PLANNING

Planning is an important managerial function in that there is no choice between planning

and no planning. The choice is only in regard to the method and techniques used to
plan. It is anybody’s knowledge that we plan many things in our day to day lives.

We plan to go on a holiday trip, plan our careers, and plan our investments and so on.
Organizations are no exception. Lot of planning is done by managers at all levels.
Planning is the basic process by which we use to select our goals and
determinethe means to achieve them. Lot of information has to be gathered and
processed before a plan is formulated. In other words, a plan is like a jigsaw puzzle. All
the pieces have to be put together properly, so that they make sense.

Planning is necessarily forward looking. It is looking into the future. It bridges the gap
between where we are and where we want to go.It involves visualizing a future course of
action and putting it in a logical way. Let us look at the following observations about
planning.

“Failure to plan is planning to fail”.

“Planning is outlining a future course of action in order to achieve objectives”.
“Planning is looking ahead”.
“Planning is getting ready to do something tomorrow”.
“Plan is a trap laid down to capture the future”.

Purpose of Planning
It is no exaggeration that in the absence of planning events are leftto chance. In such
a case, you as a manager are depending on luck. Youmay, as a result, in all probability
end up in frustration. Organizationsoften fail not because of lack of resources, but
because of poor planning. Whatever the resources you have, in the absences of
systematic planning,the resources may not help you in achieving the objectives.

The following factors further highlight the importance of planning:

a) To achieve objectives:
While developing a plan, you have to ask yourself a few questions.
a) Why am I making this plan?
b) What am I trying to accomplish?
c) What resources do I need to execute the plan?

Objectives are the ends sought to be achieved by the organizations. The above questions,
if properly answered provide lot of clarity to the objectives.In other words, they force you
to be clear about the objectives, the time frame required to achieve them and the resources
required.
It forces you to visualize the future in an organized manner. The saying that “when a
man doesn’t know what harbour he is making for, no wind is the right
wind” is quite appropriate in the case of planning. Systematic planning, thus, starts with
a clear statement of objectives. All the important inputs necessary to achieve the
objectives are carefully thought of. The uncertainties of the future, if any, are also taken
into consideration.

b) Plans make the things happen:

Effective managers anticipate future and prepare themselves to meet the challenges of
the future. They are rather pro-active. They influencethe outcome of the events in a
significant way. In any modern business,the interests of many people are involved. The
shareholders, employees, creditors, consumers and the Government are the major
interest groupsin any organization. Further, the interests and expectations of all these
groups are varied and at times are in conflict. That apart, they constantly change in a
dynamic business environment. In the light of the uncertainties involved in the
environment, your job, as a manager, is to foresee the future and predict the consequences
of actions. In other words, you have to look down the road into future and prepare yourself
to meet the uncertainties ahead. A well thought out plan solves many of the problems
associatedwith the future.

c)Plans help to cope with change:

Organizations are products of environment. The ability to deal with the environment
has enabled many an organization to survive, despite other weaknesses. Alert
managements continually tune in to the environmental forces. On the other hand,
managements which fail to adapt would eventually fall on the way side. Therefore, in
the managerial job, you have to constantly analyze the impending changes in the
environment and assess their impact on your business. For instance, the liberalization
policies pursued by the government have, of late, brought in too many changes. Markets
are shifting due to increased competition. Pressure on the existing resources is
increasing. Expectations of the employees as well as the consumers are changing.
Product life cycles are becoming shorter due to rapid technological changes. All these
changes exert a tremendous pressure on the management.

d) Plans double up as tools to control the events

Planning and control are often described as the ‘Siamese’ twins of management.
When you plan the events, you make them happen ina particular way. The specific
objectives decided in advance themselves become the standards. Therefore, it goes
without saying that plans provide mechanism to know whether the events are happening
in the way expected.

