CHAPTER THREE

THE PLANNING FUNCTION

Introduction
 Planning has been practiced by human beings since
times immemorial.
 In fact we cannot conceive of human civilization without
some elements of planning.
 In order to progress in life an individual must plan.
 That is he/she must plan today in order to flourish
tomorrow.
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 Planning enables individuals to bridge the gap between

aim and achievement.
 “Planning is a thinking process, an organized foresight
and vision based on fact and experience that is required
for an intelligent action”.
 In most cases, it is the foundation of other managerial
functions and without which it is impossible to carryout
manner. 2
CONCEPTS AND NEED FOR
PLANNING
Concepts of planning
 Planning can be defined as, determining objectives and
outlining the course of actions needed to achieve these
objectives.
 Planning involves determination of objectives,
formulation of programs and courses of action for their
attainment, development of schedules and timing of
action and assignment of responsibilities for their
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implementation.
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 Planning encompasses defining the organization’s

objectives or goals, establishing an overall strategy, and
developing a comprehensive hierarchy of plans to
integrate and coordinate.
 It is concerned with ends (what is to be done) and with
means (how it is to be done).

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 In planning managers:
 Assess the future,
 Determine objectives of the organization and develop
the overall strategies.
 Determine resources needed to achieve the objectives.

 Planning answers six basic questions in regard to any

intended activity what, when, where, who, how, and how
much. 5
 Need for planning
 Planning is important for every organization irrespective
of its size, objectives, and location.
 Because decisions without planning would become
random, this may lead to failure of entire organization.

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 Planning is important for several reasons:

1. It provides direction for an organization by specifying

objectives.

2. It reduces risk and uncertain of the future.

3. It allows organizational members to concentrate on common

organization's objective.

4. It provides criteria for decision making.

5. It provides basis for control or it facilitates control. 7

 Types of Plans

 Plan can be classified in to different types based on

various criteria (basis): repetitiveness, time dimension
and scope or breadth dimension.

A. Classification of plans based on repetitiveness

 On the basis of repetitiveness, plans can be classified in
to two:
I. Single use plans

II. Standing plans

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I. Single use plans
 Single use plans are designed to accomplish objectives usually
within a relatively short period of time.
 Single use plans are non-recurring in nature and deal with
problems that probably will not be repeated in the same form
in future.
 Single use plan include;
1. Programs and schedules
2. Projects
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3. Budgets
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1.Program:is set of goals, policies, procedures, rules, job assignme

nts, resources to be employed, and other elements necessary to
carry out a given course of action.

 Is set of activities used to accomplish objectives or used to solve

some problem.

2. Project- is specific action plan formulated to complete

various aspects of a program which can be distinctly identified as
a clear-cut grouping of activities with definite objectives and
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completion time.
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3. Budget - is a statement of expected results expressed in

numerical terms.
 It may be referred to as a “numerated” program.
 In fact, the financial operating budget is often called a “profit
plan.”
 A budget may be expressed in financial terms; in terms of labor
hours, units of product, or machine – hours; or in any other
numerically measurable term.
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 It may deal with operations, as the expense budget does;

it may reflect capital outlays, as the capital expenditures
budget does; or it may show cash flow as the cash budget
does.
 Sometimes called as 'numerical plan' as they are
quantitative in nature.

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II. STANDING PLANS

 Standing plans are type of plans which can be used again
and again once they made.
 They remain useful for long period in dealing with
repetitive situations.
 These plans ones established continue to apply until they
are modified or abandoned.
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 They include: policies, procedure, and rules.
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1. Policy; is a general statement designed to guide

employees' actions (administrative action) in recurring
situations.
 It establishes broad limits, provides direction. Thus,
policies are guidelines.
 Policies are guidelines to decision making. Policies estab
lish a broad framework within which managers
at different levels make decisions. 14
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 Policies are important for an organization as they:

 Provide guidance to decision making.
 Channels all decisions toward the attainment of objectives.
 Ensure consistency and uniformity in decision making.

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2. Procedures; are well thought out course of action.

 It prescribes the specific way in which a piece of work is to be
done.
 Procedures are called ‘action guidelines’.
 They are generally derived from policies, where policies
define a broad field; procedures show a sequence of activities
with in that area.
 The emphasis is on chronological step by step of required
actions. 16
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3. Rules; are on-going specific plans influencing human

behavior or conducts at work place.
 Are very specific and detailed guide to action.
 A rule is an established guide for conduct.
 Rules include definite things to do and not to do.
 There are no exceptions to the rules.
 Rules are fixed plans and define what should and what
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should not be done. (Guide to action).
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 Unlike polices, rules don't allow for interpretation or

decisions.
 Decisions are needed only in making the rules. . An
example of a rule is "No Smoking”.
 Generally, there is no scope for discretion or judgment in
rules.
 Rules must be followed precisely and observed strictly.
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B. CLASSIFICATION OF PLANS BASED ON TIME
DIMENSION
 Taking time in consideration, a plan can be categorized
in to three.
 Basically planning deals with future and the future is
measured in time.
 Hence it is convenient and acceptable to think of
different kinds of planning in terms of the time periods
for which the planning is intended.

