CHAPTER TWO: PLANNING

After completing this chapter, you will be able to:

 Explain what planning is and its
importance in management.
 List the major steps in planning
 Describe different types and
classifications of plans

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 Planning : Introduction

• Planning is the most fundamental function of

management.
• An organization can succeed in effective
utilization of its resources when its management
decides in advance its objectives and methods of
achieving them.
• Otherwise, the results are chaos, confusion, and
wastage of resources.

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 Introduction…...cont’d
• Human beings have practiced planning since the
times of their existence.
• Therefore, it is not right to associate planning
exclusively to management.
• In order to progress in life, an individual must
plan.
• He must choose what he wants to be and where
he is going.
• Then he must carefully choose a course of action
that can lead him to what he wants to be.
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 Introduction cont’d
• Planning at organizational level is carried out to
attain proactive benefits in reaching organizational
objectives.
• Naturally planning would be divided into proactive
and reactive planning.
• Proactive planning is to plan for the future before
the future happens, while
• Reactive planning is to plan for situations after
situations have already occurred.
• All levels of management engage in planning
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 Introduction cont’d
• Planning is the process of determining the
goals of organizations and specific course of
action for achieving those goals.
• Planning is mainly concerned with ends (what
is to be done) and with means (how it is to be
done).
• Through a plan, managers try to bridge a gap
between where an organization wants to be
and where the organization is now.

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 Introduction cont’d
– Accordingly, planning answers the following
questions;
• Where are we now? A plan defines the current
situation and implies what needs to be improved.
• Where do we want to be? This is concerned with
finding out desirable objectives and position that an
organization wants to attain.
• What is the Gap? What is the difference between
where we are now and where we want to be?
• How to Bridge the Gap? A plan will finally decide
what has to be done in the future to be where we
want to be. 6
 Nature of Planning

• Planning is a primary management function:

• Planning sets foundation for all the managerial
functions to follow. For instance,
– organizing of resources and activities depends on
the goals set by planning.
– Human resource planning and the entire staffing
process is influenced by planning.
– Planning provides the guidelines for directing
employees and controlling activities.

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 Nature of Planning Cont’d
• Planning is a continuous
process:
• Planning deals with the future and the
future by its nature is uncertain.
Therefore,
• The prediction that a planner makes
today is more likely to change tomorrow.

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 Nature of Planning Cont’d
• Planning concerns all managers:
• Every manager is expected to set his goals and
operating plans. Thus,
• planning is not the responsibility of top
management or planning department only.
However,
• Top management devote much of their time
to planning.

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 Nature of Planning Cont’d
• Plans are arranged in hierarchy:
• Plans are first set for the entire organization
called the corporate plan and then corporate plan
are converted into divisional, departmental and
sectional goals.
• Usually, mission statements are at the top of the
hierarchy while operational goals are situated at
the bottom of goal hierarchy. Tactical and
strategic plans are somewhere between the
mission statement and operational goals.
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 Nature of Planning Cont’d
• Planning commits the organization
into the future:
• An organization’s objectives, strategies,
policies and operating plans established in
earlier years affect the future activity of
entities.
• Some plans affect the long run while other
plans affect the near future.

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 Nature of Planning………Cont’d
–Planning has action
orientation:
• Plans must be formulated in a precise
way and expressed in realistic manner
so as to provide clear guidelines on
how specific activity will be
undertaken.
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 Nature of Planning Cont’d
• Planning is antithesis/ opposite of
status quo :
• Planning attains a position for the company that
would not be accomplished otherwise.
– This means the changes visible in the position of
organization is the result of planning.
• Planning therefore implies changes in
organizational objectives, policies, products,
marketing strategies and so forth.
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 Nature of Planning Cont’d
–Ability to adjust:
• Planning allows managers to adjust
the organization to the environment
rather than to react to it.
• The existence of plans provides for
the chance to adapt rather than
react.
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 Importance of Planning
• Activity 1
• Why do we plan?

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 Importance of Planning

1. Planning minimizes risk and uncertainty: by

providing a more rational and fact-based procedure
for making decisions.
2. Planning leads to success: Companies which plan
enjoy more success than the non-planners
3. Planning provides direction: It helps in knowing
what to do and when to do it.
4. Planning focuses attention on organizational goals:
If a manager focuses on the goals, he can outline
sequence of steps in advance for their realization.