Planning ensures the events to conform to plans. Thus, if you do not plan (no clear
objectives), you do not know what to control. Control assumes significance in a dynamic
environment as of today, where several forces push you away from reaching the goal.
Appropriate control devices helpyou to check the course from time to time, so that you
will be able to takethe appropriate corrective measures.
Principles of Planning:
Systematic planning is essential for the success and survival of any organization.
Organizations fail not because they don’t plan, but because they don’t plan in an effective
way. An understanding of the following principles helps one to achieve effectiveness in
planning, so that you can guard yourself against the possible mistakes that are often
committed by managers.

a) Take Time to Plan

As the plan is a decision regarding a future course of action,it specifies the sequence
of events to be performed. It involves the commitment of organizational resources in a
particular way. Therefore, ifa plan is not conceived well, the resources would be put to
wrong use. It becomes a wasteful exercise resulting in agony and frustration. To avoid
such unpleasant outcomes, several probing questions have to be asked.Planning in haste
with incorrect information, unsound assumptions and inadequate analysis of the
environment has to be avoided by all means. Otherwise, you may save some time in
quickly developing a plan, but in the event of things going wrong, you are hard pressed
for time and resources to correct yourself. It not only lands you in trouble, but the
organization as well.

b) Planning can be top down and bottom up

Normally in any organization major enterprise plans are developed by the top
management. These plans are wider in scope and provide the direction to the whole
organization. They spell out what the organization wants to achieve over the years. The
overall plan thus formulated by thetop management is split into departmental plans.
Accordingly, plans for production, marketing, finance, personnel and so on, stem from
the basic plan of the organization. The other operational plans at various levels down
the organization flow from the departmental plans. This approachis called top-down
approach to planning.

In contrast, bottom-up approach involves information emanating from the lower levels –
that is, top management collects information from lower levels. On the basis of such
information, plans are formulated. The underlying assumption is that people at the
operational level are closer to the action and they possess valuable information. In this
approach, theinitiative for planning comes from the lower levels in the organization.
This approach makes use of the rich experience of the subordinates. It also helps to
motivate the people and elicit commitment from them. However, the choice of the
method depends on the size of the organization, the organizational culture, the preferred
leadership style of the executive and the urgency of the plan

c)Involve and communicate with all those concerned

Modern business organizations are so complex that various operations are highly
interrelated. Such an interrelation of activities requires the involvement of all the people
concerned with the achievement of goals. For instance, a plan to improve the quality of
the products (Quality control plan) may require the cooperation of the people in the
production.
Such participation helps in instilling a sense of commitment among the people. They also
in turn gain a sense of pride for having been a partyin deciding the plan. Such an
involvement makes possible the process of sharing information. If concerned people are
not involved, there may be unnecessary gaps in the execution because of lack of
understanding of the plans.

d)Plans must be flexible and dynamic

Your managerial career indeed would be a “bed of roses” if thereare no unexpected
changes in the environment. Day in and day out, youare confronted with too many
changes forcing you into so many dilemmasor problems. Most of such problems are
caused by unexpected events inthe environment. If the plan is rigid with less scope
for modifications as required by the changes in the environment, the organization would
ultimately sink. In a static environment, of course, there may not be a problem with
a rigid plan. But in a dynamic environment, to meet the unexpected changes, adequate
flexibility has to be built into the plan. Otherwise, the plan itself becomes a limiting factor.

d)Evaluate and revise

While building into the plans the required flexibility, you shouldnot lose sight of the
additional costs involved to buy such flexibility. You must also remember that flexibility
in plans may not be possible always.For example, a plan for a petroleum refinery may
not offer any flexibility because the machinery can hardly be used for any other purpose.
Evaluation of the plan at regular intervals is necessary to make sure that it is
contributing to the objectives. Like a pilot, who in the high skies checks the course to
make sure that he is flying in the right direction and at theright altitude, the manager
has to evaluate and review the plan. Such an exercise enables to initiate the corrective
measures at the right time before it is too late. This depends on the accuracy of the
information systems inthe organization.

