UNIT – II

PLANNING
Every organization as part of its life cycle constantly engages in the four essential
functions of management – planning, leading, organizing and controlling. The foremost of
this is planning. It is the part of management concerned with creating procedures, rules and
guidelines for achieving a stated objective. All other managerial functions must be planned
if they are to be effective.

Managers at all levels engage in planning as objectives and goals have to be set up
for the day-to-day activities as well as the broader long-term initiatives.

What is Planning

Planning is the most basic of all managerial functions which involves establishing
goals, setting out objectives and defining the methods by which these goals and objectives
are to be attained. It is, therefore, a rational approach to achieving pre-selected objectives.
Organizations have to typically plan for long-range and short-range future direction. By
forecasting and predicting the market and socio-political-economic trends, managers can
plan to determine where they desire the company to be in future.

Planning involves determining various types and volumes of physical and other
resources to be acquired from outside, allocating these resources in an efficient manner
among competing claims and to make arrangement for systematic conversion of these
resources into useful outputs.

Since plans are made to attain goals or objectives, every plan should lead to the
achievement of the organization’s purpose and objectives. An organized enterprise exists to
accomplish group objectives through willing and purposeful co-operation.

Planning bridges the gap between where the organization stands currently and wishes
to be in future. In the absence of planning, events are left to chance.

Nature of Planning

1. Planning is primary function of management:

 The functions of management are broadly classified as planning, organisation,
direction and control. It is thus the first function of management at all levels. Since planning
is involved at all managerial functions, it is rightly called as an essence of management.

2. Planning focuses on objectives:

Planning is a process to determine the objectives or goals of an enterprise. It lays
down the means to achieve these objectives. The purpose of every plan is to contribute in the
achievement of objectives of an enterprise.

3. Planning is a function of all managers:

Every manager must plan. A manager at a higher level has to devote more time to
planning as compared to persons at the lower level. So the President or Managing director in
a company devotes more time to planning than the supervisor.

4. Planning as an intellectual process:

Planning is a mental work basically concerned with thinking before doing. It is an
intellectual process and involves creative thinking and imagination. Wherever planning is
done, all activities are orderly undertaken as per plans rather than on the basis of guess work.
Planning lays down a course of action to be followed on the basis of facts and considered
estimates, keeping in view the objectives, goals and purpose of an enterprise.

5. Planning as a continuous process:

Planning is a continuous and permanent process and has no end. A manager makes
new plans and also modifies the old plans in the light of information received from the
persons who are concerned with the execution of plans. It is a never ending process.

6. Planning is dynamic (flexible):

Planning is a dynamic function in the sense that the changes and modifications are
continuously done in the planned course of action on account of changes in business
environment.

As factors affecting the business are not within the control of management, necessary
changes are made as and when they take place. If modifications cannot be included in plans it
is said to be bad planning.

7. Planning secures efficiency, economy and accuracy:

 A pre- requisite of planning is that it should lead to the attainment of objectives at the
least cost. It should also help in the optimum utilisation of available human and physical
resources by securing efficiency, economy and accuracy in the business enterprises. Planning
is also economical because it brings down the cost to the minimum.

8. Planning involves forecasting:

Planning largely depends upon accurate business forecasting. The scientific
techniques of forecasting help in projecting the present trends into future. ‘It is a kind of
future picture wherein proximate events are outlined with some distinctness while remote
events appear progressively less distinct.”

9. Planning and linking factors:

A plan should be formulated in the light of limiting factors which may be any one of
five M’s viz., men, money, machines, materials and management.

10. Planning is realistic:

A plan always outlines the results to be attained and as such it is realistic in nature.

Importance of Planning

The importance of planning as the major constituent in the management process is

universally accepted. Planning not only brings stability and certainty to business, it also
brings in a unified sense of direction and purpose for the achievement of certain well-
defined objectives.

The basic reasons supporting systematic planning by managers are −

 Sense of Direction − Planning provides a unity of purpose. It brings together all

resources towards achieving common goals. Without plans and goals, organizations
will respond to everyday events in an ad-hoc manner without considering long-term
possibilities.

 Resource Paucity − Resource crunch is a major challenge for organizations today.

