Chapter 3

Planning as a
Management
Function

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“If you don’t know where you are going,
you’ll end up someplace else.”
Yogi Berra,

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CONCEPT of PLANNING

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 Planning

Planning involves
Planning
figuring out the the act or process of creating
resources that are goals and objectives as well
needed and the as strategies to meet them
standards that must
be met.

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 PLANNING…Cont’d
• Planning is the process of coping with uncertainty
by formulating future courses of action to achieve
specified results.

• A plan is a set of activities intended to achieve

goals, whether for an entire organization,
department, or an individual.

• Planning is deciding in advance what to do, how to

do it, who to do it, when to do it, where to do it,
and why to do it
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 Why do organizations plan?

“Organizations that fail to plan, plan to fail.”

• Therefore, organizations plan in order to:
• Stimulate forward thinking and clarifying future
direction;
• Address major organizational problems;
• Improve performance;
• Sustain organization;

• Build team work and expertise;

• increase capacity for change management; 6

 Why plan?....Cont’d

• Set priorities and utilize resources efficiently;

• Build Transparence and Accountability;

• Encourage delegation and commitment;

• Develop indicators for monitoring and evaluation;

• To be pro-active..

Priorities

Are goals, objectives, or activities ranked in order of importance.

• A, B, C priority system: There is no commonly used formula to

prioritize goals, objectives or activities. But the A-B-C priority system
is used.
• A. Must do – objectives critical to successful performance. 7
 Priorities…
• B. Should do- objectives necessary for
improved performance.
• C. Nice to do- objectives desirable for
improved performance but not critical to
survival or improved performance.
• They can be eliminated or postponed to
achieve objectives of higher priority.
 Nature of Planning
Planning is a primary function of management because it affects all
downstream management functions.
Planning is a continuous process- It is a never ending process,
because:
Planning is affected by constant change, uncertainty, new competition,
unexpected problems, and emerging opportunities.
• Planning deals with the future and the future is full of uncertainties.
• Effective plans have no end points. They are always subject to a revision.
• Planning involves interdependent set of decisions and concerns all managers:
• Planning commits the organization into the future
• Plans are arranged in a hierarchy
• Corporate (strategic) Plans
• Tactical / intermediate plans
• Operational plans

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Types of uncertainties and coping with them

• Organizations like individuals are continually

challenged to accomplish something in spite of
general uncertainty.
• Organizations meet these challenges largely through
planning.
Types of Uncertainty
People perceive three types of uncertainty :
1 . State uncertainty
2. Effect uncertainty
3. Response uncertainty
 Types of uncertainty…
• 1. State uncertainty - occurs when the environment
or a portion of the environment is considered
unpredictable.
• 2. Effect uncertainty- A manager’s attempt to predict
the effect of specific environmental changes or events
on his or her organization involves effect uncertainty.
• Impacts of environmental changes are unpredictable
• 3. Response uncertainty- Inability to predict the
consequences of particular decision or organizational
response.
• Consequences of decisions are unpredictable.
 Coping with Uncertainty
• Organizations cope with environmental uncertainty by
adopting one of four positions in the environment they
operate.
• These positions or types of organizational responses
include :
• defenders,
• prospectors,
• analyzers, and
• reactors
 Coping with…
• 1. Defenders- highly expert at producing and marketing a
few products in a narrowly defined market.
• Opportunities beyond present market not sought.
• Narrow focus- primary attention devoted to efficiency.
• 2. Prospectors- Frequent development and testing of
new products and services
• Loss of efficiency because of continual product and
market innovation.
• They are source of change and uncertainty to
competitors.
 Coping with…
• 3. Analyzers- Simultaneous operations in
stable and changing product/market domains
• In relatively stable product/market domain,
emphasis on formalized structure and efficient
operation.
• In changing product/market domain,
emphasis on detecting and copying
competitors’ most promising ideas.
 Coping with…

• 4. Reactors- Frequently unable to

respond quickly to perceived changes in
environment.
• Make adjustments only when finally
forced to do so by environmental
pressures.
 Types of Plans
• Planning begins at the top of the organizational pyramid and
filters down.
• It is top management’s job to state the organization’s mission,
establish strategic priorities and draw up major policies.
• Accordingly, plans are classified into three based on scope.
• 1. Strategic planning is the process of determining how to pursue
the organization's long-term goals with the resources expected to be
available. It communicates general intentions about profit and
growth. It specifies how the organization will achieve a competitive
advantage with profit and growth as by-products.

