PLANNING

• Planning is the process of setting goals and defining the actions required to
achieve the goals.
• Planning begins with goals. Goals are derived from the vision and mission
statements, but these statements describe what the organization wants to
achieve, not necessarily what it can achieve.
• The organization is affected both by conditions in its external environment
—competitors, laws, availability of resources, etc.—and its internal
conditions—the skills and experience of its workforce, its equipment and
resources, and the abilities of its management.
• These conditions are examined through a process called a SWOT analysis.
(SWOT will be discussed in greater detail in another module.)
• Together, the vision and mission statements and the results of the situation
analysis determine the goals of the organization.
Benefits of Planning
• In today’s chaotic environment, planning more than a few months in advance may seem futile.
Progress, however, is rarely made through random activity. Planning does provide benefits that
facilitate progress even when faced with uncertainty and a constantly changing environment. Some of
the benefits include the following:
• Planning provides a guide for action. Plans can direct everyone’s actions toward desired outcomes.
When actions are coordinated and focused on specific outcomes they are much more effective.
• Planning improves resource utilization. Resources are always scarce in organizations, and managers
need to make sure the resources they have are used effectively. Planning helps managers determine
where resources are most needed so they can be allocated where they will provide the most benefit.
• Plans provide motivation and commitment. People are not motivated when they do not have clear
goals and do not know what is expected of them. Planning reduces uncertainty and indicates what
everyone is expected to accomplish. People are more likely to work toward a goal they know and
understand.
• Plans set performance standards. Planning defines desired outcomes as well as mileposts to define
progress. These provide a standard for assessing when things are progressing and when they need
correction.
• Planning allows flexibility. Through the goal-setting process, managers identify key resources in the
organization as well as critical factors outside the organization that need to be monitored. When
changes occur, managers are more likely to detect them and know how to deploy resources to respond.
Drawbacks to Planning
• Planning provides clear benefits to organizations, but planning can also harm organizations if is
not implemented properly. The following are some drawbacks to planning that can occur:
• Planning prevents action. Managers can become so focused on planning and trying to plan for
every eventuality that they never get around to implementing the plans. This is called “death by
planning.” Planning does little good if it does not lead to the other functions.
• Planning leads to complacency. Having a good plan can lead managers to believe they know
where the organization is going and how it will get there. This may cause them to fail to monitor
the progress of the plan or to detect changes in the environment. As we discussed earlier,
planning is not a one-time process. Plans must be continually adjusted as they are implemented.
• Plans prevent flexibility. Although good plans can lead to flexibility, the opposite can also occur.
Mid- and lower-level managers may feel that they must follow a plan even when their experience
shows it is not working. Instead of reporting problems to upper managers so changes can be
made, they will continue to devote time and resources to ineffective actions.
• Plans inhibit creativity. Related to what was said earlier, people in the organization may feel they
must carry out the activities defined in the plan. If they feel they will be judged by how well they
complete planned tasks, then creativity, initiative, and experimentation will be inhibited. Success
often comes from innovation as well as planning, and plans must not prevent creativity in the
organization.
• Melat, Daria, and Lexus initially thought it would be easy to start an ice
cream business. They planned to open Watermelon Point Ice Cream
with the backing of Watermelon Point Dairy farm, which had a longtime
presence in the area. They quit their jobs, bought equipment, and made
commitments for deliveries. But customers told them they needed
licenses for food preparation and for serving food. This meant months
of waiting to get the licenses. A detailed plan would have given them
• A performance standard so that customers would be satisfied
• A guide for their actions before the first customer entered the
door
• Commitment and motivation to keep going before any customers
entered the store
• Freddie Mac needed a new loan system. The current system uses COBOL
code written 30 years ago. The system was rigid, meaning it could not be
easily adapted to new loan types or new customer demands. The IT
department planned to replace it over 3 years at a cost of $600,000. After
3 years, development was bogged down with changes and disputes over
how to proceed. The project managers thought completing the project
would take another 3 years and $1,000,000. What advice would you give
management at this point?
THE PLANNING CYCLE
Stages
in the
Plannin
g Cycle
The Planning Cycle: Essential Part of
Running a Business

• Maintaining organizational focus:

