PLANNING FUNCTION

Topic 2: Planning and Goal Setting

1. LEARNING OBJECTIVES

Apply psychological principles to improve goal-setting and decision-

making processes in planning.

1.1 Describe the importance of setting SMART goals for different levels of
planning in a business context.
1.2 Describe how psychological principles including cognitive biases and

1.1.1 INTRODUCTION

One of the primary responsibilities of managers is to set goals for where the
organisation should go in the future and plan how to get it there. In some
organisations, typically smaller ones, planning is informal. In others, managers follow
a well-defined planning framework. The company establishes a basic mission and
periodically develops formal goals and plans for carrying it out. Large organisations
undertake a comprehensive planning exercise each year.

Of the four management functions - planning, organising, leading and controlling -

described in lecture 1, planning is considered the most fundamental. Everything else
stems from planning. In this lecture, we explore the process of planning and consider
how managers develop effective plans.

1.1.2 OVERVIEW OF THE GOAL-SETTING AND PLANNING PROCESS

A goal is a desired future state that the organisation wants to realise. Goals are
important because organisations exist for a purpose, and goals define and state that
purpose.

A plan is a blueprint for goal achievement and specifies the resource allocations,
schedules, tasks, and other actions necessary for attaining goals.
Goals specify future ends; plans specify today’s means. The concept of planning
usually incorporates both ideas; it means determining the organisation’s goals and
defining the means for achieving them.
1.1.3 Levels of Goals and Plans

Exhibit 1 illustrates the levels of goals and plans in an organisation. The planning
process starts with a formal mission statement that defines the basic purpose of the
organisation, especially for external audiences.
A mission statement is a broadly stated definition of purpose that distinguishes the
organisation from others of a similar type. It answers the three fundamental
questions of, ‘Who are we?’, ‘What business are we in?’ and ‘What do we want to
become?’

A clear mission statement serves to guide individuals, groups and managers

throughout the organisation, and normally does not change from year to year.
The mission is the basis for the strategic level of goals and plans, which in turn
shapes the tactical level and operational level.

Top managers are typically responsible for establishing strategic goals and plans
that reflect a commitment to both organisational efficiency and effectiveness.
Strategic plans define the action steps by which the organisation intends to attain
strategic goals. The strategic plan is the blueprint that defines the organisational
activities and resource allocations required for meeting these targets. The time
horizon for strategic plan tends to be long-term, often 5 years or more, depending on
the type of industry.

Tactical goals and plans are the responsibility of middle managers. Tactical goals
are the results that major divisions and departments within the organisation intend to
achieve. Tactical goals and plans help top managers implement the overall strategic
plan. Tactical pans tend to focus on intermediate time frames, usually 1 to 3 years.
Generally they are more specific and concrete than strategic plans.

Operational plans are developed at the lower levels of the organisation. First-line
managers and supervisors develop operational plans that focus on specific action
steps toward achieving operational goals and to support tactical goals. Operational
plans generally consider relatively short time-frames of less than 1 year such as
requirements for a few months, weeks or even days. They spell out specifically what
must be accomplished over short time periods in order to achieve operational goals.

Planning at each level supports the other levels.

Exhibit 1: Levels of Goals and Plans (adapted from Lim et al. 2015)

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Strategic Goals
Strategic goals are broadly defined targets or future end results set by top
management. They address long-term endeavours, such as growth and profitability,
and issues relating to the whole organisation, rather than to specific divisions or
departments.

Tactical Goals
They are targets usually set by middle management for specific departments or
business units. They spell out what must be done by the divisions or departments to
achieve the strategic goals. It is more specific than the strategic goals.

Operational Goals
They are targets set by first-line management that address precise and measurable
outcomes required from the lower levels (e.g. work groups or individuals). They are
narrower in scope.

1.1.4 PLANNING AND LEVELS OF MANAGEMENT

Although planning occurs at all levels of management, top-management managers

usually spend more time planning than do lower-level managers. Typically, first-line
managers plan for the short term (operational planning), middle-management
managers plan for a longer term (tactical planning), and top-management managers
plan for an even longer term (strategic planning).

