UNIT 3: PLANNING

The necessity for planning arises because of the

fact that business organisations have to operate,
survive and progress in a highly dynamic economy
where change is the rule.

These changes often give rise to innumerable

problems and throw countless challenges.

Managers are forced to adjust their activities in

order to take full advantage of favourable
developments or to minimise the adverse effects of
unfavourable ones
 Definition:

According to Koontz O'Donnel - "Planning is

an intellectual process, the conscious
determination of courses of action, the basing
of decisions on purpose, acts and considered
estimates".
 Nature of Planning

1. Planning is goal-oriented: Every plan must

contribute in some positive way towards the
accomplishment of group objectives

2. Primacy of Planning: Planning is the first of the

managerial functions. It precedes all other
management functions.

3. Pervasiveness of Planning: Planning is found at

all levels of management
4. Efficiency, Economy and Accuracy: Efficiency
of plan is measured by its contribution to the
objectives as economically as possible.

5. Co-ordination: Planning co-ordinates the what,

who, how, where and why of planning. Without
co-ordination of all activities, we cannot have
united efforts.

6. Limiting Factors: A planner must recognize the

limiting factors (money, manpower etc) and
formulate plans in the light of these critical
factors.
7. . Flexibility: The process of planning should be
adaptable to changing environmental conditions.

8. Planning is an intellectual process: The quality

of planning will vary according to the quality of
the mind of the manager.
 Importance of Planning
1. To manage by objectives: All the activities of an
organization are designed to achieve certain
specified objectives.

2. 2. To offset uncertainty and change: Future is

always full of uncertainties and changes. Planning
foresees the future and makes the necessary
provisions for it.

3. 3. To secure economy in operation: Planning

involves, the selection of most profitable course of
action that would lead to the best result at the
minimum costs.
4. To help in co-ordination: Co-ordination is,
indeed, the essence of management, the planning
is the base of it.

5. To make control effective: The controlling

function of management relates to the
comparison of the planned performance with the
actual performance.

6. To increase organizational effectiveness: Mere

efficiency in the organization is not important; it
should also lead to productivity and
effectiveness.
 Types of Plans

1. Operational plans: The specific results expected

from departments, work groups, and individuals
are the operational goals. These goals are precise
and measurable. Thus an operational plan is one
that a manager uses to accomplish his or her job
responsibilities.

Operational plans can be a single-use plan or an on-

going plan.
a) Single-use plans: These plans apply to activities
that do not recur or repeat. A onetime
occurrence, such as a special sales program, is a
single-use plan because it deals with the who,
what, where, how, and how much of an activity.

Example: A budget: Because it predicts sources and

amounts of income and how much they are used for
a specific project.
b) Continuing or on-going plans: These are
usually made once and retain their value over a
period of years while undergoing periodic
revisions and updates.

Example: A policy: Because it provides a broad

guideline for managers to follow when dealing with
important areas of decision making.
2. Tactical plans
 A tactical plan is concerned with what the lower
level units within each division must do, how
they must do it, and who is in charge at each
level

 Tactics are the means needed to activate a

strategy and make it work.

 Tactical plans are concerned with shorter time

frames and narrower scopes than are strategic
plans.
 These plans usually span one year or less because
they are considered short-term goals.

 Normally, it is the middle manager’s responsibility

to take the broad strategic plan and identify
specific tactical actions.
3. Strategic plans

 A strategic plan is an outline of steps designed

with the goals of the entire organisation as a whole
in mind, rather than with the goals of specific
divisions or departments.

 Strategic planning begins with an organisation’s

mission

 Strategic plans look ahead over the next two, three,

five, or even more years to move the organisation
from where it currently is to where it wants to be.
 Requiring multilevel involvement, these plans
demand harmony among all levels of management
within the organisation.

 Top-level management develops the directional

objectives for the entire organisation, while lower
levels of management develop compatible
objectives.

 Top management’s strategic plan for the entire

organisation becomes the framework and sets
dimensions for the lower level planning.
4. Contingency plans
 Intelligent and successful management depends
upon a constant pursuit of adaptation, flexibility,
and mastery of changing conditions

 Strong management requires a “keeping all

options open” approach at all times - that’s where
contingency planning comes in.

 Contingency planning involves identifying

alternative courses of action that can be
implemented if and when the original plan proves
inadequate because of changing circumstances.
 Steps in the Planning Process

1. Establishing objectives: The first step in the planning

process is to identify the goals of the organisation.
 The internal as well as external conditions affecting the
organisation must be thoroughly examined before
setting objectives.

