CHAPTER TWO

MANAGERIAL PLANNING
At the end of this chapter you will be able to

 Understand what planning is and explains its relationship with goals.

 Explain the concept of organizational mission, objective, goal and purpose.
2.1. Concepts and need for planning
2.1.1 Concepts of planning
The management functions are planning, organizing, staffing, direction and controlling. These
functions are essential to achieve organizational objectives. If objectives are not set then there is
nothing to organize, direct and control. An organization has to specify what it has to achieve.
Planning is related with this aspect.

Every person whether in business or not has framed a number of plans during his life. The plan
period may be short or long. One of the characteristic of human being is that he plans. Planning
is the first and foremost function of management.
 According to Koontz and O’Donnel “Planning is deciding in advance what to do, how to
do it, when to do it and who is to do it. It bridges the gap from where we are and to where
we want to go. It is in essence the exercise of foresight”.
 According to M.S. Hardly “Planning is deciding in advance what is to be done. It
involves the selection of objectives, policies, procedures and programmes from among
alternatives.
Planning- is the process of determining how the organization can get where it wants to go, and
what it will do to accomplish its objectives.
In more formal terms, planning is the systematic development of action programs aimed at
reaching agreed-upon business objectives by the process of analyzing, evaluating, and selecting
among the opportunities which are foreseen.

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Planning answers six basic questions in regard to any intended activity.
 The ‘what’ or what to do: is the goal that we want to achieve. It may be long term or
short term.
 The ‘when’ or when to do: is the question of timing. Each long term goal may have a
series of short term goals that must be achieved before the long term can be achieved.
 The ‘where’ or where to do: is the place at which the plan is put into practice.
 The ‘who’ or who does it: is the individual/ unit supposed to undertake specific tasks. It
asks which specific people will perform specific tasks.
 The ‘how’ or how it is done or by whom it is done: is the strategy/ method for
achieving the goal. It describes what specific steps are to be taken and in what kind of
sequence.
 The ‘how much’ or how much is required to do: concerns with the expenditure of
resources that are determined to be essential to reach goals.

Generally
 The future requires corporate leadership with the skills to integrate many unexpected and
seemingly diverse events into its planning. Every organization must plan for change in order to
reach its ultimate goal.
 Effective planning helps an organization adapt to change by identifying opportunities and
avoiding problems. It sets the direction for the other functions of management and for
teamwork.

Planning approaches
Planning is carried out at the various levels of the organization. There are two basic approaches
to planning, namely the top - down approach and the bottom - up approach.
1. The top - down approach: It is the planning efforts that begin at the top level managers.
Top level managers determine the direction of the organization and establish a master plan to
achieve over all goals. The master plan provides direction within which departments & work
groups develop their plans.
2. The bottom - up approach: It is the planning that is initiated at the lowest level of the
organizational hierarchy. In this approach, the managers and employees at the operational
level began the planning process, finally the top levels bring together all the plans of the

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 organizations work groups to develop a cohesive & well integrated master plan, then this
establishes the overall direction of the organization.
2.1.2 The need for planning
Planning is of great importance in all types of organization whether business or non-business,
private or public, small or large.
 The organization which thinks much ahead about what it can do in future is likely to
succeed as compared to one which fails to do so. Without planning, business decisions
would become random, ad hoc choices.
Planning is important because of the following reasons.
 Primacy of planning: Planning is the first and foremost function of management, other
functions follow planning. What is not planned cannot be organized and controlled.
Planning establishes the objectives and all other functions are performed to achieve the
objectives set by the planning process.
 To minimize risk and uncertainty: The organization continuously interacts with the
external dynamic environment where there is great amount of risk and uncertainty. In this
changing dynamic environment where social and economic conditions alter rapidly,
planning helps the manager to cope up with and prepare for changing environment. By
using rational and fact based procedure for making decisions, manager can reduce the risk
and uncertainty.
 To focus attention on objectives: Planning focuses on organizational objectives and
direction of action for achieving these objectives. It helps managers to apply and coordinate
all resources of the organization effectively in achieving the objectives. The whole
organization is forced to embrace identical goals and collaborate in achieving them.

 To facilitate control: Planning sets the goals and develops plans to achieve them. These
goals and plans become the standards or benchmarks against which the actual performance
can be measured. Control involves the measurement of actual performance, comparing it
with the standards and initiating corrective action if there is deviation. Control ensures that
the activity confirm to plans. Hence control can be exercised if there are plans.