• Encouraging diverse participation:
• Empowering and motivating employees:
• Although Microsoft is highly profitable, Microsoft struggled to grow under
CEO Steve Ballmer. Satya Nadella succeeded him in 2014. For Microsoft’s
annual executive retreat in 2015, CEO Nadella included the heads of
companies Microsoft had recently acquired, such as Mojang, the maker of
the Minecraft video game, and Acompli, an email app. Nadella broke with
the tradition that only longtime executives could attend the retreat. Which
essential planning activity is Nadella performing here?
•Empowering and motivating
employees
•Encouraging diverse participation
•Maintaining organizational focus
Types of Plans and Common Planning Tools
• Differentiate between the uses of long-term plans, short-term plans,
and operational plans.
• Differentiate between standing plans and single-use plans.
• Explain how policies, procedures, and regulations impact operational
plans.
• Explain the role of budgets in the planning process.
• Differentiate between forecasting, scenario planning, and contingency
planning.
• Explain the use of “management by objectives” (MBO), SMART goals,
and benchmarking in planning.
Long-term and Short-term Plans
• A long-term plan is crucial to the ultimate success of
the organization. A long-term plan for many
businesses, such as construction, hospitality, or
manufacturing, generally extends four to five years
into the future.
• Short-term plans generally allocate resources for a
year or less. They may also be referred to as
operational plans because they are concerned with
daily activities and standard business operations.
Organizational Plan Hierarchy: relationship between these
types of management planning
• The aircraft industry and the tech world have very
different ideas of long-term plans. An aircraft can take
10 to 20 years to plan, build, and commercialize. A new
app may take 3 months to hit the market. In the app
industry, then, the short term may be
• 1 to 3 years
• 1 year or less
• Weeks or a month
Operational Plans: Standing Plans and
Single-Use Plans
• An operational plan describes the specific goals
and objectives and milestones set by an
organization during a specific period.
• Standing plans are plans designed to be used again and
again. Examples include policies, procedures, and
regulations.
• Single-use plans refer to plans that address a one-time
project or event.
• Guillaume carefully planned his budget for
graduate school because he would need to
borrow the money. University fee was $30,000,
and he would need living expenses for 16 months
in Orlando, Florida. This was
• A repeated use plan
• A single use plan
• A standing plan
Policies, Procedures, and Regulations
• As stated above, the most common examples
of standing use plans are policies,
procedures, and regulations.
• These plans are usually published and
handed out to new hires or posted on the
organization’s employee website for easy
reference.
• Policies provide broad guidelines for the smooth operation of the organization. They
cover things like hiring and firing, performance appraisals, promotions, and discipline.
For example, a company may have a policy to encourage recycling in the workplace or a
policy that prohibits personal cell phone use in manufacturing areas.
• Procedures are steps to be followed in established and repeated operations. Procedures
should reflect the policies of the company and support the organization’s long-term
goals. Procedures may also detail steps that should be followed to ensure employees
are disciplined in a fair and unbiased manner. For example, if employees feel that other
employees interacted with them in an inappropriate manner, then they should follow
the procedure for bringing this to management’s attention. Or, the organization may
establish procedures for what to do in cases of emergencies, such as a fire or toxic spill.
• Regulations refer to what is allowable and what is strictly prohibited in an organization.
In other words, a regulation is a kind of rule that addresses general situations. In many
hospitals and laboratories, for example, there are safety regulations against wearing
open-toed shoes or shoes with slippery soles. State and federal governments frequently
issue regulations for industries that impact public safety.
• The derivatives trading desk at Lehman followed rules
about counterparties. “Counterparty” means the firm
on the other side of a trade, usually a customer but
sometimes another bank. The credit department had to
approve the firm before the first trade, and the legal
department would write the agreements. These actions
are examples of
•Procedures
•Regulations
•Policies
 The Role of Budgets in the Planning Process
Managers deal with a variety of budget types:
• Financial budgets include balance sheets, income/expense
statements, and statements of cash flow.
• Operating budgets project revenue against expenditures.
• Nonmonetary budgets allocate resources such as labor,
workspace, and equipment use.
• Fixed budgets are budgets that do not change with increased or
decreased activities, such as sales revenue. They are also called
static budgets.
• Flexible budgets will vary with the level of activity (grow or be
reduced according to changing conditions).
• Mouna has a goal to provide solar flashlights to
Mauritania, a country in Africa. Her budget includes
raising $10 million from the Gates Foundation. She has
no connection with the Gates Foundation and has not
contacted them yet. If she proceeds with this budget,
she risks
• Exceeding her project budget
• A project failure
• Overstating budget revenue and potential
impact
Forecasting, Scenario Planning, and Contingency Planning
• “This telephone has too many shortcomings to be seriously
considered as a means of communication.” – President of
Western Union, 1876
• “There is a world market for maybe five computers.” – Chairman
of IBM, 1943
• “Television won’t be able to hold on to any market it captures
after the first six months. People will soon get tired of staring at a
plywood box every night.” – Darryl Zanuck, president of 20th
• Century Fox, 1946
• “There is no chance that the iPhone is going to get any significant
market share.” – Microsoft CEO Steve Ballmer, 2012
• Scientific forecasting is using mathematical models, historical
data, and statistical analysis to make predictions about what will
happen in the future.
• Businesses use short-term forecasting all the time when creating
budgets and anticipating expenses. Mostly, these forecasts are
based on what they sold and what they paid providers in the
recent past.
• Long-range forecasting requires both quantitative numerical data
and qualitative data based on expert opinions and insights. Often,
organizations will create a number of long-range forecasts based
on “best-case” and “worstcase” scenarios. They will then make
plans on how they would respond to each situation and, as time
goes on, they will update and adapt the long-term plan.
 Contingency Plan
• A contingency plan describes what will happen in a possible—but not expected
—situation. Usually, contingency plans are designed to handle emergency
situations. For example, airports have contingency plans for plane crashes on
takeoffs or landings, and popular tourist attractions have begun developing
contingency plans in case of terrorist threats.
• An example of the critical importance of contingency planning involves the
Deepwater Horizon oil spill in the Gulf of Mexico in 2010. Eleven people lost
their lives and seventeen were badly injured when an explosion on an oil rig
released almost five million barrels of oil into the Gulf of Mexico. It was the
worst marine oil spill in history, and its effects were even more devastating
because BP Oil did not have contingency plans in place for that kind of disaster.
The spill went on for months while BP and its partners tried to figure out how
to shut off the oil’s source. Even though BP spent $62 billion on the response
and cleanup activities, there was extensive damage to marine and wildlife
habitats and fishing and tourism industries. Getting employees involved in
planning may help prevent tragedies similar to this one.
• Mitchell’s plan is to get a master’s degree and
then a Ph.D. in systems engineering. If he finds
the academic work too difficult, he may stop after
the Master’s degree and look for work in the
consulting field. This description is Mitchell’s
• Forecast
• Benchmark
• Contingency plan
That’s all about Planning !