Unit 2 Planning

Concept, process and types, decision making – concept and process,

bounded rationality, management by objectives, corporate planning,
environment analysis and diagnosis, environmental factors, strategy
formulation.

Concept of Planning
In discussing planning, two terms: planning and plan are used. These two
terms appear to be similar but there is a fundamental difference
between the two. Planning is a process consisting of various steps. On
the other hand, plan is a commitment to a particular course of action
believed necessary to achieve specific results. For example, Government
of India prepares Five.
Year Plans which consist of various actions to be taken, results to be
achieved, and resources to be used. These are plans and are prepared
through the planning process which involves performing various
activities to arrive at what is to be achieved and how to be achieved.
Definition of Planning
Planning involves deciding in advance what to do and how to do it. Thus,
planning decides future course of action which an organization takes.
Process of Planning
Planning process consist of various steps in a sequence through
which plans are formulated.
Steps of planning are undertaken.
1. Setting Objectives.
At this stage, major organizational objectives are set. Objectives are the
end results to be achieved by implementation of plans formulated
through planning process. At this stage, organizational objectives are
specified in all key result areas. Key result areas are those areas in which
satisfactory performance leads to achieve organizational objectives.
Organizational objectives are identified, objectives of organizational
units and sub-units can be identified on the basis of organizational
objectives.
2. Establishing Planning Premises.
After setting organizational objectives, the next step is establishing
planning premises. Planning premises are assumptions about the
expected environmental and internal conditions in future. These
assumptions are base materials on which plans are formulated. There
are two types of planning premises: external and internal. External
premises include factors of environment - both general and specific -
which are expected to affect organizational working. Internal premises
include organization's policies, resources of various types, and the ability
of the organization to withstand the environmental pressure. Emphasis
on types of planning premises differs at different levels of planning. At
the top level, it is mostly externally focused. As one moves down the
organizational hierarchy, emphasis on planning premises changes from
external to internal.
3. Identifying Alternatives.
Based on the organizational objectives and planning premises, various
alternatives (alternative courses of action) are identified. The concept of
various alternatives suggests that a particular objective can be achieved
through alternative actions.
For example, if an organization has set its objective to grow further, it
can be achieved in several ways like expanding the present business,
diversifying in new businesses, taking over another organization, and so
on. Within each category of alternatives, there may be several
alternatives. For example, diversification itself may point out the
possibility of entering in one of the several businesses. The most
common issue involved in identification of alternatives is not just to
identify alternatives only but to reduce the number of alternatives so
that only promising ones may be taken for detailed analysis because it
requires lot of time and efforts. In order to prune number of alternatives,
some preliminary criteria should be set like investment requirement,
type of technology to be used, etc.
4. Evaluating Alternatives.
Various alternatives which are considered feasible in terms of
preliminary criteria may be taken for detailed evaluation. At this stage,
an attempt is made to evaluate how each alternative contributes to
achieve objectives of the organization in the light of its resources and
constraints. This presents a problem because each alternative may have
certain positive points on one aspect but negative on others. For
example, one alternative may be more profitable but requires heavy
investment with long gestation period; another may be less profitable
but also involves less risk. Therefore, for evaluation of alternatives,
rational criteria should be used like organizational vision, cost, return,
risk, etc.
For example, if an organization has set its objective to grow further, it
can be achieved in several ways like expanding the present business,
diversifying in new businesses, taking over another organization, and so
on. Within each category of alternatives, there may be several
alternatives. For example, diversification itself may point out the
possibility of entering in one of the several businesses. The most
common issue involved in identification of alternatives is not just to
identify alternatives only but to reduce the number of alternatives so
that only promising ones may be taken for detailed analysis because it
requires lot of time and efforts. In order to prune number of alternatives,
some preliminary criteria should be set like investment requirement,
type of technology to be used, etc.
5. Choosing Alternative.
After the evaluation of various alternatives, the most suitable one is
