CHAPTER TWO

PLANNING

Objectives of the chapter

At the end of this chapter, you should be able to:
Explain the meaning, nature and importance of planning;
discuss the characteristics of planning ;
Understand the different types and classification of
plans;
Describe the major steps of planning process;
Explain the practical limitation of planning;
 2.1 Meaning Nature and Importance of Planning

2.1.1 Meaning 0f Planning

What is planning?
 Planning is the first managerial function that all managers perform
at different levels.
 It is very important because it lays down the groundwork for the
other functions.
 It bridges the gap between where we are now and where we want
to be
 Planning is the process by which managers establish goals and
define the methods by which these goals are to be attained.
 Planning involves selecting missions and objectives and the
actions to achieve them;
 It requires decision making, which is choosing from among
alternative future courses of action
 Planning is the dynamic process of making decisions
today about the future actions:
 Planning focuses on the future: what is to be accomplished and
how.
 Planning also answers the following six basic questions in any
intended activity:
what (the goal or goals)
when (the time frame in which it will be accomplished)
where (the place or places where the plans or planning will reach
its conclusion)
who (which people will perform the tasks)
how (the specific steps or methods to reach the goals)
what resources (resources necessary to reach the goal)
 2.1.2 The Nature of Planning

1. The primacy of planning

 planning precedes the execution of all other managerial
functions, because all other managerial functions must
be planned if they are to be effective.
 This does not mean that planning is the most important
of all other managerial functions, because to be
important or useful all other functions have to
accompany it.
 Planning generates goals and sets the foundation for
organizing resources and activities to achieve the goals
 The plans of the company, whether to maintain the
status quo, to expand or to contract operations,
 Planning provides the guidelines for directing the
employees and for what is communicated to them.
 Planning establishes the foundations for the control
function because it specifies what is to be accomplished
and provides a standard for measuring progresses.
2. Planning is a continuous process
 Planning is a never- ending activity of a manager.
 Planning deals with the future and the future is full of
uncertainties. It needs frequent revision in response to
changes in the internal and external environments of the
organization.
 Therefore, so far as the organization is in operation,
planning is in continuous processes. The more
continuous the planning is, the higher its efficiency.
3. The pervasiveness/universality of planning
 Planning is a function of all managers, although the character and
scope of planning varies with each manager’s authority and with
the nature of policies and plans outlined by superiors.
 Managers at higher levels, being responsible for a relatively
larger unit of the organization, devote a larger part of their time to
planning, and the time span of their plans also tends to be longer
than that of managers at lower levels.
4. Planning is the means to an end
Planning is not an end by itself. It is a means to an end (meeting
objectives). Planning is an instrument that pushes people towards the
achievement of objectives.
5. Plans are arranged in a hierarchy
In top to bottom approach Plans are first set for the entire
organization. The corporate plan then provides the framework for the
formulation of divisional (departmental), sectional and unit goals.
Each of these organizational components sets its plans, programs,
projects, budgets, resource requirements, etc.
corporate plans

