Chapter Two: Planning Function PDF

Chapter Two: Planning Function CHAPTER TWO PLANNING 2.1. DEFINING PLANNING The management functions are planning, organizing, staffing, direction and controlling. These functions are essential to ach...

Chapter Two: Planning Function CHAPTER TWO PLANNING 2.1. DEFINING PLANNING The management functions are planning, organizing, staffing, direction and controlling. These functions are essential to achieve organizational objectives. If objectives are not set then there is nothing to organize, direct and control. An organization has to specify what it has to achieve. Planning is related with this aspect. Every person whether in business or not has framed a number of plans during his life. The plan period may be short or long. One of the characteristic of human being is that he plans. Planning is the first and foremost function of management. 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 programmes from among alternatives. Planning- is the process of determining how the organization can get where it wants to go, and what it will do to accomplish its objectives. In more formal terms, planning is “the systematic development of action programs aimed at reaching agreed-upon business objectives by the process of analyzing, evaluating, and selecting among the opportunities which are foreseen. In the business world, organizations should achieve their objectives. In order to achieve objectives, the organizations should plan. Planning process produces the plan. Plan is a blueprint for action & prescribes activities necessary for an organization to realize its goals. Understanding of planning process requires knowing the relationship between goals, plans & controls as shown below. Goals Plans Controls Goals represent the designed position of an organization that is sought to be achieved; Plans establish the means for achieving the organization goals; and through planning managers outline the activities necessary to insure that the goals of the organization are achieved; and Controls monitor the extent to which goals have been achieved and ensure that the organization is moving in the direction suggested by its plans. Goals are the outcomes of planning and benchmarks for controls. They are taken from the plan. Goals, plans & controls are inextricably intertwined & must be well integrated so as to make the planning process successful. 1 Chapter Two: Planning Function Planning answers six basic questions in regard to any intended activity.  The ‘what’ or what to do: is the goal that we want to achieve. It may be long term or short term.  The ‘when’ or when to do: is the question of timing. Each long term goal may have a series of short term goals that must be achieved before the long term can be achieved.  The ‘where’ or where to do: is the place at which the plan is put into practice.  The ‘who’ or who does it: is the individual/ unit supposed to undertake specific tasks. It asks which specific people will perform specific tasks.  The ‘how’ or how it is done or by whom it is done: is the strategy/ method for achieving the goal. It describes what specific steps are to be taken and in what kind of sequence.  The ‘how much’ or how much is required to do: concerns with the expenditure of resources that are determined to be essential to reach goals. 2.2.IMPORTANCE OF PLANNING Planning is of great importance in all types of organization whether business or non-business, private or public, small or large. The organization which thinks much ahead about what it can do in future is likely to succeed as compared to one which fails to do so. Without planning, business decisions would become random, ad hoc choices. Planning is important because of the following reasons.  Primacy of planning: Planning is the first and foremost function of management, other functions follow planning. What is not planned cannot be organized and controlled. Planning establishes the objectives and all other functions are performed to achieve the objectives set by the planning process.  To minimize risk and uncertainty: The organization continuously interacts with the external dynamic environment where there is great amount of risk and uncertainty. In this changing dynamic environment where social and economic conditions alter rapidly, planning helps the manager to cope up with and prepare for changing environment. By using rational and fact based procedure for making decisions, 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. It helps managers to apply and coordinate all resources of the organization effectively in achieving the objectives. The whole organization is forced to embrace identical goals and collaborate in achieving them.  To facilitate control: Planning sets the goals and develops plans to achieve them. These goals and plans become the standards or benchmarks against which the actual performance can be measured. Control involves the measurement of actual performance, comparing it with the standards and initiating corrective action if there is deviation. Control ensures that the activity confirm to plans. Hence control can be exercised if there are plans.  To increase organizational effectiveness: Effectiveness implies that the organization is able to achieve its objectives within the given resources. The resources are put in a way which ensures maximum contribution to the organizational objectives. Effectiveness leads to success. 2 Chapter Two: Planning Function WHERE DOES PLANNING START? Planning is carried out at the various levels of the organization. There are two basic approaches to planning, namely the top - down approach and the bottom - up approach. 