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  To increase organizational effectiveness: Effectiveness implies that the organization is
able to achieve its objectives within the given resources. The resources are put in a way
which ensures maximum contribution to the organizational objectives. Effectiveness leads
to success.
Basic characteristics or features of planning
The following are the basic characteristics of planning.
1) Planning is the primary function of management: Planning is the starting point of
management. It is only planning which gives meaning to all other managerial functions,
namely, organizing, staffing, co-coordinating and controlling. Without planning the other
functions cannot be effectively performed.
2) It is goal-oriented: The goal of every business is to make profits. Planning helps to attain
the goal in the most effective and efficient manner.
3) It is all-pervasive: By this we mean that planning is done by everyone at every level of
management, namely top, middle and lower levels. Planning is pervasive and it extends
throughout the organization.
4) It is an intellectual activity: Planning is a mental activity. It involves application of mind
and intelligence to attain, in a systematic manner, the organizational objective.
5) It is future –oriented: Planning is required to attain the future goals of an organization.
However, past happenings provide the basis for plans. As future is uncertain, a plan must
make suitable provisions to meet any crisis.
6) It requires an integrated approach: There must be a link between the plans of different
departments. The production plan of a business must be in tune with its financial plan. The
marketing plan likewise must be in tune with the production plan and vice versa.
7) It is a continuous process: It means that a stage will never come when the need for planning
will not be felt at all. Planning is required as long as we live in this world. As far as business
is concerned, planning is needed as long as there are business activities.
8) It involves decision making: Planning involves making choice out of certain alternative
courses i.e., decision-making. When there is only one way of doing something, there is no
need for planning at all.

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 2.2. Types of plans
Plans can be classified on different bases or dimensions. The most important ones are:
1. Retentiveness (frequency of use) dimension
2. Time dimension/ horizon (duration) dimension
3. Scope/ breadth dimension

Types of plans

Time duration Repetitiveness Scope/breadth

 Long range plans

Single use plan Standing plan  Strategic plan
 Intermediate plans  Vision
 Program  Tactical plan
 Short range plans  Project  Mission
 Value  Operational
 Budget
 Goal plan
 Objective
 Procedures
 Rules

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
i. Single use plans
Single use plans are those plans which have no more use after objective is accomplished. Once
activity for which they have been made is over, single use plans have little or no use at all. They
include: programs, projects, and Budgets.
1. Program- is set of goals, policies, procedures, rules, job assignments, 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.

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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
completion time.
3. Budget - is a statement of expected results expressed in numerical terms. Budget which is a
plan that shows how money will be spent over a certain period of time. Even if budget is
often thought as control technique, it is also a plan since it sets forth objective to attain.
Sometimes called as 'numerical plan' as they are quantitative in nature.
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.
They include: Vision, mission, values, goal, objectives, policies, procedure, and rules.
1. Vision
A vision might be a picture, image, or description of the preferred future. A visionary has the
ability to foresee something and sees the need for change first. He or she challenges the status
quo and forces honest assessments of where the industry is headed and how the company can
best get there. A visionary is ready with solutions before the problems arise.

Vision of Jimma university

Jimma University aspires to be a leading public higher learning institution in the
country, renowned in Africa and recognized in the world.
2. Mission
A mission is a broad definition of a business that differentiates it from all other organizations. It
is the justification for the organization's existence. The mission statement is the "touchstone" by
which all offerings are judged. In addition to the organization's purpose other key elements of the
mission statement should include whom it serves, how, and why. The most effective mission
statements are easily recalled and provide direction and motivation for the organization.

Since an organization exists to accomplish something in the larger environment, its specific
mission or purpose provides employees with a shared sense of opportunity, direction,
significance, and achievement. An explicit mission guides employees to work independently and
yet collectively toward the realization of the organization's potential. Thus, a good mission