• 2. Intermediate planning is the process of determining the

contributions subunits can make with allocated resources.

• 3. Operational planning is the process of determining how specific

tasks can best be accomplished on time with available resources.

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Planning horizons & the management
pyramid
 Planning horizon refers to the time that elapses
between the formulation and execution of a planned
activity.
 Planning horizons shorten and plans become
increasingly specific.
 1. Strategic planning- 1 to 10 years
– Developed by top management( CEO, president, vice president,
general managers, division heads)
 2.Intermediate planning- 6 months to 2 years
– Developed by middle management
– (Functional managers, product-line managers, department
heads)
 3. Operational planning – 1 week to 1 year
 Developed by lower level managers
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(Unit managers, first-line managers)
 Types of action plans that guide
organizations
Action plans guide the day-to-day
activities that are intended to
implement strategic decisions

Functional plans
One-time plans
Standing plans
Contingency plans

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 Functional plans
• Are source of answers to the
question “what should we do in our
area or department to implement the
business strategy?”
• A functional plan describes the
specific actions to be taken in the
immediate future by people
responsible for that particular
functional area such as HRM,R&D,
Finance,…
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 One-time Plan
 One-time plans are developed to guide the
carrying out of activities that are not intended
to be repeated. There are two types of one-
time plans: program plans and project plans.
– A program plan is a one-time plan designed to
coordinate a diverse set of activities that are
necessary to carry out a complex endeavor such
as restructuring a department, opening new
facilities, etc.
– A project plan is made to guide and control
completion of a one-time activity that is typically
less involved and complex than a program.
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 Standing plans
• Standing plans are predetermined course
of actions that are used again and again,
focusing on situations that recur
repeatedly.
• Standing plans speed the decision- making
process and allow managers to handle
similar situations in a consistent manner.
Policies, procedures, and rules are all
forms of standing plans .

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 Standing plans…Cont’d

– A policy provides a broad guideline for

managers to follow when dealing with
important areas of decision making.
– A procedure is a set of step-by-step
directions that explains how activities or
tasks are carried out.
– A rule is an explicit statement that tells an
employee what he or she can and cannot
do.
Rules are “do” and “don’t” statements put
into place to promote the safety of
employees and the uniform treatment and
behavior of employees
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 Contingency plans
Contingency planning involves
identifying alternative courses of
action that can be implemented
if and when
the original plan proves inadequate
because of changing circumstances.

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 The planning process
The following are the major steps that a
planning process should follow:
Step 1: Understanding the existing situation
A. External environment: The influence of the
external environment is of great concern in
planning. It is essential to be aware of the
external opportunities and threats that can
affect the planning process.

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 Planning process…
 The organization is required to analyze the
following environmental situations while
involving in the planning process:
 The economic situation (competition, price,
demand, supply,etc.)
 The political situation (taxation, government
policies, peace and stability, etc.)

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 Planning process…
• The social and cultural situations (culture of
the society, direction of culture change, attitude
of the society towards different products)
B. Internal situations
• The organization is also required to examine the
internal situations and determine the existing
strengths and weaknesses of the organization.

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 Planning process…
 In summary, planning requires a realistic
diagnosis of the existing strengths,
weaknesses, opportunities and threats of the
organization.
Step 2: Forecasting
 Planning is deciding about what is to be done
in the future.
 Therefore, it is essential to have information
about what the future would look like.
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 Planning process…

• To this end, managers are required to make

certain assumptions based on forecasts of the
future in order to plan properly.