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 Importance…. Cont’d
5. Planning facilitates control: The goals and plans
become standards against which performance can be
measured.
6. Planning is Economical: It eliminates unproductive
effort. This will finally minimize costs of performance.
7. Planning helps management to adapt and adjust to
changing environments: Planning enables a manager
to affect rather than being commanded by it.
8. Planning lays ground for other managerial functions:
The other managerial functions are based on planning.

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 Planning Process/ Steps in Planning
1. Setting objective
• The first step in planning is to establish objectives
for the enterprise and then for each subordinate
work unit.
• Objectives are the driver of planning processes.
• They are the guiding light for the entire
management process.
• Objectives are established at all levels of the
structure, beginning at the top level and running
down to first line managers.
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 Cont’d………..
• Objectives are sometimes referred to as
performance goals.
• Objectives specify;
• the expected results and indicate the end
points of what is to be done,
• where the primary emphasis is to be placed,
and
• what is to be accomplished by the network
of strategies, policies, procedures, rules,
budgets, and programs.
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 Characteristics of Objectives
• The characteristics of good objectives can be read
as SMART in short.
• Specific; Objectives should state the exact level of
performance expected specifically. An objective must be
specific with a single key result.
• Measureable; as much as possible objectives should be
expressed quantitatively, therefore, it is possible to easily
determine whether or not goals have been achieved.
• Achievable or acceptable; objectives should be prepared
in suitable, acceptable manner.

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 Cont’d
• Realistic but challenging: objectives
should be attainable or real rather than
fantasy/dream.
– An objective must be attainable with the
resources that are available.
• Time bounded: objectives should be set
with in specific time limits or target dates
for their attainment.

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 Steps in Planning……. Cont’d
2. Conduct a situation or SWOT Analysis
• Making assumptions about the environment
within which the plan is carried out.
• SWOT analysis is concerned with the assessment of
internal and external environment to understand the
prevailing situation of the organization.

• The step is divided into four:

• Analyzing the Strengths= (internal, +)
• Analyzing Weakness= (internal, -)
• Identifying Opportunities= (external, +)and
• Identifying Threats= (external, -)
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 Steps in Planning……. Cont’d
2.1 Analyze the strengths of the organization.
• Strengths are internal competencies possessed by the
organization in comparison with its competitors. E.g:
structure, location, personnel quality, finance etc.
• What makes the organization distinctive?
– How efficient is our manufacturing?
– How skilled is our workforce?
– What is our market share?
– What financing is available?
– Do we have a superior reputation?
– Do we have good resources?
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2.2. Analyze the weaknesses of the
organization.
 Attributes of the organization which tend to
decrease its competence.
What are the vulnerable areas of the
organization?
Are our facilities outdated?
Is research and development
inadequate?
Are our technologies obsolete?
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 Steps in Planning……. Cont’d
2.3 Identify opportunities.
• Are combination of circumstances, time and place
which is likely to produce significant benefits.
• In which areas is the competition not meeting
customer needs?
• What are the possible new markets?
• Are our rivals weak?
• What are the emerging technologies?
• Is there a possibility of growth of existing market?

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2.4 Identify threats:
• Unfavorable events, which if they occur, would
produce significant damage to the organization.
• In which areas does the competition meet customer
needs more effectively?
• Are there new competitors?
• Is there a shortage of resources?
• Are market tastes changing?
• What are the new regulations?
• What substitute products exist?
• The best strategy is one that fits the organization's
strengths to opportunities in the environment.
• A key element of planning at this stage is forecasting.
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 Steps in Planning……. Cont’d
3. Determining Alternative courses of Action
• Once objectives are set, the management must identify
alternative ways for reaching them.
• When developing alternatives, a manager should try to
create as many roads to each objective as possible
4. Evaluating the alternatives
• Each alternative needs to be evaluated to determine
which one best achieves the objectives.
• In evaluating, managers should assess cost
(disadvantages) and benefits (advantages) and effects of
all alternatives.

