management members try to look ahead, anticipate

eventualities, prepare for contingencies, map out activities and provide an orderly
sequence for achieving the objective.”

Henry Fayol views:

“The plan of action is, at one and the same time, the result envisaged, the line of action
to be followed, the stages to go through, and methods to use.”

Planning and Decision Making:

Planning decides the future course of action and involves choosing it from alternatives.
From this point of view, decision-making and planning move together, and one depends
on the other. Truly speaking, planning as a whole with its component parts is the
outcome of decision-making.

So, decision-making has a pervasive influence upon planning and it is a part of the
planning process. Thus, decision-making and planning have intimate relation with each
other. But decision-making has a wider connotation than planning. By this we mean to
say that the application of decision-making is extended beyond the horizon of planning
and, in any business, almost every position is a decisional center. Decision-making is
required not only in planning, it is also necessary in other areas of management
functions such as organizing, direction, co-ordination, and control.

Mention may be made here of varied operating orders and instructions which are
outside of planning but are subject to decision making. Again, there are many
managerial functions like motivating the employees, disapproving their work or
discharging them form service which call for decision-making, but these functions
cannot be included within planning from the point of view of analytical study of
different management processes.
Nature and Characteristics of Planning:
Planning is concerned with the establishment of objectives of an enterprise and finding
out the way of realization of those objectives. However, without setting the objectives
there is nothing to organize, direct or control. Therefore, every organization is required
to specify what it wants to achieve. Planning is basically related with this aspect.

The nature and characteristics of planning may be stated as follows:

1. Intellectual Process:
Planning is an intellectual and rational process. Planning is a mental exercise involving
imagination, foresight and sound judgement. It requires a mental disposition of
thinking before’ acting in the light of facts rather than guess. The quality of planning
depends upon the abilities of the managers who are required to collect all relevant facts,
analyze and interpret them in a correct way.

How far into the future a manager can see and with how much clarity he will depend on
his intellectual caliber, are chalked out through planning process. In thinking of
objectives, alternative courses of action and, above all, in making decision for choosing
certain alternatives, the planner goes through an intellectual process.

2. Goal-orientation:
All planning is linked up with certain goals and objectives. It follows, therefore, that
every plan must contribute in some positive way to the accomplishment of group
objectives. Planning has no meaning without being related to goals and objectives. It
must bridge the gap between where we are and where we want to go at the minimum
cost.
3. Primary Function:
Planning is said to be the most basic and primary function of management. It occupies
first place and precedes all other functions of management which are designed to attain
the goals set under planning. This is so because the manager decides upon the policies,
procedures, programmes, projects, etc. before proceeding with the work. The other
functions of management—organizing, direction, co-ordination and control—can be
performed only after the manager has formulated the necessary planning.

4. Pervasiveness:
Planning pervades all managerial activities. It is the job of all managers in all types of
organization. It is undertaken at all segments and levels of the organization—from the
general manager to the foreman. Whatever be the nature of activity, management starts
with planning. The character and breadth of planning will, of course, vary from one job
to another—depending on the level of management.

5. Uniformity:
There may be separate plans prepared in different levels in the organization, but all the
sub-plans must be united with the general plan so as to make up a comprehensive plan
for operation at a time. So, uniformity must be there in all levels of planning to match
the general plan.

6. Continuity:
To keep the enterprise as a going concern without any break, it is essential that planning
must be a continuous process. So, the first plan must follow the second plan and the
second plan the third and so on in never-ending series in quick succession.

7. Flexibility:
Plans should not be made rigid. It should be as flexible as possible to accommodate all
possible changes in the enterprise with a view to coping with the changing conditions in
the market. In fact, planning is a dynamic activity.

8. Simplicity:
The language of the work schedule or programme in the planning should be simple so
that each and every part of it may easily be understood by the employees at different
levels, specially at the lower level.
9. Precision:
Precision is the soul of planning. This gives the planning exact, definite, and accurate
meaning in its scope and content. Any mistake or error in planning is sure to upset other
functions of management and, thus, precision is of utmost importance in every kind of
planning.

10. Feasibility:
Planning is neither poetry nor philosophy. It is based on facts and experience, and
thereby realistic in nature. It represents a programme which is possible to execute with
more or less existing resources.

11. Choice among Alternative Courses:

Planning involves selection of suitable course of action from several alternatives. If there
is only one way of doing something, there is no need of planning. Planning has to find
out several alternatives, estimate the feasibility and profitability of the different
alternatives, and to choose the best one out of them.