departmental/divisional
plans

sectional plans

unit plans
 In bottom up approach unit plans are summed
up to form sectional plans, S
 Section plans are summed up to form
departmental/divisional plans,
 When these are summarized at corporate level
they form corporate plan.
 2.1.3. Importance of Planning
It provides direction and sense of purpose:
Plans focus attention on specific targets and direct employees
effort toward important outcomes.
Once the organizations know what they know can do and can’t
do over the future, they began to set objectives based on their
capacity and the order of activities needed to accomplish their
objectives.
 It provides direction and a common sense of purpose which
enables both employees and managers to coordinate, unite, and
guide their actions.
Reduces uncertainty and anticipates the future:
By providing a more rational, fact-based procedure for making
decisions, planning allows managers and organizations to minimize
risk and uncertainty.
Anticipating and preparing for possible future changes enables
managers to control their environment. In so doing, planning answers
“what-if” questions.
Provides basis for controlling:
 In planning, the manager gets goals and develops plans to
accomplish these goals.
 These goals and plans then become standards or benchmarks
against which performance can be measured.
 The function of control is to ensure that the activities conform
to the plans. Thus, control can be exercised only if there are
plans.
Promotes efficiency:
 Planning provides the opportunity for a greater utilization of the
available organizational resources-because in planning we
determine how many resources are necessary to reach the goals,
and how to use these resources.
Developing managers:
 The act of planning involves high level of intellectual activity.
 Those who plan must be able to deal with abstract and uncertain
ideas and information. Planners must think systematically about
the present and the future.
 Planning then implies that managers should be
proactive and make things happen rather than reactive
and let things happen.
 Through act of planning, managers not only develop
their ability to think futuristically but, to the extent that
their plans are effective, their motivation to plan is
reinforced.
Provides the base for cooperative coordinated efforts:
 Management exists because the work of individuals
and groups in organizations must be coordinated, and
planning is one important technique for achieving
coordinated effort.
 Planning provides the basis for organized and
coordinated effort by defining the objectives of the
organization and the means for their achievement
 Provides guideline for decision making:
 Decisions in an organization will be made in alignment with the
plans and in accordance with desired outcomes.
 Managers make decisions on problems of recurring nature based
on strategies and policies of the organization.
 Through specifying the actions necessary to accomplish the goal
of the organization, planning serves a framework for decision-
making
2.2 Types of Plans
based on Scope/breadth dimension,
based on Time dimension, and
based on Use/repetitiveness
2.2.1 Plans based on Scope/Breadth Dimension
Scope refers to the comprehensiveness of the plan, or it refers to the
level of management where plans are formulated.
strategic
tactical
operational
A. Strategic plan:
 Strategic plans are defined as plans that determine the
major objectives of an organization and the policies and
strategies designed by top-level management to govern
the acquisition, use and disposition of resources to
achieve organizational objectives.
 Characteristics of strategic plans.
Strategic plans require looking outside of the
organization.
They take longer period of time.
They tend to be top management responsibility
They address such issues as: how to allocate resources;
what the business is and what it should be.
B. Tactical Plans:
Tactical plans are the means to achieve strategic plans and their
usual span is one year.
They usually center on translating the broad objectives set by top-
level management into more specific goals.
Tactical plans are specific and more goal oriented than strategic
plans.
Middle level management in consultation with lower level
management develops them.
It is narrow scope than strategic plan and wider than operation
plan; but more detail than strategic plan and less detailed than
operational plan.

C. Operational Plans: Operational plans are concerned

with the day-to-day activities of the organization and are
made and/or developed by lower level managers in
consultation with middle level management.
Operational plans spell out specifically what must be
accomplished to achieve specific operational goals.
 Operational plans have relatively short time frame (<1
year).
It is the most detailed and narrowest plans compared to
the above two.
2.2.2. Plans Based on Use Dimensions
Use-based plans indicate whether we can use the plans
repeatedly for uniformity or for a single period.
single-use plans
standing use plans
A. Single-Use Plans:
-These types of plans focus on relatively unique situations
within the organization and are used only once.
-They are plans aimed at achieving specific goals that, once
reached, will most likely not recur in the future and
dissolved when these have been accomplished.
I) Programs: Programs are a complex 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.
A program may be as large in scope as placing a person on
the moon or comparatively small as improving the reading
level of fourth grade students in a school district.
II) Projects: A project is a small and separate portion of
a plan. Each project has limited scope distinct directives
concerning assignments and time.
 Projects are characterized by the following
I. They are a one-time activity or a unit activity with a well-
defined set of desired end results.
ii. They can be accomplished in order to achieve the project
goals.
iii. A project must often be coordinated with other projects
being carried out by the same parent organization.
III) Budget: Budgeting is the formulation of plans for a
given future period in numerical or financial terms.
A budget is a financial plan outlining how funds will be
spent in a given period of time and how these funds will be
obtained.
Budgets have to be based on past experience present
realities and an accurate assessment of future events.
 2. Standing-Use Plans:
 These are plans which remain approximately the same
for a long period of time and are used in organizational
situations that occur repeatedly.
Standing plans are plans that provide an ongoing
guidance for performing recurring activities.
•The most common kinds of standing plans are:
I ) Policies: Policies are broad and general guides to action
that constrain or direct and facilitate objective attainment.
Policy is a general statement or understandings which
guides or channels thinking in decision making
Requirements for a sound policy:
They should be consistent with strategies and objectives.
They should be renewed frequently and amended as
needed
Policies should be in writing.
• Written policies are more precise than unwritten ones.
• They can be transmitted quickly to those who must
implement them.
• Written policies are easier to understand and less time-
consuming to communicate to new managers and
management trainees.