1.1.5 BENEFITS OF PLANNING AND GOAL SETTING

1. Provides a source of motivation and commitment for staff.

Planning can reduce uncertainty for employees and clarify what they should
accomplish. Lack of a clear goal hampers motivation because people do not
understand what they are working towards.

2. Guides resource allocation.

Planning helps managers decide where they need to allocate resources, such as
employees, money and equipment.

3. Guide to action.
Planning focuses attention on specific targets and directs employee efforts toward
important outcomes. Planning helps managers and other employees know what
actions they need to take to achieve the goal.

1.3 Set a standard of performance.

Because planning and goal-setting define desired outcomes, they also establish
performance criteria so managers can measure whether things are on or off track.
Goals and plans provide a standard of assessment

1.1.6 CHARACTERISTICS OF GOOD GOALS (SMART)

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Specific - clearly and precisely defined / be clear of what is expected.

Measurable - expressed in quantitative terms whenever possible. Vague goals tend

not to motivate employees.

Attainable, challenging but realistic, can be achieved. When goals are unrealistic,
they set employees up for failure and lead to decreasing employee morale. If goals
are too easy, employees may not feel motivated.
Relevant - cover key result areas /responsibilities which are activities that contribute
most to the organisation’s performance and competitiveness.

Time-limited - Goals should specify the time period over which they will be
achieved; a time period is a deadline on which goal attainment will be measured.

1.1.7 THE BASIC PLANNING PROCESS

The basic planning process consists of 6 steps:

Step 1: Stating Goals

- In stating organisational goals, managers have to analyse current status and
forecast the future environment. What are the organisation's strengths and
weaknesses? What opportunities and threats will be present in the environment?

- S.M.A.R.T. goals are essential.

Step 2: Listing Alternative Ways of Reaching Goals

- List as many alternatives as possible.

Step 3: Developing Premises (or Assumptions) upon which each Alternative is

based
- The feasibility of using any alternative is determined by the premises or
assumptions.
- List all the premises for each alternative.

Step 4: Choosing Best Alternative for Reaching Goals

- This must include the evaluation of premises; some premises may be found to be
unreasonable.

Step 5: Developing Plans to Pursue Chosen Alternatives

Step 6: Putting Plans into Action

- Plans must be put into action if the organisation is to benefit from planning.

Refer to Appendix A for illustration.

1.1.8 TYPES OF PLANNING IN AN ORGANISATION

Some plans guide the entire organisation, others only a small part of it. A means-end
chain (discussed in section 4) is one way to illustrate the links between the various
goals and plans in an organisation.

The 3 types of planning discussed here correspond to the 3 levels of goals given
in section .
Strategic Planning
It is the process through which managers determine the organisation's mission or
basic purpose and the set of means for achieving this mission. It is normally done by
top-management managers, and they answer the 2 key questions of what to do and
how to do it. The time horizon for strategic plans tends to be long term, often 5 years
or more, depending on the type of industry.

The SWOT (strengths, weaknesses, opportunities, threats) analysis is used to

evaluate the organisation’s competitive position and for the organisation to engage in
its strategic planning. Factors such as technological, economic, legal-political, socio-
cultural and international influences could offer either threats(T) or opportunities(O)
to the firm.

Tactical Planning
Tactical planning occurs when middle-management translates strategies into
shorter-term tactical plans. They often relate to limited functional areas such as
marketing, personnel, production and finance. Tactical plans tend to focus on
intermediate time frames, usually 1 to 3 years. Generally, they are more specific
and concrete than strategic plans.

Operational Planning
This type of planning is done by first-line managers or supervisors. It is most
concerned with budgets, quotas and schedules (e.g. duty rosters). Such operational
plans generally consider relatively short time frames of less than 1 year, such as
requirements for a few months, weeks or even days. They spell out specifically what
must be accomplished over short time periods in order to achieve operational goals.