12. Efficiency:
Planning is directed towards efficiency. A plan is a course of action that shows promise
of optimizing return at the minimum expense of inputs. In planning, the manager
evaluates the alternatives on the basis of efficiency. A good plan should not only attain
optimum relationship between output and input but should also bring the greatest
satisfaction to those who are responsible for its implementation.

13. Inter-dependence:
The different departments may formulate different plans and programmes for their
integration in the overall planning. But sectional plans cannot but be inter-dependent.
For example, production planning depends upon sales planning—and vice versa.

Again, planning for purchase of raw materials, employment of labour, etc. cannot be an
isolated act apart from sales planning and production planning. Planning is a structured
process and different plans constitute a hierarchy. Different plans are inter-dependent
and inter-related. Every lower-level plan serves as a means towards the end of higher
plans.
14. Forecasting:
Above all, no planning can proceed without forecasting—which means assessing the
future and making provision for it. Planning is the synthesis of various forecasts—short-
term or long-term, special or otherwise. They all merge into a single programme and act
as a guide for the whole concern.

Importance of Planning:
Planning is the key to success of an organization. In fact, most of the company’s
achievements can be attributed to careful planning. Planning is a function of every
manager at every level in an enterprise. Every manager is required to plan first for
systematic and orderly performance of his assigned duties.

It is within the planning function that goals are determined, decision-making takes
place, forecasts are made and strategies are initiated. Thus, planning has assumed great
importance in all types of organization—business or non-business, private or public
sector, small or large.

As a managerial function, planning is important for the following reasons:

1. Providing Basis of Decision:

The first and most important reason for planning lies in the fact that it provides a basis
on which decisions are made. It is an immense need for the managers of an enterprise to
fix up their minds as to what they want to accomplish and then plan the use of time,
resources, and efforts towards the achievement of their objectives.
2. Focusing Attention on Objectives:
Planning concentrates attention on the objectives of an enterprise. The first function of
planning is to spell out its objectives. The objectives are defined in more concrete,
precise and meaningful terms. As a result of such attention, it becomes possible for the
planners to determine the policies, procedures, programmes and the rules for an orderly
advance towards the ultimate goals desired to be achieved.

3. Minimizing Uncertainty and Risk:

The future is uncertain. Planning helps the managers in taking care of future
uncertainties and thus minimizes business risk. It anticipates future events and sets the
course of action to control these events to one’s advantage. With the help of planning, an
enterprise can predict future events and make due provision for them. This, no doubt,
eliminates or reduces the possibility or jumping into uncertainties.

4. Adapting with Changes:

Business planning has become imperative due to the fact that an enterprise operates in a
changing and dynamic environment. The aspects of this changing environment include
changes in technology, government policies, the nature of competition, social norms and
attitudes etc. As the planning proceeds step by step, it foresees the changes likely to
come and accordingly prepares its programme by necessary adjustments and
adaptation.

5. Securing Economy:
Planning focuses on efficiency and economy in operation. A plan is a course of action
that can take the organization to its objectives at the minimum cost. Planning prevents
wastage of resources by choosing the best course of action from many alternatives. It
aims at smooth flow of work. All these steps in planning lead automatically to economy.

6. Helping in Co-ordination:
Planning leads to achieve a coordinated structure of operations. It provides a unifying
framework. Sound planning inter-relates all the activities and resources of an
organization. Well-considered overall plans harmonies inter-departmental activities.
Thus, various departments work in accordance with the overall plan, and coordination is
achieved.
7. Making Control Effective:
The managerial function of controlling is concerned with a comparison between the
planned performance and the actual performance of the subordinates and departments
of the organization. Thus, control is exercised in the context of planning action as the
standards against which actual results are to be compared are set up through planning.
So planning provides the basis for control. Thus, planning and control are inseparable.

8. Increasing Organizational Effectiveness:

Planning ensures organizational effectiveness in several ways. It states the objectives of
the organization in the context of given resources; provides for proper utilization of
resources to the best advantage, gives necessary competitive strength for continuous
growth and steady progress by foreseeing what the competitors are likely to do and
evolving its strategies accordingly.

The process of planning generates the purposeful and orderly setting up of activities to
be carried on. It defines the boundaries within which the business should operate. This
enables the businessman to concentrate upon those matters which are actually relevant
and vital to business success.

Elements of Planning:

Planning as a managerial process consists of the following elements or

components:
1. Objectives:
The important task of planning is to determine the objectives of the enterprise.
Objectives are the goals towards which all managerial activities are aimed at. All
planning work must spell out in clear terms the objectives to be realized from the
proposed business activities. When planning action is taken, these objectives are made
more concrete and meaningful. For example, if the organizational objective is profit
earning, planning activity will specify how much profit is to be earned looking into all
facilitating and constraining factors.