Managements are confronted with the task of optimizing outputs with limited
human, material, and financial resources through intelligent planning; otherwise,
wasteful inefficiencies would lead to higher prices and severe shortages.
  Uncertainty − Uncertainty is a major challenge even to the most intelligent planner.
Organizations continually face micro and macro-economic uncertainty in the course
of accomplishing their tasks. Planning helps managers anticipate such changes and
meet these challenges.

Besides the above, there are several practical reasons for formulating plans.

 To focus organizational activity on a set of consciously created objectives.

 To provide a systematic guide for future activities.

 To increase organizational outcome through efficient operation.

 To encourage systematic thinking. Planning facilitates effective delegation of

authority, removes communication gaps, and thereby raises overall efficiency.

Limitations of Planning

The limitations of Planning are furnished below:

(1) Planning Leads to Rigidity

 The plans are rigid in nature and have to be complied with throughout the
organisation.

 Such rigidity of plans may be internal as well as external.

 Internal rigidity relates to plans, policies, programs, rules, and methods, etc.

 External rigidity relates to political, industrial, technological, legal and economic

changes, etc.

 Example: A super speciality hospital has fine branches in a city. Whatever the top
management of the hospital decides the head of the branch of the hospital and their
subordinates have to follow. Though on occasions they know they could have done
better on their own but the plan laid out provides rigidity to their approach.

(2) Planning May Not Work in Dynamic Environment

 The environment in which a business survives is dynamic as it keeps on changing.

 It is difficult for an organisation to access future trends, the taste of customers, natural
calamity, competitors’ policies and effects of changes in the different components of
the environment.
  The organisation has to constantly adapt itself to changes because it is difficult to
forecast the future changes with absolute accuracy.

 The dynamic environment may sometimes lead to failure of plans.

 Example: Nestle, a very successful producer was very proactive in deciding strategies
for Maggi noodles. Maggi noodles were in a lot of demand but they were off the shelf
due to political and legal dimensions. This was due to the high content of lead in
Maggi noodles.

(3) Planning Reduces Creativity

 Planning is mostly done by the top management and other members

 like middle and lower levels of management have to follow these plans.

 They can’t deviate or change the plans made by their seniors.

 Under such circumstances, employees become orders following machines and don’t
involve creative thinking from their side.

 Such rigidity to comply with the laid plans kills the creativity of some talented
persons.

 Example: The need for a branch of a renowned shoe manufacturing company sees a
lot of scope in customized shoes. The top management is not interested in this idea as
the company manufactures standardised shoes.

(4) Planning Involves Huge Cost

 Formulation of plans can be too much costly because there is a lot of time and money
is involved.

 Some costs are incidental in nature like- expenses on boardroom meetings,

discussions with professional experts and preliminary investigations to find out the
feasibility of the plan.

 Checking the accuracy of facts and scientific calculations may involve lots of time.

 Sometimes, cost incurred may not justify the benefits derived from the plans; it may
leave a harmful effect on the enterprise.

 Example: Companies like IBM spend a lot of research. Many world-class levels give
their advice to this company and change their fee. However, without so much of
 painstaking such a huge company won’t be able to sustain itself. So planning in case
of IBM becomes necessary.

(5) Planning is a Time-consuming Process

 Planning is a very lengthy process as it consumes a lot of time for collection, analysis,
and interpretation of data.

 Due to such a lengthy process, sometimes decisions get delayed, opportunities are lost
and there is not much time left for the implementation of plans.

 Example: Health is wealth Ltd. plans to organise 25 health checkup camps on the
World Health Day and send a requisition to the top management but management
could send its approval just a day before and the sales manager could organise only 5
camps and thus huge opportunity is lost. Here the implementation was delayed.

(6) Planning Does Not Guarantee Success

 The success of an enterprise is possible only when plans are properly drawn up and
implemented.

 Plans become meaningless if it is not translated into action.

 Managers have a tendency to rely on previously tried and tested successful plans.

 It is not necessary that a successful plan in the past will bring success in the future
also as every business organisation survives in a dynamic and uncertain environment.

 Plans must be implemented in the light of changing environment otherwise it may

lead to failure of the business.

 Example: In a paint manufacturing company, the top management very meticulously

chalked out a great plan. The whole company worked out on the plan in a much
focused manner. However, with the entrance of a competitor with better paint quality
the whole plan failed. The reason for the failure was the dynamic conditions which
were not in control of the organisation.

