CHAPTER III

Planning
 Planning

• Definition and Nature of Planning

• Major Types of Plans
• Basic Steps in Business Planning
• Decision Making
• Planning Techniques and Tools
• Why Managers Fail in Planning
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 Definition
and Nature
of Planning
 Planning

Planning is the fundamental management function, which

involves deciding beforehand, what is to be done, when is
it to be done, how it is to be done and who is going to do it.
It is an intellectual process which lays
down an organisation’s objectives and develops various
courses of action, by which the organisation can achieve
those objectives. It chalks out exactly, how to attain a
specific goal.
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 Planning

Planning is considered the most basic of all managerial

functions (organizing, staffing, directing, and
controlling). Without this basic function, the other four
functions of the manager cannot be tackled efficiently
and effectively. Therefore, a manager organizes, staffs,
directs, and controls in order to guarantee the attainment
of objectives and the other types of plans made.
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 The Nature of Planning

Four major factors summarize the essential nature of

planning. These are:

1. Contribution to purpose and objectives - Planning

is required to facilitate accomplishment of business
purposes and objectives. This statement is taken from
the nature of organized business.
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 The Nature of Planning

2. Planning as the first basic function –

Since managerial functions of organizing, staffing, directing, and
controlling are designed to support the accomplishment of business
objectives, planning is logically performed before the execution of all
other managerial functions. Besides, a plan must be formulated to
accomplish the objectives before any manager knows what kind of
organization structure and job description and qualifications are needed,
how to direct subordinates, and what kind of control technique is to be
applied. Inevitably, all the managerial functions must be planned if they
are to be effective and efficient.
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 The Nature of Planning

3. Planning as a function of all managers

Planning is a function of all managers, although the character and scope
of planning will differ from one authority to another.
The broader scope of planning goes far in clarifying the issue on the
part of some students of management to distinguish between policy
making and administration or between the “manager” and the
“administrator” or “supervisor”. One manager, because of his authority
of position in the organization, may do more planning than another, or
the planning of one manager may be more basic and applicable to a
larger portion of the business than that of another.
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 The Nature of Planning

4. Planning for efficient organization - The efficiency

of a plan is evaluated by the amount it contributes to
purpose and objectives as offset by the expenses and
other things required to formulate and implement it. A
plan contributes to the attainment of objectives, but
sometimes at too high or unnecessarily high costs.

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 The Nature of Planning

Plans may also become inefficient in the attainment of objectives by

affecting group satisfaction. The new president of a company that was
experiencing bankruptcy attempted quickly to reorganize and cut
expenses by wholesale and drastic lay-offs of key employees. The
results are fear, resentment and loss of morale affecting productivity and
thereby defeat his objective of eliminating losses and making profits.
Attempts to install management evaluation and development program
fail because of group resentment of the method used, regardless of the
basic effectiveness of the programs.
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 Major
Types of
Plans
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Business goals represent the direction in which a
company intends to go and define what the
organization wants to achieve. A business objective
specifies the methods and paths that can help a
business achieve that goal.

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A Mission Statement is a definition of the company's
business, who it serves, what it does, its objectives, and
its approach to reaching those objectives.
A Vision Statement is a description of the desired
future state of the company. An effective vision inspires
the team, showing them how success will look and feel.

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Your business plan should include your vision, mission
and values statements. These important elements will
help you describe the personality and goals of your
business to investors or lenders, potential partners and
employees. These statements usually stay the same over
the life of your business.

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 Guidelines in Implementing
Management by Objectives (MBO)

1. Adapt your objectives directly to organizational goals and strategic plans.

Do not assume that they support higher-level management objectives.
2. Quantify and target the results whenever possible. Do not formulate
objectives whose attainment cannot be measured or at least verified.
3. Test your objectives for challenge and achievability. Do not build
cushions to hedge against accountability for results.
4. Adjust the objectives to the availability of resources and the realities of
organizational life. Do not keep your head either in the clouds or in the
sand.
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 Guidelines in Implementing
Management by Objectives (MBO)

5. Establish performance reports and milestones that measure progress toward

the objective. Do not rely on instinct or benchmarks to appraise performance.
6. Put your objectives in writing and express them in clear, concise, and
unambiguous statements. Do not allow them to remain in loose or vague terms.
7. Limit the number of statements of objectives to the most relevant key result
areas of your job. Do not obscure priorities by stating too many objectives. ;
8. Communicate your objectives to your subordinates so that they can
formulate their own job objectives. Do not demand that they do your goal
setting for you.