2. Forecasting:
It is the analysis and interpretation of future in relation to the activities and working of
an enterprise. Business forecasting refers to analyzing the statistical data and other
economic, political and market information for the purpose of reducing the risks
involved in making business decisions and long range plans. Forecasting provides a
logical basis for anticipating the shape of the future business transactions and their
requirements as to man and material.

3. Policies:
Planning also requires laying down of policies for the easy realization of the -objectives
of business. Policies are statements or principles that guide and direct different
managers at various levels in making decisions. Policies provide the necessary basis for
executive operation. They set forth overall boundaries within which the decision-makers
are expected to operate while making decisions. Policies act as guidelines for taking
administrative decisions.

In a big enterprise, various policies are formulated for guiding and directing the
subordinates in different areas of management. They may be production policy, sales
policy, financial policy, personnel policy etc. But these different policies are coordinated
and integrated in such a way that they ensure easy realization of the ultimate objectives
of business. Policies should be consistent and must not be changed frequently.
4. Procedures:
The manner in which each work has to be done is indicated by the procedures laid
down. Procedures outline a series of tasks for a specified course of action. There may be
some confusion between policies and procedures. Policies provide guidelines to thinking
and action, but procedures are definite and specific steps to thinking and action. For
example, the policy may be the recruitment of personnel from all parts of the country;
but procedures may be to advertise and invite applications, to take interviews and offer
appointment to the selected personnel.

Thus, procedures mean definite steps in a chronological sequence within the area
chalked out by the policies. In other words, procedures are the methods by means of
which policies are enforced. Different procedures are adopted in different areas of
business activities. There may be production procedure, sales procedure, purchase
procedure, personnel procedure etc.

Production procedure involves manufacturing and assembling of parts; sales procedure

relates to advertising, offering quotations, securing and execution of orders; purchase
procedure indicates inviting tenders, selecting quotations, placing orders, storing the
goods in go-down and supplying them against requisition to different departments and
personnel procedure is the recruitment, selection and placement of workers to different
jobs.

5. Rules:
A rule specifies necessary course of action in a particular situation. It acts as a guide and
is essentially in the nature of a decision made by the management authority. This
decision signifies that a definite action must be taken in respect of a specific situation.
The rules prescribe a definite and rigid course of action to be followed in different
business activities without any scope for deviation or discretion.

Any deviation of rule entails penalty. Rule is related to parts of a procedure. Thus, a rule
may be incorporated in respect of purchase procedure that all purchases must be made
after inviting tenders. Similarly, in respect of sales procedure, rule may be enforced that
all orders should be confirmed the very next day.
6. Programmes:
Programmes are precise plans of action followed in proper sequence in accordance with
the objectives, policies and procedures. Programmes, thus, lead to a concrete course of
inter-related actions for the accomplishment of a purpose. Thus, a company may have a
programme for the establishment of schools, colleges and hospitals near about its
premises along with its expanding business activities.

Programmes must be closely integrated with the objectives. Programming involves

dividing into steps the activities necessary to achieve the objectives, determining the
sequence between different steps, fixing up performance responsibility for each step,
determining the requirements of resources, time, finance etc. and assigning definite
duties to each part.

7. Budgets:
Budget means an estimate of men, money, materials and equipment in numerical terms
required for implementation of plans and programmes. Thus, planning and budgeting
are inter-linked. Budget indicates the size of the programme and involves income and
outgo, input and output. It also serves as a very important control device by measuring
the performance in relation to the set goals. There may be several departmental budgets
which are again integrated into the master budget.

8. Projects:
A project is a single-use plan which is a part of a general programme. It is part of the job
that needs to be done in connection with the general programme. So a single step in a
programme is set up as a project. Generally, in planning a project, a special task force is
also envisaged.

It is a scheme for investing resources which can be analyzed and appraised reasonably
and independently. A project involves basically the investment of funds, the benefits
from which can be accrued in future. Examples of such investment may be outlays on
land, building, machinery, research and development, etc. depending upon the
situation.

9. Strategies:
Strategies are the devices formulated and adopted from the competitive standpoint as
well as from the point of view of the employees, customers, suppliers and government.
Strategies thus may be internal and external. Whether internal or external, the success
of the plans demands that it should be strategy-oriented.

The best strategy of planning from the competitive standpoint is to be fully informed
somehow about the planning ‘secrets’ of the competitors and to prepare its own plan
accordingly. Strategies act as reserve forces to overcome resistances and reactions
according to circumstances. They are applied as and when required.