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statement gets the emotional bonding and commitment needed. It allows the individual employee
to say; "I know how I should do my job differently."
Mission of Jimma university
Jimma University is committed to train high calibre professionals, undertaking
quality and problem-solving research and serving the society through its cherished
and innovative Community Based Education (CBE).
3. Values
Each supervisor's approach to management will reflect his or her values, as well as those of the
organization. Building trust starts with creating culture based on shared values.
Values are traits or qualities having intrinsic worth, such as courage, respect, responsibility,
caring, truthfulness, self-discipline, and fairness.
 Values serve as a baseline for actions and decision-making and guide employees in the
organization's intentions and interests. The values driving behavior define the
organizational culture.
 A strong value system or clearly defined culture turns beliefs into standards such as best
quality, best performance, most reliable, most durable, safest, fastest, best value for the
money, least expensive, most prestigious, best designed or styled, easiest to use.
Values of Jimma university
 Excellence and quality in teaching, research and community service
 Diversity, tolerance and inclusiveness in the ethnic, religion, culture and gender
 Equity and access in teaching, research and public services
 Gender sensitivity to resolve the prevailing gender inequity and imbalance
 Honesty and integrity in carrying out intellectual
 Transparency and accountability in decision making
 Community involvement and empowerment
 Networking for collaboration and partnership
4. Goal
Goal is expected (desired) performance to be accomplished but it is not set specifically- is
desired future outcome that an organization strives to achieve generally. Goal is an end that the
organization strives to attain. However, the supervisor cannot "do" a goal. Supervisors break

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down processes, analyze them, set objectives and then drive hard to achieve them. Doing the
same thing and expecting different results doesn't work. E.g.to increase profit.
5. Objectives
Objective An objective is simply a statement of what is to done and should be stated in terms of
results. A mnemonic aid to write objectives is SMART (Specific, Measurable, Attainable,
Result-oriented, Time-limited).
Characteristics of good (effective) objective (SMART)
There are some characteristics of effective objectives, so effective objectives are mostly:
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.

Measurable- 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. Some objectives are more difficult to
measure than others are. However, difficulty does not mean that they cannot be measured.

 Customer service could be measured by such indices as the number of complaints

received, by the number of customers lost, and by customer interviews or responses to
questionnaires.

 Development of subordinates could be measured by determining the number of tasks the

subordinate has mastered.

 Cooperation with other functions could be measured by length of delay in providing

requested information, or by peer ratings of degree of cooperation.
Appropriate- objectives should be prepared in suitable, acceptable and achievable manner.
Realistic and 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. It is
also better to have challenging objectives as far as they could motivate workers if attained.

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Time bound _ 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.
Generally, to test for validity of SMART objectives, ask yourself the following questions.
 S = Exactly what is my objective?

 M = What would a good job look like?

 A = Is my objective feasible?

 R = Is my objective meaningful?

 T = Is my objective traceable?
6. Policy- is a general statement designed to guide employees' actions in recurring situations. It
establishes broad limits, provides direction, but permits some initiative and discretion on the
part of the supervisor. Thus,
 policies are guidelines to decision making. 
 policies establish abroad framework and general guideline to thinking and action
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.
7. Procedures _ are sequences of steps or activities involved in making decisions or
performing other tasks. A procedure is a sequence of steps or operations describing how to
carry out an activity and usually involves a group.
 It is more specific than a policy and establishes a customary way of handling a
recurring activity. Thus, less discretion on the part of the supervisor is permissible in
its application. An example of a procedure is the sequence of steps in routing of parts.
 Procedures aim at laying down a mechanism for orderly performance and
coordination of various organizational activities so as to avoid random actions and
operations. Like policies, procedures also contribute in consistency of organizational
activities by providing steps.

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8. Rules; are on-going specific plans influencing human behavior or conducts at work place. 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 should not be done. (Guide to
action).
 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
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.
1. 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.
2. Intermediate plans
Intermediate range plans are those plans with a time horizon between 1 and 5 years. They range
between long and short-term plans.
3. Short range plans
Short range plans are those plans with time dimension 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. So short range plan for one organization
may be an intermediate or long range plan for the other organization.
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.
1. Strategic plans
Strategic planning produces fundamental decisions and actions that shape and guide what an
organization is, what it does, and why it does it. It requires broad-scale information gathering, an
exploration of alternatives, and an emphasis on the future implications of present decisions.

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Top level managers engage chiefly in strategic planning or long range planning. They answer
such questions as
 "What is the purpose of this organization?"

 "What does this organization have to do in the future to remain competitive?"