1. The top - down approach: It is the planning efforts that begin at the top level managers. Top level managers determine the direction of the organization and establish a master plan to achieve over all goals. The master plan provides direction within which departments & work groups develop their plans. 2. The bottom - up approach: It is the planning that is initiated at the lowest level of the organizational hierarchy. In this approach, the managers and employees at the operational level began the planning process, finally the top levels bring together all the plans of the organizations work groups to develop a cohesive & well integrated master plan, then this establishes the overall direction of the organization. These planning modes/ approaches are not mutually exclusive. By being flexible, mangers can capitalize on the benefits of both approaches. The current trend is towards integrating the aspects of both top down & bottom up planning approaches. REQUIREMENTS OF PLANNING All organizations want smooth transition from present to the future. Planning represents the way in which decision makers attempt to build bridge into the future. For several reasons, planning is not given the attention that it requires. But Planning requires time; commitment; forecasts; thought and paper- work. 2.3. BASIC CHARACTERISTICS OR FEATURES OF PLANNING The following are the basic characteristics of planning. 1) It is goal-oriented: The goal of every business is to make profits. Planning helps to attain the goal in the most effective and efficient manner. 2) It is all-pervasive: By this we mean that planning is done by everyone at every level of management, namely top, middle and lower levels. Planning is pervasive and it extends throughout the organization. Planning is the fundamental management function and every manager irrespective of level, has a planning function to perform within his particular area of activities. Top management is responsible for overall objectives and action of the organization. Therefore it must plan what these objectives should be and how to achieve them. Similarly a departmental head has to devise the objectives of his department within the organizational objectives and also the methods to achieve them. Thus planning activity goes in hierarchy as shown in the following figure. 3 Chapter Two: Planning Function 3) It is an intellectual activity: Planning is a mental activity. It involves application of mind and intelligence to attain, in a systematic manner, the organizational objective. 4) It is future –oriented: Planning is required to attain the future goals of an organization. However, past happenings provide the basis for plans. As future is uncertain, a plan must make suitable provisions to meet any crisis. 5) It requires an integrated approach: There must be a link between the plans of different departments. The production plan of a business must be in tune with its financial plan. The marketing plan likewise must be in tune with the production plan and vice versa. 6) It is a continuous process: It means that a stage will never come when the need for planning will not be felt at all. Planning is required as long as we live in this world. As far as business is concerned, planning is needed as long as there are business activities. 7) It involves decision making: Planning involves making choice out of certain alternative courses i.e., decision-making. When there is only one way of doing something, there is no need for planning at all. 8) Planning is antithesis of status quo: Planning is undertaken with the conscious purpose of attaining a position that would not be accomplished by the company. Hence it implies change in organizational objectives, policies, products, marketing strategies, etc. Planning itself is affected by unforeseen organizational change. Therefore, it needs examination, re-examination, and continual reconsideration of the future, continuous searching for more effective methods & improvement of results. Planning is a process and the exact opposite of status quo. 2.4. TYPES/ CLASSIFICATION OF PLANS Plans can be classified on different bases or dimensions. The most important ones are: 1. Repetitiveness (frequency of use) 2. Time dimension/ horizon (duration) & 3. Scope/ breadth dimension. CLASSIFICATION OF PLANS BASED ON REPETITIVENESS Based on repetitiveness, plans are classified into two, as Standing plans and Single use plans. 1. STANDING PLANS Standing plans are plans that are used again & again; followed each time; and designed to deal with organizational issues or problems that recur frequently. They can limit employees' flexibility & make it difficult to respond to the needs of the customers. By using standing plans management handles repetitive problems. Standing plans include mission or purpose; goals/ objectives, strategy; policy; procedure; method and rule. A. Purpose or Mission Setting organizational objectives is the starting point of managerial actions. Every organization is purposive creation, it has some objectives; the end results for which the organization strive. These end results are referred to as mission, ‘purpose’, ‘goal’, ‘target’ etc. which are often used inter-changeably. However there are differences in the contest in which these terms are used. B. Goals or Objectives Every organization is established for the purpose of achieving some objectives. An individual who starts a business has the objective of earning profits. A chartable institution which starts schools 4 Chapter Two: Planning Function and colleges has the objectives of rendering service to the public in the field of education. Though objectives may differ from one organization to another, yet each organization has its own objective. Objectives have the following characteristics.  