Advantages of policies
 Policies help to save time.
 Policies help to prevent managerial mistakes.
 Policies help to improve the consistency of
managerial performance.
II)Procedures: A procedure is a series of related steps or
tasks expressed in chronological order for a specific
purpose.
They are guides to action and they give the details of the
exact manner in which certain activities must be
accomplished.
The following are some of the requirements for sound
procedures.
Procedures should be simple
They should be in written form.
They should be tested prior to full adoption.
They should be well communicated
 iii) Rules: Rules are statements that a specific action must
or must not be taken in a given situation.
Rules leave little doubt about what is to be done.
They permit no flexibility and deviation.
A rule is ongoing, specific plans for controlling human
behavior and conduct at the work.
Unlike procedures, rules do not have to specify sequence.
3. Types Plans Based on Time Dimension
These plans show how long they stay in operation.
Long-term Plans: - These plans establish long-term
goals and work out strategies, policies and programs to
achieve the goals. They extend beyond five years.
Medium-term Plans: -These plans are usually made to support
long-term plans. They cover a period of more than one year, but less
than five years.
Here the length of time may vary from one business to
another depending on the nature, risk and other factors.
Short-term Plans: - Generally such types of plans are
made to achieve short-term goals and are instrumental in
implementing long-term plans. These plans are action-
oriented and the responsibility of lower level managers.
2.3 Planning Process
Like other managerial activities planning has its own
process or series of steps. These steps are interrelated and
there is no rigid boundary between or among these steps.
1. Establishing Clear-cut Objectives
Objective setting is an important first step in the planning
process. Objective specify the expected results and indicate
what is to be done
Objective can be set after :
 assessing the present situation and anticipating future
conditions, and then setting the objectives.
 assessing organizational strengths and available
opportunities
 Organization's objectives are arranged in hierarchy
 objective for the entire organization
Objective for different divisions
Objectives for departments and units, etc.
 However, there must be coherence and consistency
between the objectives
2. Establishing the Planning Premises and constraints:
•Planning Premises are assumptions about the environment
in which the plan is to be carried out
 thus, managers have to investigate the firm’s environment
to know factors that facilitate or impede the attainment of
the objectives
-Examine external and internal factors which affect the
performance of the organization (i.e., SWOT)
• the key element of planning at this stage is forecasting
• because the future is so complex, it would not be realistic
to make detailed assumption about the environment of the
plan
• therefore, premises are limited to assumptions that are
critical to a plan (i.e., those that most influence its
operation)
3. Identifying Alternative Courses of Action:
• There are several alternative courses of actions that are
available to a manager to reach a goal
•Usually the most common problem is not finding
alternatives but reducing number of alternatives so that the
most promising may be identified
4. Evaluation of Alternative Courses of Action:
Having sought out alternative courses, managers evaluate
the benefits and disadvantages of alternative courses in the
light of their weight to premises and goals.
Because there are so many alternative courses in most
situations and evaluation can be extremely difficult
This is a step in planning process that operations research
and computing techniques have their primary application
to the field of management
5. Choosing the Proposed Plan
Selecting the course of action is the point at which the
plan is adopted-the real point of decision-making.
The analysis of each alternative’s disadvantages, benefits,
costs and should result in determining one course of action
that appears better than the other
6. Arranging Detailed Sequence and Timing for the
Proposed Plan
 Decision will be made that support the basic plan of
chosen action
 Identification of the derivative plans that support the
major plan of action
 The sequence of the activities necessary to accomplish
the desired aim and other details required to implement
the plan should be ascertained.
7. Numbering Plans by Making Budgets
• Plans will have meaning when they are changed
into numbers
• budgeting is setting important standards against
which plans can be measured
8. Implementing the plan:
• So far, all activities are related to mental and
paper works. After the optimum alternative has
been selected, the manager needs to develop an
action plan to implement it
 • this is a step where by the entire organization will be in
motion or real operation.
•Implementation involves determining
who will be involved,
what resource will be assigned,
 how the plan will be evaluated and the reporting
procedure.
9. Monitoring and Evaluating the Implementation
•Controlling and evaluating refers to:
Monitoring the progress that is being made
Evaluating the reported results
Making any necessary modifications
• the plan may have to be modified since:
-the environment constantly changing
- The plan itself may not be quite perfect during its development
 Planning Process Cont.
The planning process in short explanation is a process used
to develop objectives, develop tasks to meet objectives,