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• Step 3: Establishment of Objectives
– The actual planning activity starts with the setting of goals and objectives to
be achieved.
– Objectives provide a rationale for undertaking various activities as well as
indicate direction of efforts.
– Objectives focus the attention of managers on the end results to be
achieved.
– Objectives provide nucleus to the planning process.
– Objectives should be measurable, practical, acceptable, workable and
achievable.
– The desired results should be expressed quantitatively, in
units of output, dollars or percentage of change.

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 Sample objective statements:
• 1. To increase subcompact car production by
240,000 units of output during the next
production year.
• 2. To reduce bad-debt loss by USD 500,000
during the next six months.
• 3. To achieve an 18 percent increase in
electronic goods sales by December 31 of the
current year.
• Objectives should be SMART.
 The Importance of Objectives
• Carefully prepared objectives benefit managers by serving as:
• Targets: provide managers with specific targets that enable them to
make coordinated decisions.
• Measuring sticks: serve as standard against which performance is
measured.
• Fostering commitment: objectives can be helpful in encouraging
personal commitment to collective ends.
• Enhancing motivation: Good objectives represent a challenge –
something to reach for.
They have a motivational aspect.
People usually feel good about themselves and what they do when
they successfully achieve a challenging objective.
 Process…Cont’d
Step 4: Determine and evaluate alternative plans
(course of actions)

 Next to establishment of objectives,

alternative plans are developed;
 Thoroughly evaluated against such factors like
cost, risks, benefits, organizational facilities,
etc.

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 Process…Cont’d
• Step 5: Selecting the plan (course of action) and
formulating derivative plans

 This step involves selection of the most

desirable plan and the development of
derivative plans.
 Once a choice is made and a master plan
prepared, derivative plans should be
prepared to support it.

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• Thus, within the framework of the basic plan,
derivative plans are formulated in each
functional area.
• The division of the master plan into
departmental, sectional and individual plans
provides a realistic picture of things to come in
the future.
• In order to be effective, the planning process
should also provide for feedback mechanism.
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 Process…Cont’d
Step 6: Implementing the plan
• After the optimum alternative plan is selected,
action plan is developed to implement it.
 At this stage of the planning process, decision
is made on the following issues:
 Who is going to do what?
 When will the tasks be initiated and
completed?
 What resources will be available for the
process?
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 Planning process…
• How will the plan be evaluated?
• What are the reporting procedures to be
used?
• What type and degree of authority will be
granted to achieve these ends?

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 Planning process…
• Step 7: Controlling and evaluating the results
 Once the plan is implemented, the progress
made should be monitored and evaluated.
• Modifications may be made based on the
evaluation results.

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 Why plans fail?

• Inability to plan or inadequate planning.

• Lack of commitment to the planning process.
• Inferior information
• Focusing on the present at the expense of the
future..
• Too much reliance on the organization's
planning department.
• Concentrating on controllable variables.
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 Decision-Making
Definition:
• A decision is the selection of a course of action from
among a set of alternatives.
• A decision problem demands two or more alternatives.
• Decisions are also made to achieve goals.
• It is a process by which individuals select a course of
action from among alternatives to produce a desired
result.
• Decision – making is the most important function of
managers.
 Types of Decisions
• 1. Programmed Decisions : Routine and repetitive. Rules
and policies are established in advance to solve
recurring problems.
• Usually made by lower level personnel in organizations.
• 2. Non-programmed decisions : Deal with unique
unusual problems.
• No readymade courses of action to resort.
• Example; deciding how to restructure an organization;
whom to promote as a regional manager;
 The Decision-Making Process
• 1. Awareness of the problem- define the
problem
• 2. Diagnose and state the problem
• 3. Develop potential alternatives
• 4. Analyze/evaluate the alternatives
• 5. Select the best alternative/s
• 6. Implement and follow-up the decision