Steps of planning
Though there may be a few variations in the exact procedure adopted by different
organizations in planning, the following are the broad steps:

a) Setting of goals
Planning begins with decisions about what the organization wants to achieve during a
specified period. The goals of an organization andvarious subunits have to be decided and
spelt out in clear terms. It is always desirable to express the goals in quantitative terms
for all the key areas ofthe business-like production, profit, productivity, market share,
employee relations, social responsibilities, etc. For instance, instead of saying that the
objective of business is to achieve a fair rate of return on the investment,it may be
given a quantitative expression, say, 10 or 15 percent return on the investment. The time
frame in which the objectives have to be achievedmust also be specified. Besides,
adequate attention has to be paid to the resources required to achieve the objectives. Thus
what to achieve, when, how and with what resources are a few important questions that
should be answered at this stage.
b) Outlining Planning premises
Planning premises, in simple, are the assumptions about the various elements of the
environment. Planning assumptions or premises provide the basic framework in which
plans operate. Appropriate assumptions have to be made on various aspects of the
environment – both internaland external to the organization. Otherwise, it will be like
fighting a battle without a clear assessment of the enemy’s strengths and weaknesses.

Internal premises: Important internal premises include sales forecasts and policies
of the organization. Each one of these elements is a critical success factor. For instance,
the accuracy of the sales forecast influencesthe procurement of resources, production
scheduling and the marketingstrategies to be pursued to achieve the objectives. Similarly,
however effective the objectives are, it is the people who have to perform and achieve. If
their attitude is not positive, nothing moves.

External premises: Important external premises relate to all those factors in the
environment outside the organization. They include issues related to technology, general
economic conditions, government policies and attitude towards business, demographic
trends, socio-cultural changes in the society, political stability, degree of competition in
the market, availability of various resources and so on.

It is evident that some of these factors are tangible while othersare intangible. For
example, material and human resources availability, etc. are tangible factors which
can be stated in quantitative terms. On the other hand, factors like political stability,
attitudes of the people, certain other sociological factors are intangible, in that they
cannot be measured quantitatively. Effective premising – the making of appropriate
assumptions, helps the organization to identify the favourable and unfavourable elements
in the environment. Though accurate premising is difficult, anticipating future
situations, problems and opportunities would undoubtedly help the managers in
reducing the risk, though notcompletely eliminating it.

c)Decide the planning period

How far in the future should a plan be made is another pertinent question in the process
of planning. Businesses vary in their planning periods. In some cases, plans are made
for a short period, varying from afew months to a year, while in some other cases,
they are made to covera longer period, to cover a period of more than a year. The period
may extend up to 5-10 years and even beyond.

Companies normally plan for a period that can be reasonably anticipated. The lead time
involved in the development and commercialization of a product and time required to
recover the capital investment (pay-back period) influence the choice of the length of the
plan. Again, in the same organization, different plan periods may exist for different
purposes. This gives raise to the two important concepts – operational planning and
strategic planning. While operational plans focus on the short-term, strategic plans focus
on the long-term.
d)Develop alternatives and select the course of action
The next logical step in planning involves the development of various alternative courses
of action, evaluating these alternatives and choosing the most suitable alternative.
Objectives may be achieved by different courses of action (alternatives). For example,
technical know-how may be developed by in-house research, collaboration with a
foreign company or by tying up with a research laboratory. Similarly, an organization can
grow by expanding its scale of operations or through acquisitions and mergers. Technical
feasibility, economic viability and the impact on the society are the general thumb
rules to select the course of action. The alternative courses are evaluated in the light of
the premises and the overall goals ofthe organization.

e) Derivative plans
The plan finalized after a thorough analysis of various alternatives suggests the
proposed course of action. To make it operational, it has tobe split into departmental
plans. Plans for the various operational units within the departments have to be
formulated. The plans thus developedfor the various levels down the organization are
called derivative plans. For instance, production and marketing of 10,000 units of a
product and achieving a return of 10 percent on the investment may be the enterprise’s
plan relevant for the whole organization. Its effective execution is possible only when
specific plans are finalized for the various departments like production, marketing,
finance, personnel and so on with clear-cut objectives to be pursued by these
departments.

f) Review periodically
Success of the plan is measured by the results and the ease with which it is implemented.
Therefore, provision for adequate follow-up to determine compliance should be included
in the planning work. To make sure that the plan is contributing for the results, its review
at regular intervals is essential. Such a review helps in taking corrective action, when the
plan is in force.

Why plans fail?