determine needed resources, create a timeline, determine
tracking and assessment, finalize the plan, and distribute the
plan to the team
2.4. Characteristics of Good Planning
Objective: planning should, first of all, be based on objective
thinking. It should be factual, logical and realistic
Futurity: since a plan is a forecast of some future actions, it must
have the quality of futurity
Flexibility: Because no one can foresee they must adjust smoothly
and quickly to changing condition without seriously losing their
effectiveness.
Stability: Stability is related to flexibility. A stable plan will not
have to be abandoned because of long-term change in the company
situations
Comprehensive: A plan must be comprehensive enough to
provide adequate guidance, but not so detailed as to be unduly
restrictive.
Simplicity and clarity: Although a good plan must be
comprehensive, it should also be simple. A plan should not be
ambiguous. Lack of clarity makes understanding and implementing
2.5 Limitations of Plans
Though planning function is a primary function of
management and it facilitates other functions of
management, it suffers from certain limitations.
The limitations are: Internal inflexibility and external or
imposed inflexibility.
Internal Inflexibilities:
are those that exist within an organization.
are related to human psychology, policies and procedures
and capital investment.
a) Psychological Inflexibility: Managers and employees in
an organization may develop patterns of thought and
behavior that may be hard to change. Managers
instituting a new plan are often frustrated solely by the
unwillingness or inability of people to accept change.
b) Policy and Procedural Inflexibility: Closely allied to
psychological inflexibilities are those internal rigidities that are
built into policies and procedures. Once established policies and
procedures become ingrained in an enterprise and changing them
becomes difficult.
C. Capital Investment: In most cases, once money is invested in a
fixed asset the ability to switch courses of future action becomes
rather limited and the investment itself becomes a planning
premise. Inflexibilities also exist where investment sunk in items
other than what are normally regarded as fixed assets.
External or Imposed Inflexibilities:
These inflexibilities usually emerge from sources outside of the
organization.
a) Political Climate: Every enterprise, to a greater or lesser
degree is faced with the inflexibilities of the political climate
existing at a given time.
b) Labor Unions: The existence of strong unions, particularly
c)Technological Change: The role and nature of technology
change also present very definite external limitations up on
planning.
d) Sociological and Cultural Factors: The important
sociological and cultural factors which are relevant in
relation to the enterprise include inter-organizational and
individual cooperation or conflict. Class structure and labor
mobility, view towards authority, responsibility and
delegation, view towards change and risk taking, etc. are also
some of the inflexibilities that restrict the freedom of
planning.
e) Educational Variables: Under this factor the important
conditions that tend to restrict the scope of planning include,
literacy level and attitude toward education, type of
education, scope of the education, and educational match
2.6 Organizational Objectives
The following are the characteristics of sound objectives.
Priority of objectives:
This implies that at a given time, accomplishing one
objective is more important than accomplishing others.
Priority of objectives also reflects the relative importance
of certain objectives regardless of time.
Hierarchy of objectives: Objectives are arranged in
hierarchy from overall companywide objectives to
individual objectives.
Organizational objectives should be stated in writing:
Objectives should be specific and communicated clearly to
all so that all members of the organization are aware of
what is expected from them. This eliminates ambiguity and
confusion.
Objectives should be specific and measurable: General objectives
are difficult to interpret and measure.
Objectives should be realistic and attainable: Over optimistic but
unrealistic objectives serve as moral deflators and hence are
ineffective.
There are two common objective setting approaches.
1. Cascade Approach from Top to Lower Organizational Units.
• The objective setting processes begin at the top with a clear and
concise statement of central purpose of the organization.

• Long-range organizational goals are formulated for this statement.

• The long-range goals lead to the establishment of more short-
range performance objectives for the organization.
• Derivative objectives are then developed for each major division
or department
•Objectives are then established for the various sub units in each
major division.
• The process continues down through the organizational hierarchy.
2. Management by Objectives (MBO)
It is a system of management whereby managers work in
conjunction with subordinates to identify goals and make plans for
achieving them. MBO involves the following four steps.
a)The manager explains the rationale and methodology of MBO to
subordinates.
b)The superior and subordinate meet to set objectives for the
coming plan period.
c) One or more intermediate review of performances are
conducted to determine if the individual is making
satisfactory progress towards attaining the established
goals.
d)At the conclusion of the time period set for the
achievement of the objectives, a final review is
conducted. In the review the manager should attempt to
determine “What went wrong?” “What went right?”
 E ND
T HE