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 Steps in Planning……. Cont’d
5. Select the best alternative(s)
• After evaluating all possible alternatives, managers will select
alternative that remains better than others.
• It may be an alternative with least disadvantages and most
advantages.
6. Formulating derivative plans
 Broad goals are translated into day-to-day operations of the
organization.
7. Implementing the plan
• After the best alternative course of action is/are selected, it is
important to develop an action plan to execute the plan.
• Implementation involves determining who will be involved,
what resources will be needed, how the plan will be evaluated,
and reporting procedures. 28
 Steps in Planning……. Cont’d
8. Controlling and evaluating the results
• Once the plan is implemented, it needs
monitoring.
• Managers should monitor the progress
being made, evaluate the reports made
based on results, and make any necessary
modifications, because factors in the
environment are constantly changing,
plans must be modified to cope up with
changes. 29
 Types of Plan
• Plans can be classified based on the following
dimensions:
–Repetitiveness of use
Standing Plans
Single use plans
–Time dimension, and
• Long-range Plans
• Short-range Plans
• Intermediate range Plans:
–Scope
• Strategic Plans
• Tactical Plans
• Operational Plans 30
 Classification of Plans Based on Repetitiveness
• Based on repetitiveness of use, plans can be
classified into two major divisions:
1. Standing/ongoing Plans
• Plans that provide an ongoing guidance for
performing recurring activities.
• Can be used again and again.
• Include: mission or purpose, goal or
objective, strategy, policy, procedure,
method and rule. E.g: Credit policy of Banks
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 Standing Plans cont’d…………..
» Purpose or Mission:
• Identifies the basic function or task that is performed by the
enterprise. The reason behind an organization’s existence.
• For instance, the purpose of university is teaching and research; the
purpose of business generally is the production and distribution of
goods and services.
» Objectives or Goals:
• Are the ends toward which activity is aimed.
• Represent not only the end point of planning, but also the endpoints of
organizing, leading, staffing and controlling.
• The main difference between objective and mission is objective is the
ends of specific activity while mission solely refers to the activity itself.
– The mission of a business firm may be to produce products, but as an objective
the business firm may have the objective of producing 10,000 units of output
in a year.
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 Standing Plans….. Cont’d
» Strategies:
• Are ways and means to achieve the established
objectives.
• Hence objective mainly answers what question where as
strategy answers the how question.
» Policies:
• Establishes general guidelines for decision making.
• It is a general statement designed to guide employees'
actions in recurring situations.
• It establishes broad limits, provides direction, but permits
some initiative and discretion on the part of the manager.
– There are many types of policies, e.g. policies of hiring
university trained only, promoting from within, etc. 33
 Standing Plans….. Cont’d
» Procedures:
• Show the chronological sequences of required actions.
• Procedures define a precise series of steps to be used in
carrying out a specific job.
• Contain detailed guidelines for handling
organizational actions that occur regularly.
• It is more specific than a policy and establishes a
customary/usual way of handling a recurring activity.
• Thus, less discretion/judgment on the part of the
manager is permissible in its application.
• E.g: Material procurement
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 Standing Plans….. Cont’d

»Rules:
• Are usually the simplest type of plan that spells
out specific required actions or non-actions to be
taken in a given situation, allowing no discretion/
freedom to decide
• A rule is an established guide for conduct.
• Rules include definite things to do and not to do.
• There are no exceptions/discretions to the rules.
– E.g. "No Smoking."
– A student with a GPA below 2.0 cannot graduate
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 Single Use Plans

• Plans that are not used once the objective is

accomplished.
• Single-use plans deal with unique, one-time-only
events.
• Are detailed courses of action that probably will not be
repeated in the same form in the future.
• Are used only once and not over and over again.
– Single use plans include programs, projects
and budgets

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 Single Use Plans…….cont’d
Programs:
• Are complex set of 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,
ordinarily supported by budgets.
– E.g. the expansion program of hospitals.
• It holds applicable till the expansion is over and
expires after the job of expansion is complete.

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 Single Use Plans…….cont’d
Budgets:
• It may be referred to as a “numerated”
program.
• May be expressed in financial terms, in
terms of labor hours, units of production,
machine hours or in any other numerically
measurable term.
• A budget is a plan that shows how Financial
and other resources will be spent over a
certain period of time. 38
 Single Use Plans…….cont’d
Project:
• Is merely part of a general program that can
be planned and fulfilled as a distinct project
itself.
• Projects help in the completion of
programs.
• A project simplifies a program into various
parts so that the whole program can be
completed in the time needed.
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 Classification of Plans Based on Time
We can classify plans into three based on time period
for which planning is intended:
• Long-range Plans (5-10 years):
– have longer time horizon.
– mainly concerned with future direction of the organization.
• Short-range Plans (1-2 years):
– are complementary of long range plans and are not prepared separately
– they constitute the steps toward the implementation of LRPs
• Intermediate range Plans: ranges between long and short
range planning.
– Note: what is long – range or what is short-range cannot be
generally defined. In most of the cases it depends on the size
of the organization and the type of business of the
organization. 40
 Classification of Plans Based on Scope/Breadth
• Based on their scope or breadth, plans can be
classified in to three categories.
• Based on the level of management where the
plan is formulated, we have;