Steps in Planning:
A plan is essentially today’s design for tomorrow’s action and an outline of the steps to
be taken in future. A good plan must be simple, balanced and flexible, and make utmost
use of the existing resources. It must be based on clearly defined objectives.

For preparation of such a plan, a definite process involving the following

steps has to be followed:

1. Perception of the Opportunities:

The manager must first identify the opportunity that calls for planning and action. This
is very important for the planning process because it leads to formulation of plans by
providing clue as to whether opportunities exist for taking up particular plans.

Perception of opportunities includes a preliminary look at possible opportunities and

the ability to see them clearly and completely, an understanding of why the organization
wants to solve the uncertainties and a vision what it expects to gain. This provides an
opportunity to set the objectives in real sense.
2. Establishment of the Objectives:
The next step in the planning process lies in the setting up of objectives to be achieved
by the enterprise in the clearest possible terms keeping in view its strength and
limitation. Objectives specify the results expected in measurable terms 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 various types of plans. Enterprises start with a general
objective.

From this are developed subordinate goals that contribute to the attainment of the
general objective. These, in turn, are supported by the specific objectives for the
departments. In this process a hierarchy of objectives is created. The plans at each level
of the organization are made for the attainment of the appropriate objectives in the
hierarchy. This hierarchy can be built up by coordinating the plans of different
departments.

3. Building the Planning Premises:

After determination of the organizational goals, it is necessary to establish planning
premises, that is, the conditions under which planning activities will be undertaken.
This involves collection of facts and figures necessary for planning the future course of
the enterprise. ‘Planning Premises’ are planning assumptions relating to the expected
environmental and internal conditions.

So, planning premises are of two types—external and internal. External premises
include total factors in the environment like social, political, technological, competitors’
plans and actions, government policies, etc. Internal factors include the organization’s
policies, resources of various types, and the ability of the organization to withstand the
environmental pressure. The plans are formulated in the light of both external and
internal factors.

4. Identifying the Alternatives:

The next step in planning process is to search for various alternative courses of action
based on the organizational objectives and planning premises. A particular objective can
be achieved through various actions. For example, if an organization has set its objective
to grow further, it can be achieved in several ways like expanding the field of business or
product line, joining with other organizations, or taking over another organization, and
so on. Within each category, there may be several alternatives.
Since all alternatives cannot be considered for further analysis, it is necessary for the
planner to reduce in preliminary examination the number of alternatives that do not
meet the minimum preliminary criteria. Preliminary criteria can be defined in several
ways— minimum investment required, matching with the present business of the
organization, control by the government, etc.

5. Evaluation of the Alternatives:

Various alternative courses that are considered feasible in terms of preliminary criteria
have to be taken for detailed evaluation. Alternative courses of action can be evaluated
against the criteria of cost, risks, benefit and organizational facilities. The strong and
weak points of every alternative should be analyzed carefully.

Since there are so many complex variables connected with each goal and each possible
plan, the process of comparative evaluation is extremely difficult. For example, one
alternative may be the most profitable but requires heavy investment; another may be
less profitable but also involves less risk.

Moreover, there is no certainty about the outcome of any alternative course because it is
related with future which is not certain. Ultimately, the choice will depend upon what is
determined as the most critical factor from the point of view of the objectives of the
enterprise.

6. Choice of the Course of Action:

After the evaluation of various alternatives, the most appropriate one is selected as the
plan. Sometimes evaluation shows that more than one alternative are equally good. In
such a case, the manager may choose more than one alternative at the same time. There
is another reason for choosing more than one alternative. Alternative course of action
may be required to be undertaken in future in changed situations. So, the planner must
also be ready with alternative—normally known as contingency plan— that can help
coping up with the changed situation.

7. Formulation of Supporting or Derivative Plans:

After the best alternative is decided upon, the next step is to derive various plans for
different departments or sections of the organization to support the main plan. In an
organization, there can be various derivative plans like planning for buying raw
materials and equipment, developing new product, recruiting and training the
personnel, etc.
These derivative plans are formulated out of the main plan and so they support it. The
break-down of the master plan into departmental and sectional plans provides a
realistic picture of the actions to be taken in future.

8. Establishing the Sequence of Activities:

After formulating the basic and derivative plans, the sequence of activities is determined
so that the plans are put into action. Based on the plans at various levels, it can be
decided who will do what and at what time. Budgets for various periods can be prepared
to make plans more concrete for implementation.

9. Securing Participation:
Plans must be communicated in greater details to the subordinates to increase their
understanding of the proposed action and for enlisting their co-operations in the
execution of plans. It will, thus, add to the quality of planning through the knowledge of
additional facts, new visions and revealing situations.