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 Guidelines in Implementing
Management by Objectives (MBO)

9. Review your statements with others to assure

consistency and mutual support. Do not fall into the
trap of setting your objectives in a vacuum.
10. Modify your statements to meet changing
conditions and priorities,
11. Do not continue to pursue objectives which have
become obsolete.
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 1. Individual objectives are jointly set by the
subordinate and the superior.
2. Individuals are periodically evaluated and
receive feedback their performance.
3. Individuals are evaluated and rewarded on the
basis of objective attainment.
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 Program
• It is the actual course of action designed to carry out the
established objective. To improve the quality level of a
product, a company may institute a quality awareness
program.
• It is a comprehensive plan that indicates use of different
resources in an integrated pattern and establishes a
sequence of required actions and time schedules for each in
order to achieve stated objectives. Examples: Marketing
Program, Personnel Program, Financial Program, etc.
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 Program
• A program can be easily and systematically shown by using a project
schedule. Project scheduling refers to the identification and analysis of the
activities from the project planning stage up to the start of normal
operations. In determining the various activities of the project, assumption
should be made in touching all aspects of the study such as the plant site
and location, building construction, etc.
• To concretize the sequence of the various activities, a Gantt Chart should
be used as a planning and control tool of studying the project proposal. It
was formulated in 1917 by Henry L. Gantt, a noted pioneer in the field of
industrial management, as a device for controlling the production of raw
materials. It is now widely used for a variety of purposes to suit
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 Policies
• These are basic guidelines for action. They indicated what is
permitted and what is not permitted. Promoting people from within
can be a personnel policy of a company.
• Policies are broad, general guides for action which constrain or direct
objective attainment. In this light, policies channel how management
should order its affairs and its attitude toward major issues; they
dictate the intent of those who guide the organization. In other words,
Policies define the universe from which future strategies and plans
are derived. “It is the policy of the public relations department to
answer in writing all written customer complaints” is an example of
such a policy.
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 Procedures
• Procedures are series of related steps expressed in chronological order for
a specific purpose. Procedures are rules differ from policies only in
degree. A procedure defines in step-by-step fashion the methods by and
through which policies are achieved. They outline precisely how a
recurring activity must be accomplished. Procedures allow little flexibility
and deviation. A company’s policy may be to accept all customer returns
submitted within one month of purchase; company procedures would
outline exactly how a return should be processed. Well established formal
procedures are often known as standard operating procedures (SOPs).
• These are instructions as to how a particular thing should be done. A set of
procedures may be prescribed in operating a machine or handling
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 Rules
• Rules require specific and definite actions for a given
situation. Rules leave little doubt about what is to be
done. They permit no flexibility and deviation. Unlike
procedures, rules do not have to specify sequence, for
example: “No smoking in the conference room” is a rule.
• These are very specific actions to be taken with respect
to a situation. Wearing uniforms or reporting to work at a
particular time are some examples.

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 Budget
• A plan stated in financial terms is called a
budget. It is an estimate of income and
expenditures for a future period. The use of
budget enables executives to perform their
management functions more effectively
since budget provides them with the proper
guidance in matters of disbursement.
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 Philosophy
• The values and beliefs an organization holds as the
guiding light is the company’s philosophy. These are
usually passed on by the founder of the organization.
Providing quality products at reasonable prices,
providing comfort and enhancing the quality of life
of society was the vision of Mr. Konosuke
Matsushita, the founder of the electronics firm
bearing his name.
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 Strategy
• It is the method of shaping a company’s future and involves determining
the long run direction of the organization. A company may have the
strategy to diversify into related businesses within the next few years.
• From the above classifications, we can see that objectives are not the same
as policies, rules, procedures, mission, strategy, philosophy, and programs.
Although they are not the same, there are some relationship among them.
• The word strategy originated with the Greeks around 400 B.C. It pertained
to the art and science of directing military forces. A strategy Outlines the
basic steps and management intends to do to achieve its objectives.