1. Strategic Plans

2. Tactical Plans

3. Operational Plans

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 Strategic Plans
• Are organizational wide,
• Establish the organization’s over all goals,
• Tend to focus on the long term success and direction of the
organization,
• Are performed (done) by top level managers,
• Expressed in relatively general or non-specific terms,
• Are comprehensive in scope & reflect long-term needs & direction
of the company,
• Primarily concerned with solving long-term problems associated
with external environmental influences,
• Here, mission, objective, or strategy are analyzed and decided,
• Done by the top level managers by taking into account environmental threats and
opportunities and internal weaknesses and strengths,
• Are mostly long-range in their time frame, >5 years,
• Are expressed in general, non-specific terms.
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 Tactical Plans:
• Tactical planning is the process through which managers design
coherent groups of activities to accomplish a strategy.
• Tactical Plans refers to the process of developing action
plans through which strategies are executed.
• It is the process of making detailed decisions about what to
do, who will do it, and how to do it.
• Tactical Plans have shorter time frames and narrower scopes
than strategic plans, 1 -3 years.
• Tactical Plan provides the specific ideas for implementing
the strategic plan.
• Departmental managers are often involved in tactical
planning. Examples of tactical plan include:
– Developing annual budget for each department,
– Choosing specific means of implementing strategic plans.
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 Operational Plans:

• Operational Planning is the most specific and is concerned with

the day to day, weekly activities of the organization.
• Operational Planning are mainly of short-range and more specific.
• Are the day-to-day plans for producing or delivering the
organization’s products and services.
• They have a narrow and more limited scope.
• They support tactical plans and are prepared by lower level
managers.
• They are the manager's tools for executing daily, weekly, and
monthly activities. Examples are:
– Production schedules, sales plans, lesson plans.
– Policies, methods and rules are also part of operational plans.
• It is important to note that the three types of plans (strategic,
Tactical and operational) interact each other.
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 Principles of Effective Planning
• The following points help the manager to plan effectively:
• Develop Accurate Forecasts: Better forecasts/predictions lead to
better plans.
• Gain Acceptance for the Plan: by promoting subordinates
participation in the planning process.
• Be Objective: Managers should not hesitate to verify the truth
behind the reality.
• Set up Monitoring System: Appraise and review the plans
• Revise your Plan on a Constant Basis: Because changes in the
dynamic environments of economic, technological, political and
social pose a serious threat to the continuance of plans adopted
earlier.
• Fit the Plan to the Situation: To cope up with changing
environments, situational plans must be developed. 45
 Management by Objectives (MBO)

• MBO is a collaborative process whereby the manager and

each subordinate jointly determine objectives for that
subordinate/work unit.
• MBO is a management philosophy and systematic process
through which managers of all levels communicate with
subordinates in terms of goals and how specific activities of
the subordinates can contribute to reaching these goals.
• MBO is based on the assumption that employees at all levels
of the organization must be involved in goal setting and
development and implementation of plans
• MBO goes beyond setting annual objectives for organizational
units to setting performance goals for individual employees.
• The manager and the subordinate meet periodically to review
progress. 46
 Characteristics of MBO
• A Philosophy: Management by objective is a
philosophy or a system, and not merely a
technique.

• Participative Goal Setting: It emphasizes

participative goal setting.

• Clearly Define Individual Responsibilities:

Management by objective (MBO) clearly defines
each individual‘s responsibilities in terms of
results.
• Accomplishment of Goal: It focuses attention on
what goal must be accomplished rather than on
how it is to be accomplished (method). 47
 Objectives of MBO
• The objective of MBO is to change behavior and
attitudes towards getting the job done.

• In other words, it is results-oriented.

• It is a management system and philosophy that

stress goals rather than methods.

• It provides responsibility and accountability

and recognizes that workers or employees have
needs for achievement and self-fulfillment.
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 Process of MBO
Setting objectives,

Developing action plans,

Reviewing progress,

Appraising overall performance

Note: the MBO approach is cyclic.

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 Benefits of MBO
 Better Management
 Better Organizing
 Reduces Role Conflict and Ambiguity
 It Provide more Objective Appraisal Criteria
 More Motivation
 Managers Compete with Themselves
 Help develop Personal Leadership
 MBO Identifies Problems Early
 Identifies Performance Deficiency
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 Problems with MBO
Unfavorable Attitude of
Managers
Difficult to Apply MBO Concepts
Heavy Paper Work
Time Consuming: MBO is time
consuming especially in the early
phases of its introduction when
employees are unfamiliar with its
process. 51
The End!

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