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I. Long range plans
 Long range plans are those plans which have longer time
horizon; they are concerned with distant future than
immediate future.
 The time may range from 5 to 10 years based on the size and
the type of organizations.
II. Intermediate plans
 Intermediate range plans are those plans with a time horizon
between one and five years.
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 They range between long and short-term plans.
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III. Short range plans

 Short range plans are those plans with time dimension up
to one year.
 it is not possible to have a right time horizon guide line.
 For a plan to be short range or long range, it depends on
the size of an organization and nature of business of an
organization.
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 So short range plan for one organization may be an

intermediate or long range plan for the other
organization.
 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.
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C. CLASSIFICATION OF PLANS BASED ON SCOPE
(BREADTH)

 Based on their scope or breadth plans can be classified

in to three types: strategic plans, tactical plans, and
operational plans.

I. Strategic plan
 Strategic plan contains the answers to who, what, When,
Where, how and how much for achieving strategic goals
which is; long-term, companywide goals established by
top management.
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 CONT’D....
 Strategic planning is the process of developing and
analyzing the organization's mission, overall goals, general
strategies, and allocating resources.
 A strategy is a course of action created to achieve a long-
term goal.
 The time length for strategies is arbitrary, but is probably two,
three, or perhaps as many as five years.
 It is generally determined by how far in the future the
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organization is committing its resources.
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 Goals focus on desired changes. They are the ends that

the organization strives to attain.
 Generally, Strategic plans are;
 Performed by top-level management.
 Mostly long range in its time frame.
 Expressed in relatively general terms.
 Type of planning that provides general future based direction
to organization. 25
 CONT’D....
II. Tactical plans
 Tactical plans are concerned with implementing strategic plans by
coordinating the work of different department in the organization.
 They try to integrate various organizational units and ensure
commitment to strategic plans.
 Tactical plans have more details shorter time frame and narrower
scopes than strategic plans; they usually have span of one year or
less.
 Tactical plan- is a plan used to develop means needed to activate
and implement strategy.
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 It is the process of making detailed decisions about what to
do, who will do it, and how to do it.
 Tactical planning is the process of developing action plans
through which strategies are executed.
 It is usually set by middle level managers. Middle managers
interpret these goals and develop tactical plans for their
departments that can be accomplished within one year or less.

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 In order to develop tactical plans, middle management

needs detail reports (financial, operational, market,
external environment).
 Generally, Tactical plans:
 performed by middle level managers.
 Have shorter time frame, more detail and narrower scope than
strategic plans.
 Guide subunits of an organization. 28
 CONT’D....

III. Operational plans

 Operational planning is most specific and detailed.
 It is made at the operational level and is concerned with the
day-to-day, week-to-week activities of the organization.
 It is mainly of short-range and more specific and detailed.
Examples are: production schedules, sales plans lesson plans.

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 To sum up, Operational plans:

 Are first line managers' tools for exciting daily, weekly, and
monthly activities.
 Performed by operational level managers.
 Are Specific and more detail than others.

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 Planning process
 Planning is not something which is made all once at a time.
 The planning process is rational and amenable to the
scientific approach to problem solving.
 It consists of a logical and orderly series of steps. A person
involved in planning pass through number of steps to make
effective plans.
 Process of planning indicates the major steps taken place in
planning.

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 CONT’D....
 The steps generally involved in planning are:
I. 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.
 Objectives are established at all levels of the structure,
beginning at the top level and running down to first line
managers.
 Strategic goals and objectives are developed to bridge the gap
between current capability and the mission.
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 CONT’D....
 They are aligned with the mission and form the basis for the
action plans. 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.
 Objectives should posses the following characteristics.
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 The characteristics 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. If more

than one result is to be accomplished, more than one objective
should be written.

 Just knowing what is to be accomplished is a big step toward

achieving it. 34
 CONT’D....

 Measureable; as much as possible objectives should be

expressed quantitatively, therefore, it is possible to easily
determine whether or not goals have been achieved.
 An objective must be measurable. Only an objective that
affects behavior in a measurable way can be optimally
effective.
 If possible, state the objective as a quantity.
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 CONT’D....
 Some objectives are more difficult to measure than others are.
 However, difficulty does not mean that they cannot be
measured.
 Treatment of salespeople might be measured by looking at the
absenteeism and turnover rates among the sales force.
 Also, salespeople could be asked to fill out a behavioral
questionnaire anonymously giving their observations of the
supervision they receive.