Types Of Plans
Plans commit the various resources in an organization to specific outcomes for the
fulfillment of future goals. Many different types of plans are adopted by management to
monitor and control organizational activities. Three such most commonly used plans are
hierarchical, frequency-of-use (repetitiveness) and contingency plans.
Strategic Plans

Strategic plans define the framework of the organization’s vision and how the
organization intends to make its vision a reality.

 It is the determination of the long-term objectives of an enterprise, the action plan to

be adopted and the resources to be mobilized to achieve these goals.

 Since it is planning the direction of the company’s progress, it is done by the top
management of an organization.

 It essentially focuses on planning for the coming years to take the organization from
where it stands today to where it intends to be.

 The strategic plan must be forward looking, effective and flexible, with a focus on
accommodating future growth.

 These plans provide the framework and direction for lower level planning.

Tactical Plans

Tactical plans describe the tactics that the managers plan to adopt to achieve the
objectives set in the strategic plan.
  Tactical plans span a short time frame (usually less than 3 years) and are usually
developed by middle level managers.

 It details specific means or action plans to implement the strategic plan by units
within each division.

 Tactical plans entail detailing resource and work allocation among the subunits
within each division.

Operational Plans

Operational plans are short-term (less than a year) plans developed to create specific
action steps that support the strategic and tactical plans.

 They are usually developed by the manager to fulfill his or her job responsibilities.

 They are developed by supervisors, team leaders, and facilitators to support tactical
plans.

 They govern the day-to-day operations of an organization.

 Operational plans can be −

o
Standing plans − Drawn to cover issues that managers face repeatedly, e.g.
policies, procedures, rules.

o
Ongoing plans − Prepared for single or exceptional situations or problems
and are normally discarded or replaced after one use, e.g. programs, projects,
and budgets.

PROCESS OF PLANNING

Planning is the fundamental process in management which moves gradually and a

step-by-step approach is usually adopted. It involves the determination of objectives and
outlines the future actions needed to achieve these objectives. The above diagram represents
the planning process.
Establishing Objectives and Goals

The first step of the management planning process is to identify goals specific to the
organization and also for each department unit. A comprehensive planning effort to be
successful requires that managers in each department be involved in the planning process.
Thus objectives and goals which will direct the future course of the organization must be
clear, concise and specific.

At this stage, the planning process should include a detailed overview of each goal,
including the reason for its selection and the anticipated outcomes of goal-related projects.
The objectives thus established govern the framework for every major department, which in
turn, control the objectives of subordinate departments and so on down the line.

Determining Alternatives

The next step is to search for and find out alternatives that will guide the fulfillment
of the objectives established. At this stage, managers need to plan on how to move from
their current position towards their decided future position.

Managers may find many alternatives, however, dropping the less desirable ones and
narrowing on the few desired alternatives is what will help in identifying the best fit
solution. The manager can take the help of quantitative techniques, research,
experimentation, and experience to determine various alternatives.

Evaluating and Choosing Alternatives

 Once alternative courses of action have been identified, each alternative has to be
analyzed and evaluated in the light of its strength and weakness and its fitment in achieving
the organizational goals. While evaluating alternatives, managers should consider facts like
the costs involved, how resource intensive it is, the time frame for completion, the gestation
period, return on investment, etc.

Major challenges of effective evaluation can be uncertainty about the future and risk.
Various intangible factors which are not within the control of the management like market
changes, socio-economic-political factors, etc. also have a bearing. At this stage, managers
can use operations research, and mathematical as well as computing techniques to predict
and analyze alternatives.

Creating Assignments and Timelines

As the plans are frozen and prioritized, timelines for completing associated tasks need
to be finalized. At this stage, resource allocation and the line of authority and responsibility
also needs to be established. The manager should consider the abilities of staff members and
allocate the best fit resource for the job.

Also the timelines for completion should be realistic and fair. This step in the
planning process is important as it brings coordination in the activities of different
departments. The timings and sequence of operations must be communicated to the
concerned departments, managers and staff for implementation of the plan.

Formulating Derivative Plans

Derivative plans are sub-sections of the operating plan. The division of overall plan
into derivative plans is necessary for effective execution. Derivative plans are essentially
required to support the basic or general plan and explain the many details involved in
reaching a broad major plan.