selected. Sometimes, evaluation of alternatives may show that more
than one alternative is equally good or the first alternative is just
marginally better than the second or alternatives that follow it. In such a
case, a planner may choose more than one alternative keeping in view
the various planning premises. This is beneficial because chosen course
of action is to be undertaken in future which is not constant but changes.
Therefore, the planner must be ready with alternative plan, known as
contingency plan, which can be implemented in changed situations.
6. Plan Implementation.
When a plan is selected, it is implemented, that is, putting the plan into
action. For implementing the plan, various action plans, also known as
supporting plans or derived plans, are formulated. In an organization
there can be various action plans like plan for buying equipments, buying
raw materials, recruiting and training personnel, etc. These action plans
are formulated on the basis of the main plan and lead to implementation
of the plan.
7. Follow-up Action.
Plan implementation takes lot of time. Therefore, when the plan is put
into action, follow-up action is required to see whether plan is
implemented according to schedule. If no, suitable actions should be
taken to ensure that the plan is implemented according to prescription
and within the specified time and stated objectives of the organization
are achieved.
Types of Planning
 Classification on the basis of Objectives:-
Planning of existing business
Reform oriented planning
Developmental planning
 Classification on the basis of Time:-
Long term Planning
Medium term Planning
Short term Planning
 Classification on the basis of functional areas:-
Production Planning
Product Planning
Financial Planning
Human Resource planning
Profit Planning
1. Planning of existing business
In this type of planning, day to day activities of existing business is
planned. Such planning is very necessary for existence and growth of
existing business. Aim of such planning is smooth running of existing
business.
2. Reform oriented planning
It aims at reforming business activities by removing its deficiencies
observed on its constant review. Change is an essential element of
successful planning while rigidity is its enemy. That’s why the policies and
procedures should change in accordance with the changes in the
external circumstances. A changing business unit alone can satisfy the
changing expectations of the customers, suppliers, employees.
3. Developmental planning
It aims at the development of business unit. For that various
programmes of development are prepared. Programmes for expansion
and modernizations are prepared.
1. Long Term Planning
Planning for a period longer than five years is generally known as
a long term planning. A plan is formulated on the basis of certain
assumptions. It enables the management to visualize the image of the
possible economic position of the business unit in far future. For the
achievement of long term objectives like……..
…… Introduction of new item
…… diversification & modernization etc.
2. Medium Term Planning
Planning for more than one year but less than five years is generally
known as a medium term planning. Medium term planning is essential
for…
……. Increasing market share
……. Development of new market
……. Increasing profit by reducing cost
……. Changes in the design of product
……. Opening new branches etc.
1. Production Planning
Production planning is prepared by the experts of production
department. Market demand and consumer preferences are the pre –
requisites of production planning. It lays down in advance what to
produce, how much to produce, how to produce, when to produce,
where to produce. Moreover it includes…..
……. Forecasting of sales,
……. Estimates of HR, Fixed assets (plants & Machineries)
……. Routing and Scheduling,
……. Determining standards of quality
2. Product Planning
Product planning means developing new products and making necessary
changes in existing products according to likes and dislikes of customer.
It includes decisions regarding size, shape, design, colour etc. of the
product and its packing and design of packing.
3. Financial Planning
Financial planning may be termed as the heart of business success. In the
absence of it, business may constantly face shortage of finance or surplus
of funds. Financial planning includes……
…… estimating requirements of funds,
…… determining sources of funds,
……. When and for what period should the funds be raised,
….. Determining in advance the financial policies and procedures of
utilization of funds. It is a continuous process ( at the promotion stage,
expansion & development).
4. Human Resource Planning
HRP is undertaken with three objectives. 1. Optimum use of existing
human resources. 2. To satisfy the future manpower requirement. 3.
Stability in employees. The situation in which there is shortage or excess
of manpower, is not desirable. HR is at the center of any organization.
Every year some of the employees leave the organization, some retires
and some new posts are created on account of expansion. Taking into
account these facts, HRP is prepared to strike a balance between the
work load and manpower.
5. Profit Planning
Profit planning is the center of all planning. The profit to be earned is first
determined and on that basis all business activities are determined.