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Basic Steps
in Business
Planning
 The following are the basic
steps in Business Planning

1. Define the Business Idea. – write a

description of the business idea. Get it into
paper as concisely as possible. This is by far
the most important and most difficult part of
the business plan. The more precise and
specific this description, the easier the rest of
the planning process.
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 The following are the basic
steps in Business Planning

2. Establish Goals and Objectives – there

may be a wide range of goals or objectives
that may be desired by the various units and
elements of a company. Management by
objectives, commonly referred to as MBO, can
be a process for explicitly teaching the
objectives of the organization.
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 The following are the basic
steps in Business Planning
Applying management by objectives involves participation in a
sharing of important management functions by workers at all
levels within the organization. Generally, the approach will
involve the identification of goals for individuals, for groups and
for the entire organization. Conversely, the goal sets for
individuals are subsets for the entire goal set for groups, which
are themselves goal subsets of the entire organization goals.
Subordinates and superiors jointly determine and agree upon the
results they seek to achieve along with the standards that will be
used to measure the results.
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 The following are the basic
steps in Business Planning

3. Evaluate the ideas, goals, and objectives – this

is to determine whether or not a specific idea makes
sense, whether or not it can work, and whether or
not it can fulfill the series of goals and objectives
identified in the preceding steps. Once the business
idea and the goals and objectives have been defined
in writing, they can be compared to determine
where complements and gaps may exist.
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 The following are the basic
steps in Business Planning

4. Forecast cash needs – it indicates the cash

investment associated with different sets of
alternatives. These funding or investment
requirements include the specifications of
need for capital, equipment, other capital
needs, and the amount of working capital
necessary.
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 The following are the basic
steps in Business Planning

5. Identify sources of funds – funds are

potentially available to business from a wide
variety of sources. These can possibly be
taken from personal equity or borrowing from
any banking institution, one’s own funds, and
what additional funds can be obtained from
various outside sources.
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 The following are the basic
steps in Business Planning

6. Write a business plan – a completed

business plan is a summary and evaluation of
the business idea. It is written as a result of the
planning process. It shows the probability of
success, the principles ability to make it work,
the sources and the uses of funds, and
projected income flows and cash needs.
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 Other Types of Plans

A standing plan is used for activities that occur regularly

over a period of time. It is designed to ensure that the
internal operations of an organization run smoothly. Such a
plan greatly enhances efficiency in routine decision-
making.
Examples of standing plans include policies for hiring,
employee interaction, procedures for reporting internal
issues, or complaints to the HR department, etc. and
regulations in terms of what is permitted and what is
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prohibited in the workplace. 38
 Other Types of Plans
A single-use plan, also known as a specific plan, is a
strategy used to achieve a unique one-time business goal.
It's a plan created to address a specific situation or problem
that becomes obsolete the moment the project or task is
complete.
These plans are formulated to handle a non-repetitive and
unique problem. Such single-use plans cannot be used
repeatedly since they become useless after they have
achieved their objective. Some examples are budgets,
Sample Footer Text programmes, project reports, etc. 39
 Other Types of Plans
A long-range plan is a set of goals (usually five to ten) that
outlines the path for the company's future. When the long-range
plan is in place, a strategic plan should be developed to define the
objectives and actions necessary to achieve the goals spelled out
in the long-range plan.
Example of a long-range plan
A custom printing company's CEO and director of operations set
a long-term goal of expanding their business into another state
within three years. This goal might support the company's
strategy of steady growth and provide an opportunity to engage
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