Effective planning is not an easy task. There are a number of reasons for failure of plans
in practice. Planning suffers from the following limitations.

a) Cost and time

Planning is quite a costly and time-consuming process. Unlimited amount of time is spent
on forecasting, evaluating alternatives etc. By the time a plan is established, the
environment might change and this requires a complete revision of the plan. Besides
this, cost also increases.

b) Validity of the forecasts

Planning is future oriented activity based on forecasts. As the period of planning
increases, the accuracy of forecasting diminishes. Planning loses its value if reliable and
adequate data is not available.
3)Inflexibility
Planning becomes rigid at times because of internal inflexibilities. This reduces individual
initiative and causes delay in decision making.Internal inflexibilities like rigid policies
and procedures and limited resources affect planning process.

4)Influence of External Factors

External factors beyond the control of an organization affect the effectiveness of planning.
These are very difficult to predict and makeexecution of plans very difficult. External
factors like government control, technological changes and trade unions affect the
planning process.

5)Resistance to change
Another important limitation of planning is resistance to change.The human element
in an organization always resists change. People are more concerned about the present
rather than the future which is uncertain. Planning being forward looking is always
affected by this resistance to change.

6) Unrealistic plans
The entire planning process may fail, if people involved in it do not formulate correct
plans. The reasons for failure of people in planning maybe due to a number of reasons
like lack of commitment to planning, lackof delegation of authority, excessive reliance
on past experience, tendency to overlook premises, etc.

Ensure the following when you plan!

It is an irony that at times even the best of the plans may flounder in spite of careful
analysis and emotional commitment. So as to avoid the pitfalls in planning, make sure of
the following;
a) Set realistic and achievable goals;
b) Communicate the assumptions on which plans are formulated toall the people and
departments concerned;
c) Encourage and make people participate in the planning programso as to ensure the
right commitment;
d)Ensure proper coordination between the short-term and long- term plans. They
should not be viewed as mutually exclusive;
e) Encourage creativity in planning. Creativity helps in identifyingthe best alternatives;
and
f) Pay attention to the resources position of the organization so as to ensure the
availability as and when required.
Characteristics of a Sound Plan
A sound plan should have the following characteristics:
a) Primacy: Planning is an important managerial function that usually precedes other
functions. Obviously, without setting the goalsto be reached and the lines of actions
to be followed, there is nothing to organize, to direct, or to control in the enterprise. But
this should not lead us to think that planning is isolated from other managerial
functions.

b) Continuity: Planning is a continuous and never-ending activity of a manager to

keep the enterprise as a going concern. One plan begets another plan to be followed by a
series of other plans in quick succession. Actually, a hierarchy of plans operates in the
enterprise at any time. Planning gets used up where tomorrow becomes today and calls
for further planning day in and day out. Again, the incessant changes make re-planning a
continuous necessity.

c)Flexibility: Planning leads to the adoption of a specific courseof action and the
rejection of other possibilities. This confinement to one course takes away flexibility. But
if future and assumptions upon which planning is based prove wrong, the course of action
is to be modified for avoiding any deadlock. Accordingly, when the future cannot be
moldedto conform to the course of action, the flexibility is to be ingrained in planning by
way of adapting the course of action to the demands of current situations.

d)Consistency: Planning is made by different managers at different times.

Maintenance of consistency or the unity of planning is one of its essential requirements.
Objectives provide the common focus for unifying managerial action in planning.
Moreover, policies and procedures introduce a consistency of executive behaviour and
action in matters of planning.

e) Precision: Planning must be precise with respect to its meaning, scope and nature.
As guides to action, planning is to be framed in intelligible and meaningful terms by
way of pinpointing the expected results. Planning must be realistic in scope rather than
being dreams indicating pious desires. As planning errors are far more serious and
cannot be offset by effective organizing or controlling, the accuracy and precision is of
outmost importance.

f) Pervasiveness: Planning is a pervasive activity covering theentire enterprise and

every level of management. Planning is not the exclusive responsibility of top
management only. But it extends to middle and lower managements as well. Although top
managers are mostly preoccupied with planning because of the wider scope of
operational and decision-making authority, planning is of equal importance to every
manager.
Long Range Planning and Short-Range Planning
Planning involves deciding a future course of action. Plans alwayshas some time frame-
the period in future that a plan covers. Based on the length of time involved, plans are
usually classified as strategic or long-range plans and operational or short-range plans,
strategic plans are designed to meet the broad objectives of the organization to implement
the mission that provides justification for the organization’s existence. Operational plans
provide details as to how strategic plans will be accomplished. However,it must be
remembered that both strategic and operational plans are not mutually exclusive, but are
complimentary.

