CHAPTER 3

Planning
Chapter 3: Planning
Lesson Outcomes:

At the end of the term, the students should be able to;

1. Understand the meaning of planning and decision making.

2. Identify and discuss the planning and decision making process.
3. Explain and understand the approaches of planning.
4. Understand the planning in different levels of the firms.
5. Discuss the different tools of planning.

Introduction

Every company continuously engages in the four fundamental

management functions of planning, leading, organizing, and controlling as part
of its life cycle. Planning is the most important of these. It is the area of
management tasked with establishing protocols, regulations, and standards in
order to accomplish a given goal. All other administrative functions must be
planned if they are to be effective.

Since targets and goals must be established for both ongoing daily operations
and more comprehensive long-term efforts, managers at all levels engage in
planning.

Meaning of Planning

Planning is the conscious, systematic process of making decisions about goals

and activities that an organization will pursue in the future.

A plan is a pre-determined course of action. Planning is essentially a process to

determine and implement actions to achieve organizational objectives.

Planning involves the tasks of deciding in advance –

 What to do?
 How to do?
 When to do it?
 Who will do it?

A manager has to answer four basic questions while formulating a plan –

 Where are we now realistic assessment of current situation?
 Where do we want to be?
 Gap between where we are and where we want to be?
 How do we get there?

Nature of Planning

 Planning is goal oriented – plans arise from objectives. Objectives provide

guidelines for planning.
 It is a primary function – Planning provides the basis foundation from which
all future management functions arise.
 It is persuasive – It is required at all levels of management. It is not an
exclusive of any management level or department. Managers have to
plan for every change that occurs in an organization. However, the scope
of planning differs at all levels and among different department.
 It is mental activity – Planning is a mental process involving – imagination,
foresightedness and sound judgment. Plans are based on careful analysis
of internal and external factors influencing business activities. It is carried
out in a logical and systematic manner.
 It is a continuous process – It is an ongoing process of adapting the
organization with the changes in business environment. Since a business
exist in a dynamic environment it is necessary to continuously plan based
on changing business needs and situations.
 It involves choice – it is essentially a choice among various alternative
course of actions. A manager has to select the best alternative after
careful analysis and evaluation.
 It is forward looking – Planning means looking ahead and preparing for
the future. It involves analysis of the future needs and requirements of the
business and preparing for it.
 It is flexible – Planning is based on future forecast of events and situations.
Since future is uncertain, plans are flexible enough to adapt with future
change of events.
 It is an integrated process – Plans are structured in a systematic and
logical sequence where each plan or step is highly inter-dependent and
mutually supportive.
 It includes effective and efficient dimensions – Plans aim at optimum
utilization of resources to be efficient and are based on predetermined
objectives to measure effectiveness of the plan.

Elements of a Plan

 Objectives – Objective are goals established to guide the activities of the

enterprise.
 Policies – A policy is a basic statement that guides action and decision
making. It sets behavioral limits on managers.
 Procedures and Methods – A procedure is a well thought out course of
action. It prescribes the specific way to do a particular job. Methods are
sub units of procedure. They indicate the techniques to be used to make
the procedure effective.
 Rules – a rule specified necessary course of action in respect of a
situation. It prescribes restriction and a definite and rigid course of action.
 Strategy – it is a plan of action designed to achieve long term or overall
aim.
 Programs – Programs are precise plans of action followed in proper
sequence in accordance with objectives, policies and procedures.
 Budgets – A budget is an estimate of men, money, material and machine
required for successful implementation of plans.
 Projects – A project is a particular job that needs to be done in
connection with the general programme.

Planning Process

1. Establishment of objectives

It involves identification of goals and objectives of the organization by

carefully examining the internal and external affecting the business.

2. Developing premises

Premises are assumptions about the environment in which plans are made
and implemented. Thus assumptions about market demands, cost of raw
materials, technology to be used, population growth, government policy
etc. are to be made while formulating a plan.

3. Evaluating and selection of alternatives

Changes in the external environment pose different alternatives for

organizations to carry out a particular task. Different alternatives are
evaluated against factors like costs, risks and benefits involved in following
a specific course of action and the best alternative is chosen.

4. Formulating derivative plans

Derivative plans are secondary plans formulated to support the basic

plan. E.g. detailed plans formulated for various departments, units,
activities etc. Derivative plans indicate the time schedule and sequence
of performing various tasks.

5. Securing cooperation and participation

Manager must involve people from various departments and take their
suggestions and criticisms to rectify the defects in the plan if any.
Participation of employees in formulation of plans motivates them to carry
out the plan with best of their abilities.