Objectives are multiple in numbers: Every business enterprise has a package of objectives set in various key areas. Peter Drucker has emphasized setting objectives in eight key areas namely market standing, innovation, productivity, physical and financial resources, profitability, manager performance and development, worker performance and attitude, and public responsibility.  Objectives are tangible or intangible: Some of the objectives such as productivity, physical and financial resources are tangible; whereas objectives in the areas of manager’s performance, workers morale is completely intangible.  Objectives have a priority: At a given point of time one objective may be important than another. For example maintaining minimum cash balance is important than due date of payment.  Objectives are generally arranged in hierarchy: It implies that organization has corporate objectives at the top and divisional, departmental and sectional objectives at the lower level of organization.  Objectives some time clash with each other: An objective of one department may clash with the objectives of other department. For example the objectives of production of low unit cost achievement through mass production of low quality products may conflict with goal of sales department selling high quality products. C. Strategies A strategy may be defined as relationship or an administrative course of action designed to achieve success in the face of difficulties. Strategy is the basic plan chosen to achieve objectives. ‘Every organization has to develop plans logically from goals considering the environmental opportunities and threats and the organizational strengths and weakness. A strategy is a plan which takes into these D. Policies A policy is a general guide to thinking and action rather than a specific course of action. It defines the area or limits within which decisions can be made to achieve organizational objectives. It sets up boundaries around decisions. According to Koontz and O’ Donnell policies are general statements of understanding which guide or channel thinking in decision making of subordinates. Policies channelize the thinking of the organization members so that it is consistent with the organizational objectives. E. Procedures A procedure is a chronological sequence of steps to be undertaken to enforce a policy and to attain an objective. It lays down the specific manner in which a particular activity is to be performed. It is a planned sequence of operations for performing repetitive activities uniformly and consistently. 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. 5 Chapter Two: Planning Function Methods A method is a prescribed way in which one step of procedure is to be performed. A method is thus a component part of procedure. It means an established manner of doing an operation. Medical examination is a part of recruitment and selection procedure, method indicate the manner of conducting medical examination. F. Rules: Rules are the simplest and strictest type of standing plan found in organizations. They provide detail & specific regulations for action, and reflect managerial decisions that certain actions must or must not be done. Rules are different from policies & procedures. Rules also serve as guidelines, but allow no discretion in their application; allow no deviation from the stated course of action. 2. SINGLE – USE PLANS They are developed to address a specific organizational situation. They are used up only once but not over & over again as the standing plans. They are not used up again once the objective is accomplished. Single – use plans are commonly three types, namely programs; projects and budgets. A. Programs They are a relatively broad set of activities designed to accomplish a particular set of goals. They are complex and encompass goals, policies, procedures, rules, task assignments, steps to be taken, resources to be employed, and other elements necessary to carry out a given course of action; they are supported by budgets. Programs may be of various size & duration. A program is a sequence of activities directed towards the achievement of certain objectives. A programme is action based and result oriented. A program lays down the definite steps which will be taken to accomplish a given task. It also lays down the time to be taken for completion of each step. B. Projects Projects are parts of a general program and direct the efforts of individuals or work groups towards the achievement of well defined goals. They are typically less comprehensive & narrower in focus than programs; and usually have predetermined target dates for completion. Project is a subset of a specific program. It is a smaller portion of a program. Projects are connected with a major program but a project can be handled by itself. C. Budgets Budget is the resources required in numerical terms. It is referred as a numerated/ numberized program. it is a fundamental planning instrument in companies that deals with the future allocation and utilization of various resources to different organizational activities over a given time period. Budget can be expressed in financial terms; labor units; products/ unit of product; machine hours or in any other numerically measured term. CLASSIFICATION OF PLANS BASED ON TIME All planning deals with the future; and the future are measured in time. All the kinds of plans are interrelated and one is the derivative of the other. Plans in terms of time periods are classified into three as long term/ range; intermediate range and short range. 