Long Range Planning / Strategic Planning

The terms long range planning, Strategic planning, and corporate planning are used
synonymously by many authors. Strategic planning has its origin in military
organizations where the objective is to envisagea variety of contingencies that may arise
when large forces move into operation. Viewed in this backdrop, strategic planning in a
business organization envisages a comprehensive study of the various external and
internal parameters that affect a company in charting a course of action to achieve the
goals

Strategic Planning helps the Management in:

a) coping effectively with future contingencies.
b) providing an early opportunity to correct mistakes.
c)making decisions about the right things at the right time: and
d)understanding what actions to take in order to shape the future.

George Steiner has defined strategic planning as “the process of determining the major
objectives of an organization and the policies and strategies that will govern the
acquisition, use and disposition of resources to achieve those objectives”. Strategic plans
reflect the socio-economicpurpose of the organization and the values and philosophy of
the top management. In simple, they relate the organization to the environment in which
it operates by providing answers to the basic questions like:
a) Where are we now?
b) Where do we want to go? Andӹ
c) Why do we want to go there?

Strategic planning serves the following two functions.

a) Anticipates Future Opportunities and Threats

An accurate assessment of the future opportunities and threats is crucial to the success of
any business. Business environment is changing so fast these days that a deliberate
corporate effort is called for to keep abreast with the changes. The changes that occur may
be precursors of future threats and opportunities. The investment in large business
enterprise today runs into thousands of crores of rupees. The gestation period is too long.
During this period many things may change. Effectiveness of the business organization
lies in converting the threatsinto opportunities. For instance, when the crude oil prices
were hiked in1973 by the OPEC countries, it created havoc on petro-based industries.
Automobile companies as a result were forced to change to small fuel-eficientcars. In this case,
the threat was converted into an excellent opportunity. Small car thus has become the
fashion of the day. Similarly, ITC in India, continuously hounded by excise levies and
taxes on theirmain tobacco products cigarettes, had to think of diversification into
hotels, paper, agro products and aquaculture – which ultimately turned out to be a
God sent opportunity.

b) Provide Clarity of Purpose and Direction

As a result of the overall increase in the size of companies, the internal departments
(production, marketing, finance, personnel etc.) have also become quite large. With
growing specialization in each of these areas, these departments are prone to become
watertight compartment giving rise to inter-departmental rifts. Corporate strategies spelt
out clearly help in smoothening out some of the interdepartmental conflicts. Strategic
planning provides unity of purpose and direction, the much-emphasized management
principle.

For example, it is not unusual, for instance, for marketing department to ask the
production department to shorten their productions runs, to cater to the demands of
various models which is normally resisted by the latter. Similarly, the design
department may often specify certain change in the product which may raise the cost
of production. The finance department may try to block any measure that increases
the cost of production.

The manager’s success depends largely on understanding the trends in the environment.
The trends contain signals and give clues about the potential opportunities and
impending threats. Many organizations havepaid a heavy price for their failure to draw
the right meanings from the signals. In some cases, though the management is aware
of the trends, afixed mindset or resistance to change make them cling on to the
status-quo.

Types of Plans
Different types of plans are developed by an organization, namely mission, strategies and
policies, procedures, rules, programmes and budgets. One common thing is, they all
refer to a future course of action. However, some variances in respect of the scope and
operation are found in the implementation. Some are single-use plans while some are
standing plans. They are discussed below:

a) Mission or Purpose
Organisations exist in society. Therefore, it is appropriate to relate their existence to
society by satisfying a particular need of the society. Mission may be defined as “a
statement which defines the role that an organization plays in the society”. The terms
‘mission’ or ‘purpose’ are often used interchangeably.
An organization’s mission statement includes its philosophy and basic purpose for which
it exists. It establishes the values, beliefs, and guidelines that the organization holds in
high esteem. Mission statement suggests how an organization is going to conduct its
business. It defines the basic intentions of the firm. A Clear definition of ‘mission’ or
‘purpose’ is necessary to formulate meaningful objectives. Answers to two important
questions are provided by the mission statement: what is our business? and what should
it be? These questions force the management to define their customers and their needs.