Budgeting

Once the plans are finalized and set, the final step is to convert them into quantifiable
parameters through budgeting. Budgets are most commonly expressed in terms of money,
but are also expressed as hours worked, as units sold, or in any other measurable unit.
 An enterprise usually has overall budgets representing the sum total of income and
expenses, with consequent profit or surplus. Each department of the enterprise or
organization can have its own budget, commonly of expenses and capital expenditures,
which make up the overall budget. A well planned budgeting exercise can become a
standard for measuring the progress and effectiveness of the planning process.

DECISION MAKING

Decision making is an integral part of every aspect of life. This also applies to
organizations. It is one of the key factors that pave the way for its success or failure. Every
manager is required to execute decisions at various levels of the management cycle
beginning from planning to control. It is the effectiveness and quality of those decisions that
determine how successful a manager is.

Without decision making, different managerial functions such as planning,

organizing, directing, controlling, and staffing cannot be conducted. Decision making is a
cumulative and consultative process, and should support organizational growth.

The main function of every management is making the right decisions and seeing
them through to their logical end through execution. Every management decision also affects
employee morale and performance, ultimately influencing the overall business performance.
The importance of decision making in management is immense, as the business policy and
strategies adopted ultimately affects the company's output and performance.

Process of Decision Making

The decision-making process involves the following steps −

 Define the problem

 Identify limiting factors

 Develop potential alternatives

 Analyze and select the best alternatives

 Implement the decision

Define the Problem

The first step in the process of decision making is the recognition or identification of
the problem, and recognizing that a decision needs to be taken.
 It is important to accurately define the problem. Managers can do this by identifying
the problem separately from its symptoms. Studying the symptoms helps getting closer to
the root cause of the problem.

Identify Limiting Factors

In order to choose the best alternative and make a decision every manager needs to
have the ideal resources − information, time, personnel, equipment, and supplies. But this is
an ideal situation and may not always be possible.
A limiting factor is something that stands in the way of accomplishing a desired objective.

Develop Potential Alternatives

Recognizing the limiting factor in a given situation makes it possible to narrow down
the search for alternatives and make the best decision possible with the information,
resources, and time available.
Some methods for developing alternatives are −

 Brainstorming, where a group works together to generate ideas and alternative

solutions.

 Nominal group technique is a method that involves the use of a highly structured
meeting, complete with an agenda, and restricts discussion or interpersonal
communication during the decision-making process.

 Delphi technique where the participants do not meet, but a group leader uses written
questionnaires to conduct the decision making.

Analyze the Alternatives

This is an important stage in the decision-making process and perhaps the toughest.
Managers must identify the merits and demerits of each alternative and weigh them in light
of various situations before making a final decision.
Evaluating the alternatives can be done in numerous ways. Here are a few possibilities −

 Qualitative and quantitative measurements

 Perform a cost effectiveness analysis for each alternative

 Marginal analysis

Selecting Alternatives
Once the alternatives are analyzed and evaluated, the manager has to choose the best
one. The manager needs to choose the alternative that gives the most advantage while
meeting all the required criteria. Sometimes the choice is simple with obvious benefits, at
times the optimal solution is a combination of several alternatives. At times when the best
alternative may not be obvious, the manager uses probability estimates, research and
analysis aided by his experience and judgment.

FACTORS INVOLVED IN DECISION MAKING:

Decisions are typically made under one of three conditions −

 Certainty

 Risk and

 Uncertainty

These conditions are based on the amount of knowledge the decision maker has
regarding the final outcome of the decision. The manager's decision depends on a number of
factors, like the manager's knowledge, experience, understanding and intuition.

Certainty

 Decisions are made under conditions of certainty when the manager has enough
information to know the outcome of the decision before it is made.

 The manager knows the available alternatives as well as the conditions and
consequences of those actions.

 There is little ambiguity and hence relatively low possibility of making a bad
decision.

Risk
  Most managerial decisions are made under conditions of risk.

 Decisions are taken in risk when the manager has some information leading to the
decision but does not know everything and is unsure or unaware of the
consequences.

Under conditions of risk, the manager may find it helpful to use probability estimates.
This is where the manager’s experience and/or intelligence is of great help.

Uncertainty

 Decisions are made under uncertainty when the probabilities of the results are
unknown.

 There is no awareness of all the alternatives and also the outcomes, even for the
known alternatives.

Under such conditions managers need to make certain assumptions about the situation in
order to provide a reasonable framework for decision making. Intuition, judgment, and
experience always play a major role in the decision making process under conditions of
uncertainty.