10. Providing for Future Evaluation:

For ensuring that the selected plans are proceeding with the right lines, it is of
paramount importance to devise a system of continuous evaluation and appraisal of the
plan. It will help in detecting the shortcomings and pitfalls of the plans and taking
remedial actions well in time. All the steps in the process of planning must be linked and
co-ordinated with each other. For successful implementation of a plan, it must be
communicated to all levels of the organization.

Basic Principles of Planning:

Planning requires scientific thinking and it should spell out in clear terms the definition
of the purpose, analyse the problem and make a careful and diligent search for all the
facts bearing upon it. The task of planning will be well-accomplished if some
fundamental principles are followed in the process.
The important principles may be stated as follows:

1. Principle of Commitment:
This means that certain resources must be committed or pledged for the purpose of
planning. Planning is not an easy task. So, necessary help is to be taken from experts.
The enterprise must be ready to exhaust the available resources for the achievement of a
plan.

2. Principle of the Limiting Factor:

A plan involves varied factors of different importance. This principle implies that more
emphasis has to be put on that factor which is scarce or limited in supply or extremely
costly. This will help in selecting the most favourable alternative.

3. Principle of Reflective Thinking:

Planning, being an intellectual activity is based on rational considerations. These involve
reflective thinking which signifies problem-solving thought process—a process by which
past experiences are superimposed on the facts of the present situation and possible
future trends. None can be a planner whose mind is not active, who does not possess
any deliberate power and whose sense of judgement is not strong.
4. Principle of Flexibility:
Though a plan is prepared after reflective thinking, this does not mean that no departure
can be made in the course of its operation. The plan should be so prepared that there is
sufficient scope for changing it from time to time. Changes must necessarily be effected
in the plan for taking into account new developments that may take place in the course
of the operation of the plan.

5. Principle of Contribution to Enterprise Objectives:

A major plan is prepared and it is supported by many derivative plans. But all plans
must contribute in a positive way towards the achievement of the enterprise objectives.

6. Principle of Efficiency:
A plan should be made efficient to attain the objectives of the enterprise at the minimum
cost and least effort. It must also achieve better results with the minimum of unexpected
happenings. Therefore, it is to be seen that what is expected is likely to be achieved.

7. Principle of Selection of Alternatives:

Planning is basically a problem of choosing. The essence of planning is the choice among
alternative courses of action. There is no need for planning if there is only one way for
doing something. In choosing from alternatives, the best alternative will be that which
contributes most efficiently and effectively to the accomplishment of a desired goal.

8. Principle of Planning Premises:

A plan is prepared against some foundations or backgrounds known as ‘Planning
Premises’. There must be complete agreement among the managers in respect of
planning premises over which the structure of plan is to be framed.

9. Principle of Timing and Sequence of Operations:

Timing and sequence of operations determine the starting and finishing time for each
piece of work according to some definite schedule and give practical and concrete shape
and form to work performance.

10. Principle of Securing Participation:

To secure participation of the employees with whole-hearted co-operation in execution
of the plan, it is necessary that the plan must be communicated and explained to them
for their full understanding. This understanding provides the basis for additional
knowledge about new facts and matters to the employees. This is needed for
improvement in the quality of planning. It also ensures an obligation of the personnel of
the enterprise to execute the plan by individual and joint participation.

11. Principle of Pervasiveness:

Though major planning function is entrusted to the top management, it is not restricted
to the top level only. It is a function of every manager at every level in the organization.

12. Principle of Strategic Planning:

Strategic planning is essential where there is competition. It is prepared in the light of
what the competitors are intending to do. Planners must take into account the strategies
of the rival organizations, otherwise the planning projection may land them in trouble.

13. Principle of Innovation:

A good system of planning should be responsive to the opportunities for innovation.
Innovation consists in creating something new for increasing satisfaction of the
consumers. This may also be stated as an important strategy of business. Innovation is a
necessity for its sustaining growth in this dynamic world. Innovation is achieved
through research and development and planning is required to provide such scope.

14. Principle of Follow-up:

In the course of execution of a plan, certain obstacles may crop up in midway and
planning may require revision, alteration or correction. This is why there must be a
follow-up system in the planning process itself. This allows timely changes in the
planning and makes it more effective.

However, to plan any kind of work, the following facts demand utmost
attention:
(i) The nature, quality and quantity of work to be done, the best way of doing it, the time
available for its accomplishment, how to do it, when it is to be done and who are to do it.
(ii) Adequate knowledge about the capacity of the force available through observations
and experiments and from established standards.

(iii) The priority to be given in succession for the accomplishment of different tasks
through careful analysis.