6. Providing for follow up

Plans are constantly reviewed to ensure their relevance and effectiveness

with the changing dynamics in the business environment. It helps to
develop sound plans for the future and avoiding mistakes that surface
after or while implementing a plan.

Approaches to Planning

Top down approach

 Authority and responsibility is centralized at the top.

 The top management defines the mission and lays down strategies and
plan of action required to achieve stated goals.
 The blueprint of the plan is passed on to the people working at lower
levels who do not participate in the planning process.
 The success of this approach depends upon the qualification, experience
and capabilities of top management.
Bottom up approach

Lower level managers are responsible for preparation and implementation of

plans (make functional plans which are approved by top management)

Composite approach

In such approach the lower and middle management is responsible of drafting

out plans in accordance with guidelines and boundaries stated by the top
management. Every plan is up for a discussion and debate and a middle path is
chosen to facilitate smooth implementation of plans.

Team approach

In such an approach a team of managers having relevant experience and skills

in various functional areas assigned the job of planning. The plans are then
approved by the top management.

Strategic Planning Operational Planning

Time Horizon 5 years or more Under a year
Purpose Adapt to changes in Implement internal goals
external environment
Activity Controlled Overall organizational Internal tasks and
performance operation
Decision making Many decisions Focus on one decision
Organizational level Top Management Middle and lower
involvement management
Basis of planning Judgmental Exact data & standards
Predictability Uncertain Highly certain
Accuracy 25-30% 80-90%
Management function Planning & Forecasting Controlling
Control over outcome Less Control Complete control

Tactical or Coordinated planning

 Less detailed than short term plans

 Concerned with implementation of strategic plans by coordinating the
work of different departments.
 Integrate all organizational units based on results obtained by
implementing short term plans
 Ensures commitment to strategic plans

Formal & Informal Planning

 Formal – It is a well-planned document with written record of what the
organization intends to do within a given time frame.
 Informal – It is a n unstructured, poorly designed plan which are orally
communicated and not recorded.

Functional & Corporate Planning

 Corporate – it is a comprehensive plan that outlines the broad objectives

of a company.
 Functional – it involves planning for a particular unit. Deals with parts such
as marketing, finance, production, HR in a related manner.

Proactive & Reactive Planning

 Proactive – Managers anticipate the challenges and risks of the future

and prepare alternative plans and take suitable steps in order to adapt
with unforeseen changes.
 Reactive – Managers plan to react to an external event.

Importance of Planning

 It provides direction.
 It focuses on organizational objectives and goals
 It helps in optimum utilization of resources.
 It reduces risks of uncertainty
 It facilitates decision making
 It encourages innovation and creativity
 It facilitates control
 Establishes a sound organization
 Improves standard of living of people
 Reduces costs

Planning at Different Levels of the Firms

Baterman and Snell (2008) stated that an effective strategy provides as a

basis for answering five broad questions about how organizations will meet its
goals/objectives:

1. Where will we be active?

2. How will we get there/
3. How will we win in the marketplace?
4. How fast will we move and in what sequence will we make changes?
5. How will we obtain financial returns?
Top-level Management Planning (Strategic Planning)

As earlier mentioned top-level managers are responsible for the

organization’s strategic planning which involves making decisions about the
organization’s long-term goals and strategies. CEOs, company presidents, or the
organization’s senior executives develop and execute the said strategic plan.
They, however, do not formulate or execute the plan on their own; a
management team supports and helps top-level managers in carrying out these
tasks.

Strategic planning starts with defining the organization’s goals/objectives,

the major targets related to the maintenance of the organization’s stability, and
its organizational culture, values, and growth improving its productivity,
profitability, effectiveness, and efficiency, among others.

Middle-level Management Planning (Tactical Planning)

Tactical planning refers to a set of procedures for changing or

transforming broad strategic goals and plans into specific goals and plans that
are applicable and needed in one unit/portion of the organization. It is focused
on major actions that must be done by a unit in order to contribute its share for
the achievement of the strategic plan.

Frontline/Lower-level Management Planning (Operational Planning)

Operational planning involves identifying the specific procedures and

processes required at the lower levels of the organization. This also involves
routine tasks or tasks repeatedly done by the organization’s lower level units.

PLANNING TOOLS AND TECHNIQUES

The useful tools and techniques of managerial planning include the following:

- Forecasting
- Contingency planning
- Scenarios
- Bench marketing
- Participative planning
- Use of staff planners

Forecasting
Forecasting is the process of predicting what will happen in the future.
Almost every plan involves forecasts of some sort. The economist regularly report
forecasts of economic conditions interest rates, unemployment, and trade
deficits. Among other issues. There are some based on qualitative forecasting.
Qualitative forecasting uses expert’s opinions to predict the future. Also it is
involved to use mathematical models and statistical analysis of historical data
and surveys to predict the future events.