6 Chapter Two: Planning Function 1. Long – range planning: has longer time horizon; and usually concerned with the future direction of the organization but not concerned with the immediate future but with distant future. The time usually ranges from 5-10 years, but the time length is a relative term that depends on the size & the nature of the organization. 2. Intermediate – range planning: ranges between long & short range planning; and they are usually developed for 1-5 years, but the time dimension can also vary depending on the size & nature of the organization. 3. Short – range planning: are not developed separately. They are also taken as operational plans derived from the long ranging or intermediate plans. The time length is commonly taken as less than 1 year. What is long or short range in most cases depends on the size of the organization & the type of business of the organizations. CLASSIFICATION BASED ON SCOPE/ BREADTH Planning that is strategic in nature; focuses on changing the competitive position and the overall performance of the organization is the long term. Based on scope, plans are classified into 3 categories as Strategic plan; Tactical plan & Operational plan. 1. Strategic planning Strategic plan is a general plan outlining decisions of resources allocation, priorities, and action/ steps necessary to reach strategic goals. It is a process of analyzing & deciding the organs mission; objective; strategy (major courses of action) and the major resource allocations. It is also developed by top level managers; mostly long –range in its time horizon; expressed in relatively general, non-specific terms & a type of planning that provides a general direction to the organization. Strategic planning is the process by which the organization's strategies are determined. In the process, three basic questions are answered:  Where are we now?  Where do we want to be?  How do we get there? The "where are we now?" question is answered through the first three steps of the strategy formulation process:  Perform internal and external environmental analyses,  Review vision, mission and objectives, and  Determine SWOT: Strengths, Weaknesses, Opportunities and Threats. 2. Tactical planning: Tactical plan is a plan aimed at achieving tactical goals and developed to implement specific parts of strategic plan. It refers to the process of developing action plans through which strategies are executed. It is concerned with shorter time frame & narrower scopes than strategic planning. Departmental managers in organizations are often involved in tactical planning. The strategic planning & tactical plan are highly interrelated. 7 Chapter Two: Planning Function 3. Operational planning: Operational plans focuses on carrying out technical plans to achieve operational goals. Operational planning is mainly short range; more specific & detailed. It is made at operational level & concerned with day- today; week – to - week activities of the organizations. 4. Contingency planning: Contingency planning is an approach that has become very popular in today's rapidly changing business envelopment. It is the determination of alternative courses of action to be taken if the original plans are disrupted or become inappropriate due to the changing circumstances. It is proactive in nature & the management tries to anticipate changes in the environment and prepares to cope with the future events. It is necessary at each level of management and for strategic, tactical, and operational plantings. It is the development of two or more plans based on different conditions. The plan to be implemented is determined by the specific prevailing situation. 2.5. THE PLANNING PROCESS The planning process indicates the major steps taken in planning. And generally there are 10 steps in planning process Step 1: Understanding the existing situation Awareness to the external environment to the organization is great important in planning to identify opportunities (O) & Threats (T) and identify Strength (S) & Weaknesses (W) of an organization. To understand external environment organizations should analyze economic situations (competition, prices, demand, supply, etc.); Political situations (government policies, taxation, peace & stability, etc.); Socio – cultural situations: (culture of the society, direction in change of the culture, attitude of the society towards different products, etc.); Environmental situations and Technological situations. In addition to external environment, understanding the internal environment is also essential, i.e. different types of resources an organization possesses. Step 2: Forecasting Forecasting is assumption what the future looks like. To decide where one wants to go, it is necessary to have information about what the future looks like. Planning is deciding what is to be done in the future. The future is full of uncertainties; the manager must make certain assumptions about it in order to plan properly. These assumptions are based on forecasts of the future. Step 3: Establishing objectives Objectives established for the entire enterprise and then for each subordinate work unit. They specify the expected results and indicate the end points what is to be done, where the primary emphasis to be located, & what is to be accomplished by the network of strategies, policies, procedures, rules, budgets, & programs. Step 4: Determining the alternative courses of action Determining the alternative courses of action is searching for & examining alternative course of action (strategies), especially for those not immediately apparent. The more common problem is not finding alternatives but reducing the number of alternatives Step 5: Evaluating alternative courses of action Evaluating alternative courses of action is assessing the alternatives by weighing them in light of premises and goals. It is seeking out alternative courses and examining their strong & weak points. 