2. Developing premises: Premises are assumptions

about the environment in which plans are made and
implemented.
 Assumptions about the likely impact of important
environmental factors such as market demand for goods
etc.
3. Evaluating alternatives and selection: After
establishing the objectives and planning
premises, the alternative courses of action have
to be considered.

4. Formulating derivative plans: After selecting

the best course of action, the management has to
formulate the secondary plans to support the
basic plan.
 The plans derived for various departments, units,
activities, etc., in a detailed manner are known as
‘derivative plans’.
5. Securing cooperation and participation: The
successful implementation of a plan depends, to a
large extent, on the whole-hearted cooperation of
the employees.

6. Providing for follow-up: Plans have to be

reviewed continually to ensure their relevance
and effectiveness.
 Business Forecasting:

Forecasting is the process of estimation in

unknown situations.

Business forecasting is a systematic attempt to

probe into the future, so as to identify the threats
and opportunities.

Business forecasting helps in analysing the

economic, political and market information to
reduce the risks involved in making business
decisions and long-range plans.
Business forecasting involves a wide range of
tools.
 Simple electronic spread sheets

 Enterprise Resource Planning (ERP)

 Electronic Data Interchange (EDI)

 Advanced supply chain management systems

 Web-enabled technologies.
 Essential Components in Business Forecasting

1. Developing the groundwork: Information

regarding the growth of the company, industry,
growth of the product lines of the company, etc., is
put to investigation in the first stage.

2. Estimating future business: An estimate of

future prospects of business is made by
management. Trends are projected, by a step-by-
step procedure where the information is put to
close scrutiny and analysis.
3. Comparing the actual with estimated results:
To ward off dangers arising from wrong
anticipation, a periodic comparison of actuals
with estimated results is made at this stage.

4. Refining the forecast process: The above three-

step process helps executives in gaining
proficiency in constructing dependable forecasts.
As time progresses they are able to refine,
sharpen and adjust the forecasting techniques to
meet the changing needs of business.
 MANAGEMENT BY OBJECTIVES (MBO)

MBO was first popularized by Peter Drucker in

1954 in his book 'The practice of Management‘.

Itis a process of agreeing within an organization so

that management and employees buy into the
objectives and understand what they are.

Ithas a precise and written description objectives

ahead, timelines for their motoring and
achievement.
 Definition:

MBO is a process whereby the superior and the

mangers of an organization jointly identify its
common goals, define each individual‘s major area of
responsibility in terms of results expected of him, and
use these measures as guides for operating the unit
and assessing the contribution of each of its
members.
Features of MBO
1. MBO is concerned with goal setting and
planning for individual managers and their units.

2. The essence of MBO is a process of joint goal

setting between a supervisor and a subordinate.

3. Managers work with their subordinates to

establish the performance goals that are
consistent with their higher organizational
objectives.
4. MBO focuses attention on appropriate
goals and plans.

5. MBO facilitates control through the

periodic development and subsequent
evaluation of individual goals and plans.
 MBO process
1. Setting objectives

 Clear and precisely defined statement of objectives

for the employee

 Individual managers must understand the specific

objectives of their job and how those objectives fit in
with the overall company objectives.

 The managers of the various units or sub-units

should also actively participate in setting these
objectives
2. Developing action plans:

 Actions plans specify the actions needed to address

each of the top organizational issues.

 An overall, top-level action plan that depicts how

each strategic goal will be reached is developed by
the top level management.

 The format of the action plan depends on the

objective of the organization.
3) Reviewing Progress:

 Performance is measured in terms of results.

 Job performance is the net effect of an employee's

effort as modified by abilities, role perceptions
and results produced.

 Role perception refers to the direction, in which

employees believe they should channel their
efforts on their jobs, and they are defined by the
activities
4) Performance appraisal:
 Performance appraisals communicate to employees
how they are performing their jobs, and they
establish a plan for improvement.

 It provides predictive information related to

possible promotion.

 Performance appraisals encourage performance

improvement.

 It must be supported by documentation and

management commitment.
Advantages of MBO

Motivation :Involving employees in the whole

process of goal setting and increasing employee
empowerment.

Better communication and Coordination:

Frequent reviews and interactions between
superiors and subordinates

Clarity of goals: Everybody knows what to do

Subordinates have a higher commitment to
objectives they set themselves than those imposed
on them by another person.

Managers can ensure that objectives of the

subordinates are linked to the organization's
objectives.
Limitations of MBO

It over-emphasizes the setting of goals over the

working of a plan as a driver of outcomes.

It underemphasizes the importance of the

environment or context in which the goals are set.

Companies evaluated their employees by

comparing them with the "ideal" employee