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 Achievable or acceptable; objectives should be
prepared in suitable, acceptable manner.
 Realistic but challenging: objectives should be
attainable or real rather than fantasy.
 An objective must be attainable with the resources that
are available.
 It must be realistic. Many objectives are realistic.
 Yet, the time it takes to achieve them may be unrealistic.
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 For example, it is realistic to want to lose ten pounds.
 However, it is unrealistic to want to lose ten pounds in one
week.
 Time bounded: objectives should be set with in specific time
limits or target dates for their attainment.
 The objective should be traceable.
 Specific objectives enable time priorities to be set and time to
be used on objectives that really matter.
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II. ENVIRONMENTAL ANALYSIS AND
FORECASTING
 The next point for planning is an awareness of environment,
both internally and externally.
 Organization should maintain a continual assessment of the
environment to determine its own weaknesses and strengths
internally and to be aware of opportunities and threats in
external environment.
 Based on this analysis of internal and external environment
forecasting (predicting) of different environmental factors
such as economics, technological, political etc can be made to
assist real planning.
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 CONT’D....
 Conduct a situation or SWOT analysis by assessing
strengths and weaknesses and identifying opportunities
and threats.
 A situation or SWOT (Strengths, Weaknesses, Opportunities,
and Threats) analysis is critical to the creation of any strategic
plan.
 The SWOT analysis begins with a scan of the external
environment.
 Organizations must examine their situation in order to seek 40

opportunities and monitor threats.

 CONT’D....

 Sources of information include customers (internal and

external), suppliers, governments (local, state, federal,
international), professional or trade associations
(conventions and exhibitions), journals and reports
(scientific, professional, and trade).

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III. DETERMINING ALTERNATIVE COURSE OF
ACTION

 Once objectives are set, the management must identify

alternative ways for reaching them.
 A manager should try to create as many roads to each
objective as possible.
 In fact, in most cases the challenging is not to find
alternative ways but to decide which ones are best.
 To decide on best ones it requires evaluation.

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IV. 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) of all
alternatives.
 The assessment may include both financial and non
financial considerations.

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V. SELECT THE BEST ALTERNATIVES
 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.
VI. Implementing the plan
 After the alternative course of action selected, it is important
to develop an action plan to execute the plan.
 In this step method for implementation will be suggested.

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VII. 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 environment
are constantly changing, plans must be modified to cope
up with changes.

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 PLANNING TECHNIQUES
 Managers Can Improve the Quality of their planning by
applying variety of Planning tools and techniques.
 The important fanciful of planning is management by
objectives (MBO).
Management by Objective (MBO)
 MBO is a system in which specific performance objectives
are jointly determined by subordinates and their superiors,
progress toward objectives is periodically reviewed, and
rewards are allocated on the basis of this progress.
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 CONT’D....
 An effective planning tool to help the supervisor set objectives
is Management by Objectives (MBO).
 MBO gained recognition in 1954 with the publication of
Peter Drucker's book The Practice of Management.
 MBO is a collaborative process whereby the manager and
each subordinate jointly determine objectives for that
subordinate.
 To be successful MBO programs should include commitment
and participation in the MBO process at all levels, from top
management to the lowest position in the organization.
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 CONT’D....
 MBO begins when the supervisor explains the goals for the
department in a meeting.
 The subordinate takes the goals and proposes objectives for his or
her particular job.
 The supervisor meets with the subordinate to approve and, if
necessary, modify the individual objectives.
 Modification of the individual's objectives is accomplished through
negotiation since the supervisor has resources to help the
subordinate commit to the achievement of the objective.
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 Thus, a set of verifiable objectives for each individual are jointly
determined, prioritized, and formalized.
 The supervisor and the subordinate meet periodically to review the
latter's progress.
 Communication is the key factor in determining MBO's success or
failure.
 The supervisor gives feedback and may authorize modifications to the
objectives or their timetables as circumstances dictate.
 Finally, the employee's performance is measured against his or her
objectives, and he or she is rewarded accordingly.
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 ELEMENTS OF MBO
1. Top level goal setting; effective MBO begins with the
objective being set by top managers which is open for
discussion by managers and subordinates to reach up
on the common objectives.
2. Individual targets- in an effective MBO, each manager
and subordinate has clearly defined responsibilities or
expected results.
3. Participation- both managers and subordinates are
participating in objective setting.
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4. Autonomous of individuals- Once the objective is set, subordinates have a right
to select methods of attaining the objectives.

5. Performance review- managers and subordinates periodically meet to review

progress toward the objectives

6. Reward- those individuals who meet the objectives in performance review are
rewarded. The rewards may be recognition, praise, pay increase etc-------

Shortly MBO Principles are:

 Cascading of organizational goals and objectives,
 Specific objectives for each member,
 Participative decision making,
 Explicit time period,
 Performance evaluation and feedback.
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 STEPS IN MBO
 Effective MBO passes through different steps:

1. Setting individual objectives and plans with each

subordinate.
o the participation of subordinates in the objective
setting process is a way of strengthen their
commitment to achieve their goals.

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2. Giving feedback and evaluating performance:

Employees must know how much they are progressing
toward their objectives.
 Thus, managers and subordinates should meet
frequently to review progress and evaluate performance
communication is key factor in determining success of
failure of MBO.
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3. Rewarding according to performance: employees'

performance should be measured against their
objectives.
 Employees who meet their objectives should be
rewarded through recognitions, praises, pay rises and so
on.

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