Contingency Planning
It identifies alternative courses of action that can be implemented to
meet the needs of changing circumstances. Although it is not possible for
anyone to predict when things will go wrong, it can be expected that they will. It
is unlikely that any plan will ever be completely perfect. Changes will occur in
the environment. When crisis and emergencies occur, managers and the
organizations have contingency plans that are ready to be implemented.
Contingency plans contain "trigger points" that indicate when pre-selected
alternative plans should be activated.

Scenario Planning
It involves identifying several alternative future scenarios that may occur.
Plans are then made to deal with each scenario as it occurs.

For example, the Heart and Stroke Foundation of Ontario set out to design a
new model for the health care funding, they wanted to challenge the
organization to think in different ways about the future. The scenario planning
process benefited them by helping the board and other invited experts to
rehearse strategic development plans and tactics in five different realistic
scenarios.

Benchmarking
It is a technique that uses external comparisons to better evaluate one's
current performances and identify possible actions for the future. The purpose of
it is to find out what other people and organizations are doing well at and plan
how to incorporate these ideas into one's own operations. One of the
benchmarking techniques are used to search for best practices. Best practices
are things that lead to superior performance. It is considered that the best run
organizations also emphasize internal benchmarking that encourages all
members and work units to learn and improve by sharing one another's best
practices.

Participation and Involvement

Includes, in all planning steps, the people who will be affected by the
plans and/or who will be asked to help implement them. This process brings
many benefits to the organization. Participation can increase creativity and
information available for planning. Also, it increases the understanding and
acceptance of plans, along with commitment to their success. Although its
takes a long time, it can improve results by improving implementation. All
employees participate in the planning process and are regularly updated about
the company's program towards its goal.

Use of Staff Planners

Staff planners are employed to help coordinate planning for the
organization as a whole or for one of its major components. They help bring
focus and energy to accomplish important planning tasks. A risk involved is a
tendency for a communication gap to develop between the staff planners and
line managers. Everyone must work closely together, the resulting plans may be
inadequate and people may lack commitment to implement the plans no
matter who good they are.

Decision Making

Decision making can be regarded as the mental processes resulting in the

selection of course of action among several alternatives. Every decision making
process produces a final choice. The output can be an action or an opinion of
choice.

Meaning

In general:

Decision Making is the process of making a choice between a numbers of

options and committing to a future course of actions.

Decision – Making a choice from two or more alternative.

Decision Making – The process of examining your possibilities and options,

comparing them, and choosing a course of action.

Decision Making Process

Step 1: Identifying the Problem

 A problem is defined as a discrepancy between an existing and a desired

state of affairs.
 Some cautions about problem identification include the following:
1. Make sure it’s a problem and not just a symptom of a problem.
2. Problem identification is subjective.
3. Discrepancies can be found by comparing current results with some
standard.
4. Managers aren’t likely to characterize a discrepancy as a problem
if they perceive that they don’t have the authority, information, or
other resources needed to act on it.

Step 2: Identifying Decision Criteria

 Decision criteria are factors that are important (relevant) To Resolving the
problem.
A. Costs that will be incurred(investment required)
B. Risk likely to be encountered( chance of failure)
C. Outcomes that are desired (growth of the firm)

Step 3: Allocating Weights to the Criteria

 Decision criteria are not of equal importance:

◦ Assigning a weight to each item places the items in the correct
priority order of their importance in the decision making.
 Each possible solution must have features or cons and pros. A manager
should score the criteria according to the need of the situation.

Step 4: Developing Alternatives

 As manager it is advised you select a viable alternative that could also

resolve the problem. At this point we are just listing not evaluating the
alternatives.

Step 5: Analyzing Alternatives

 Appraising each alternative strengths and weaknesses

◦ An alternative’s appraisal is based on its ability to resolve the issues
identified in steps 2 and 3

Step 6: Selecting Alternatives

Choosing the best alternative or the one that scored the highest total in
step 5.

Step 7: Implementing the Decision

 Putting the decision into action by conveying into those affected and
getting their commitment to it.

Step 8: Evaluating the Decision’s Effectiveness

 Evaluating the outcome or result of the decision to see if the problem was
resolved.
 If the problem still persists, the managers should re-assess the problem and
start over again.

Activity 1:

1. Discuss the meaning of planning. (10pts)

2. Why planning tools are important? (10pts)
3. Which steps in decision-making process is the most important explain?
(10pts)

References:

https://tinyurl.com/2y28bhku (Data Retrieved January 25, 2023)

https://tinyurl.com/mr3d68r2 (Data Retrieved January 28, 2023)