Planning – Nature, Elements, Process, Approach, Importance
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 task 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 function 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 action. 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 – Objectives 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.
(1) Establishment of objectives
It involves identification of goals and objectives of the organization by carefully examining the internal and external environment affecting the business.
(2) Developing premises
Premises are assumptions about the environment in which plans are made and implemented. Thus assumptions about market demand, cost of raw material, 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)
In such a 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.
In such a approach a team of managers having relevant experience and skills in various functional areas are assigned the job of planning. The plans are then approved by the top management.
Types of Planning
|Time Horizon||5 years or more||Under a year|
|Purpose||Adapt to changes in external environment||Implement internal goals|
|Activity controlled||Overall organizational performance||Internal tasks and operation|
|Decision making||Many decisions||Focus on one decision|
|Organizational level involvement||Top management||Middle and lower management|
|Basis of planning||Judgmental||Exact data & standards|
|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 an 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