8 Chapter Two: Planning Function Step 6: Selecting a course of action Selecting a course of action is the point at which the plan is adopted. It is the real point of decision making. Step 7: Formulating derivative plans Derivative plans are those which support the basic or main plan. Step 8: Numberizing plans by budgeting After decisions are made & plans are set, the final step is giving them meaning. Budgeting is to numberized plans by converting them into budgets. The organization’s budget represents the sum total of income & expenses. If done well, budgets become a means of adding together various plans & also set important standards against which planning progress can be measures. Step 9: Implementing the plan After selecting optimum alternative, the manager has to develop an action plan to implement it. The manager must decide these issues o Who will do what o By what date will the tasks be initiated & completed o What resources will be available for the process (human & material) o How will the plan be evaluated o What reporting procedures are to be used o What type & degree of authority will be granted to achieve these ends Step 10: Controlling & evaluating the results Once the plan is implemented, the manager must monitor the progress, i.e. evaluate the reported results, and make any modifications necessary. Plans have to be modified because the environment is constantly changing. Modification is needed because plans are not quite perfect when they are implemented. 2.6. PRINCIPLES OF PLANNING Planning depends on the production, technology, human, financial & physical resources, working conditions/ environment of the organizations, and its environmental forces. Certain principles underlie sound planning. These principles are 1. Principle of contribution to objectives. The soundness of plans depends on the extent to which they contribute to the efficient & effective achievement of corporate objectives. Objectives are the basic criteria underlying the formulation of plans & also for evaluating results of operating plans. 2. Principles of sound & consistent premising Premises are assumptions regarding the environment that would prevail during the period of the implementation of plans. Plans are made on the basis of premises about the future state of these environments and the soundness depends on the accuracy of these premises. Premising about such a myriad of environmental forces is as difficult as it is critical. Hence, large corporations employ a large number of economists, engineers, sociologists, and other experts whose sole responsibility is planning & forecasting. 9 Chapter Two: Planning Function 3. Principles of limiting factors The limiting factors are elements in a company’s internal or external situation which should be revoked or modified if plans are to be formulated for the achievements of its objectives. 4. Principles of commitment Logical planning should cover a period of time in the future necessary to foresee as well as possible, through a series of actions, the fulfillment of commitments involved in a decision made today. 5. Principles of coordinate effort This principle advocates that all the plans of the company should be coordinated with one another so as to produce an integrated plan. Thus short & long range plans should be coordinated with one another. It is achieved if short range plans are derived from long range plans, and the implementation of the former regarded as the contribution to the implementation of the latter. 6. Principles of timing Corporate plans consist of a number of major and derivative plans. All these plans should be synchronized as to the timing of the implementation. Some of these plans be implemented sequentially, while others simultaneously. Hence all these plans should be arranged in the time of hierarchy. 7. Principle of efficiency Plans require the expenditure of resources for their formulation and implementation. All these resources constitute the cost of planning. Plans should aim at minimizing the cost & thereby achieve the most efficient utilization of scarce resources 8. Principle of flexibility Plans should have an inbuilt flexibility when actual environment turns out to be different from predications. This principle can be taken for granted that the future will be different in actuality that the forecasts on which the plans are based. Companies prepare contingency plan which may be put into operation in response to the prevailing situations. 9. Principle of navigational change Plans should be reviewed periodically as to their premises in relation to actually operating environment and the future expectation and as to their results in relation to the planned goals. The review may require changes in objectives, strategies, policies and programs. 10. principle of acceptance Successful implementation of plans requires the willing and cooperative effort of all employees. It is essential that plans should be understood and accepted by them ================================//================================== 10