b) Policies
Koontz and O’Donnel define policy as “a general statement of understanding which
guides the thinking and action in decision-making.” Policies provide the framework
within which managers operate. Policies exist at all levels in the organization. Some may
be major policies affecting the whole organization, while others may be minor or
derivative policies affecting the functioning of departments or sections within the
departments.

Policies are laid down by the management for all the importantfunctional areas. As such,
we hear about production policies, financial policies, marketing policies and personnel
policies, to mention a few. For instance, in the personnel area, specific policies may
be formulated for recruitment, training, compensation, etc. Accordingly, whenever the
need for recruitment arises, the personnel manager consults the existing recruitment
policy of the company and initiates the steps necessary to fill the vacancies. Thus, it
is evident that the personnel manager operates within the broad policy of the company
in recruiting the people. Thus, policy is a onetime standing decision that helps the
manager in making day-to-day decisions in their operational areas.

c)Procedures
Policies are subdivided and stated in terms of procedures – A series of related steps or
tasks to be performed in a sequential way. For example:A company’s policy may be to
sell old stock at a discount. The procedure may explain how to decide which product is
obsolete and what percentageof discount is to be offered. But procedures, if simple
and clear wouldensure order in the performance of operations.

Though procedures exist at all levels in an organization, they are more detailed at the
lower levels. In common parlance, they are called ‘Standard Operating Procedures’
(SOPs). Procedures for placing orders for material and equipment, for sanctioning
different types of employee’s leave, for handling grievancesat the shop floor level, etc.,
suggest how each of these has to be handled. Policies and procedures are closely
interrelated. For instance, a company may follow time-bound promotion policy to
promote people from within. But the operational part of the policy is specified by the
procedure – the formalities to be fulfilled to affect the promotion are dictated by the
procedure.
d)Rules
A rule is also a plan. A rule is a prescribed course of action that explicitly states what is
to be done under a given set of circumstances.Rules are plans in that they suggest
the required actions. A rule requiresthat a definite action has to be taken in a
particular way with respect toa situation. Some definiteness is associated with rules. For
example, ‘no smoking’ is a rule. The essence of the rule is that it reflects a managerial
decision that certain actions be taken – or not be taken.

Rules should not be confused with policies and procedures. Policies contain some
operational freedom or discretion while rules allowno discretion in their application.
Similarly, procedures though different form rules may contain rules regarding the do’s
and don’ts. For example, there may be a procedure to attend to customer grievances in
respect of post-sale service. The procedure may contain a rule that free service is available
only for a period of two years after the sale.

e) Programs
A programme is a broad term which includes goals, policies, procedures, rules and steps
to be taken in putting a plan into action. Terry and Franklin define program as “a
comprehensive plan that includes future use of different resources in an integrated
pattern and establishes a sequence of required time schedules for each in order to
achieve stated objectives”.
Thus, a programme includes objective, policies, procedures, methods, standards and
budgets. Program may be major or minor. For instance, a company may embark upon
modernization program of the plant and machinery and other manufacturing systems in
a big way. By all means such an effort is a major program. Similarly, a large organization
may start computerizing all its activities. On the other hand, modernization of small
equipment in some section of the factory and computerization of a particular operation
in a certain department may be considered as a minor program.

f) Budgets
A budget is a plan statement for a given period of time in future expressed in financial or
physical units. Budget contains expected results in numerical terms. A budget is a
quantitative expression of a plan. Organizational budgets vary in scope. Master budget
which contains the consolidated plan of action of the whole enterprise is in a way the
translated version of the overall business plan of the enterprise. Similarly, production
budget represents the plan of the production department. Again, capital expenditure
budget, raw material budget, labour budget, etc. are a few minor budgets in the
production department. One of the advantages ofbudgets is they facilitate the comparison
of actual results with the planned ones by providing yardsticks for measuring
performance.