1.1.9 INTERACTION OF GOALS AND PLANS

Goals and plans are closely related. Even though an organisation may establish
goals at the strategic, tactical and operational levels, these goals will have little
meaning unless plans are carefully worked out on how to achieve the goals.
Strategic plans cannot be accomplished without the implementation of tactical and
operational plans. Tactical and operational plans, on the other hand, do not make
much sense if they are not co-ordinated through a broader strategic plan.
Organisations use all 3 types of plans, and managers have to ensure that there is a
smooth interaction among them.

1.2 PSYCHOLOGICAL PRINCIPLES INFLUENCING PLANNING

1.2.1 Psychological principles, such as cognitive biases and decision framing, play a
significant role in influencing goal setting in planning. Understanding these factors
can help individuals and organizations make more informed and effective decisions
when setting and pursuing their goals. Below is a breakdown of their impact:

 Cognitive Biases:
 o Confirmation Bias: People tend to seek out information that confirms
their existing beliefs. When setting goals, individuals might be more
inclined to focus on information that supports their preconceived
notions about what is achievable or desirable.

o Overconfidence Bias: Individuals often overestimate their own

abilities and the likelihood of positive outcomes. This bias can lead to
overly ambitious goals that may be unrealistic, posing challenges
during the planning and implementation stages.

 Decision Framing:
o Loss Aversion: People tend to prefer avoiding losses rather than
acquiring equivalent gains. When framing goals, emphasizing potential
losses or negative consequences may motivate individuals more than
highlighting potential gains. This can influence the planning process by
making risk mitigation a priority.

o Reference Dependence: How a goal is framed can affect how it is

perceived. For example, framing a goal in terms of avoiding failure may
lead to different planning strategies than framing the same goal in
terms of achieving success. The way goals are presented can
significantly impact the planning process and the strategies employed.

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 Anchoring Effect:
o Individuals may be influenced by the first piece of information they
encounter when setting goals. For example, if a project's initial cost
 estimate is high, subsequent planning may be biased towards justifying
and working within that initial anchor, potentially leading to suboptimal
planning.

 Availability Heuristic:
o People often rely on readily available information when making
decisions. When setting goals, individuals may prioritize factors that
are more easily accessible or memorable, rather than considering a
comprehensive set of information. This can lead to biased
assessments of what is achievable or realistic.
 Temporal Discounting:
o Individuals may prioritize short-term goals over long-term goals due to
the tendency to value immediate rewards more than delayed rewards.
This can influence the planning process by steering individuals away
from more sustainable, long-term strategies.
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v=kW6k5avsEqA&ab_channel=Talent4Performance

1.2.2 Awareness of these psychological principles can empower individuals and

organizations to critically evaluate their goal-setting processes. By understanding
these biases and framing effects, planners can make more rational, objective, and
strategic decisions, leading to more realistic and achievable goals. Also,
incorporating diverse perspectives and seeking external input can help mitigate
these cognitive biases' impact on the planning process.

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00:00 Intro 00:25 Confirmation Bias
01:22 Anchoring Effect
03:47 Availability Heuristic
REFERENCES

Daft, R. L. (2021). Management. (14th ed.). Boston, MA: Cengage Learning

Lim, G.S., Chua, S.B., Usa, S., & Daft, R.L. (2015). New Era of Management in a
Globalized World. An Asian Perspective (1st ed.). Singapore: Cengage Learning
Asia Pte Ltd.

Appendix A

The Basic Planning Process

A Simple Example
Step 1: Stating Goals
To increase Sales Revenue of Breakfast Meals by 10% by 31 December 2019.

Step 2: Listing Alternatives

a) Lower prices
b) Increase prices
c) Introduce new items

Step 3: Developing Premises

a) Customers will eat more (i.e. they are price-sensitive)
b) Customers will continue to eat the same amount (i.e. not price-sensitive)
c) New customers will be attracted

Step 4: Choosing the Best Alternative(s)

a) Not reasonable (unlikely)
b) Not reasonable (unlikely)
c) Reasonable (likely / chosen)

Step 5: Developing Plans

What, When, Where, Who, How

Step 6: Putting Plan into Action

Implement Plans