Top level managers clarify the mission of the organization and set its goals. The output needed
by top management for long range planning is summary reports about finances, operations, and
the external environment. Strategic planning is the process of developing and analyzing the
organization's mission, overall goals, general strategies, and allocating resources.
Generally, Strategic plans _ 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
2. Tactical plans
Top level managers set very general, long-term goals that require more than one year to achieve.
Examples of long-term goals include long-term growth, improved customer service, and
increased profitability.
 Middle managers interpret these goals and develop tactical plans for their departments
that can be accomplished within one year or less. In order to develop tactical plans,
middle management needs detail reports (financial, operational, market, external
environment).
 Tactical plans have shorter time frames and narrower scopes than strategic plans. Tactical
planning provides the specific ideas for implementing the strategic plan. 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. Tactical plan- is a plan used to develop means needed to activate and
implement strategy.
Generally, Tactical plans:
 performed by middle level managers
 Have shorter time frame, more detail and narrower scope than strategic plans.
3. Operational plans

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Supervisors implement operational plans that are short-term and deal with the day-to-day work
of their team. Short-term goals are aligned with the long-term goals and can be achieved within
one year.
 Supervisors set standards, form schedules, secure resources, and report progress. They
need very detailed reports about operations, personnel, materials, and equipment.
 The supervisor interprets higher management plans as they apply to his or her unit. Thus,
operational plans support tactical plans. They are the supervisor's tools for executing
daily, weekly, and monthly activities. Operational planning is the process of setting
short-ran objectives and determining in advance how they will be accomplished.
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.

2.3. 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. The steps generally
involved in planning are:
Step-1 Establishing objectives
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. They are aligned with the mission and form the basis for the action plans. Objectives are
sometimes referred to as performance goals.
Generally, organizations have long-term objectives for such factors as return on investment,
earnings per share, or size. Furthermore, they set minimum acceptable standards or common-
sense minimums. In addition, certain limitations, either explicit or implicit, such as "must

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provide jobs for existing employees" may exist. Objectives elaborate on the mission statement
and constitute a specific set of policy, programmatic, or management objectives for the programs
and operations covered in the strategic plan. They are expressed in a manner that allows a future
assessment of whether an objective has been achieved.

Step 2. 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. 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 opportunities and monitor threats.
 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).
SWOT is the assumptions and facts on which a plan will be based.
 Analyzing strengths and weaknesses comprises the internal assessment of the
organization. Assess the strengths of the organization. What makes the organization
distinctive? (How efficient is our manufacturing? How skilled is our workforce? What is
our market share? What financing is available? Do we have a superior reputation?)

 Assess the weaknesses of the organization. What are the vulnerable areas of the
organization that could be exploited? (Are our facilities outdated? Is research and

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 development adequate? Are our technologies obsolete?) What does the competition do
well?

 Analyzing opportunities and threats comprises the external assessment of the

environment. Identify opportunities. In which areas is the competition not meeting
customer needs? (What are the possible new markets? What is the strength of the
economy? Are our rivals weak? What are the emerging technologies? Is there a
possibility of growth of existing market?)

 Identify threats. In which areas does the competition meet customer needs more
effectively? (Are there new competitors? Is there a shortage of resources? Are market
tastes changing? What are the new regulations? What substitute products exist?) The best
strategy is one that fits the organization's strengths to opportunities in the environment.

Generally, the SWOT analysis is used as a baseline for future improvement, as well as gap
analysis. It enables the organizations managers to minimize the negative effect of weakness and
threat on organizations performance and utilize strength and opportunities to improve the
performance of the organization.
Step 3. Determining alternative course of Action
Once objectives are set, the management must identify alternative ways for reaching them.
When developing alternatives. 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.
Step 4. 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.
Step 5. 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.
Step 6. Implementing the plan

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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.
Step 7. 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.

3.5 PLANNING TECHNIQUE

Managers Can Improve the Quality of their planning by applying variety of Planning tools and
techniques. The important most common and important 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. An effective planning tool to help the
supervisor set objectives is Management by Objectives (MBO).

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.

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.
Thus, a set of verifiable objectives for each individual are jointly determined, prioritized, and
formalized.

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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.
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.
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
rewords may be recognition, praise, pay increase etc
Shortly MBO Principles
Cascading of organizational goals and objectives
Specific objectives for each member
Participative decision making
Explicit time period
Performance evaluation and feedback.
Steps in MBO
Effective MBO passes through different steps:
1. Setting individual objectives and plans with each subordinate the manager jointly set
objectives the participation of subordinates in the objective setting process is a way of
strengthen their commitment to achieve their goals.
2. Giving feedback and evaluating performance: Employees must know how much they are
progressing toward their objectives. Thus, managers and subordinates should meet

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 frequently to review progress and evaluate performance communication is key factor in
determining success of failure of MBO
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.

Figure 3.1 Management By Objective

Benefits and
limitations of MBO
Benefits
1. MBO uplifts workers’ motivation
2. MBO allows managers and subordinates share experience
                 Limitation
1. It consumes much time

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