Fundamentals of

Planning
To understand the basic
framework of planning process as
an element of managing

Concept and Nature of Planning

Planning

is the most fundamental function of

management. It lies at the basis of all the other
managerial functions
Planning is deciding in advance the long and
short-range objectives of the enterprise, and the
means for attaining them.
It involves looking into the future, anticipating it
and attempting to influence it, so that the desired
goals are achieved with maximum efficiency and
effectiveness

 Terry

defines Planning as : Selection and relating

of facts and making and using of assumptions
regarding the future in the visualisation and
formalisation of proposed activities believed
necessary to achieve desired result.
McFarland defines it as a concept of executive
action that embodies the skills of anticipating,
influencing and controlling the nature and
direction of change.

Features of Planning
It is a process rather than behaviour at a given point of
time. The process determines future course of action
It requires forecasting of future situation in which the
organisation has to function. Therefore, correct forecasting
of future situation leads to correct decisions about future
course of actions
Planning involves selection of suitable course of action.
This means that there are several alternatives for achieving
a particular objective or set of objectives. However all of
them are not equally feasible and suitable for organisations
Planning is undertaken at all levels of the organization.
However its role increases at successively higher levels of
Management

 Planning

is flexible as commitment is based

on future conditions which are always
dynamic. Adjustment needed between
various factors and planning
Planning is pervasive and continuous
managerial function involving complex
process of perception, analysis, conceptual
thought, communication, decision and ction

Nature of Planning
Planning : A Rational Approach
for defining where one stands, where one wants
to go in future, and how to reach there.
The concept of rationality denotes the choice of
appropriate means for achieving stated objectives.
As a rational approach it tries to fill the gap between
actual status (current performance) and desired
status(desired performance)

Planning :An Open System Approach

It

takes inputs from environment, processes

these and exports outputs to environment
This approach indicates that the
identification of gap between current status
and desired status in future and action
required to bridge this gap is influenced by
a variety of environmental factors

Pervasiveness of Planning
Extends

throughout the organisation

Every manager has a planning function to perform
(a fundamental management function
For ex, budget, a part of plan in any organization,
is prepared at various levels. Each level
contributes to the preparation of budget by
contributing what his efforts will require in terms
of allocation of resources and what his efforts will
contribute in terms of results

Importance of Planning
Without planning, business decisions would become
random, ad hoc choices.
Minimises Risk and Uncertainty: planning does not
deal with future decisions, but with the futurity of
present decisions. The manager has a feeling of
being in control if he has anticipated some of the
possible changes and has planned for them.
Through planning the manager relates the
uncertainties and possibilities of tomorrow to the
facts of today and yesterday.

Leads to Success
Does

not guarantee success, but studies have

shown that, often things being equal, companies
which plan not only outperform the nonplanners
but also outperform their own past results.
Planning leads to success by going beyond mere
adaptation to market fluctuations
It involves an attempt to shape the environment
on the belief that business is not just the creation
of environment but its creator as well.

Focuses attention on the

Organizations Goals
Planning

helps the manager to focus attention on

organisations goals and activities. This makes it
easier to apply and coordinate the resources of
the organization more efficiently. The whole
organization is forced to embrace identical goals
and collaborate in achieving them.
It also enables the manager to chalk out in
advance an orderly sequence of steps for the
realisation of an organisations goal and to avoid a
needless overlapping of activities

Facilitates Control
In

planning, the manager sets goals and

develops plans to accomplish these goals.
These goals and plans then become
standards or benchmarks against which
performance can be measured
The function of control is to ensure that the
activities conform to the plans. Thus,
controls can be exercised only if there are
plans

Increases Organizational
Effectiveness
The

concept of effectiveness is that the

organization is able to achieve its objectives within
the given resources. This requires resources to be
put to the best of their efficiency as well put in a
way which ensures maximum contribution to
organizational objectives
Each resource of the organization has a specific
use at a particular time. Thus planning along with
control ensures that resources are put in action in
a way in which these have been specified. If this is
done organization will achieve effectiveness

Steps in Planning
1.Analysis

of External Environment:

Necessary to consider the external

environment of an organization. The term
external environment includes socioeconomic conditions and political conditions
prevailing in a country. These factors are
not controllable ones. But, every
organization has to prepare the plan
according to the changing trends in
external environment

2. Analysis of Internal Environment

Also

called Resource Audit.

An analysis of strength and weaknesses of
an organization
Due consideration made on the availability
of resources, profitability, plant capacity,
available manpower, communication
effectiveness and the like

3.Determination of objectives
Objectives

specify the results expected and

indicate the end points of what is to be done,
where the primary emphasis is to be placed, and
what is to be accomplished by the various types of
plans
Organizational objectives should be specified in all
key result areas (arec those which are important
for organization for achieving its objectives) eg.
Profitability, sales, R&D, manufacturing and so on
There will be a hierarchy of of objectives in the
organization

4.Planning Premises

Premises : certain assumptions about the future on the basis of which

the plan will be ultimately formulated
Vital to the success of planning as they supply pertinent facts and
information relating to the future such as population trends, the
general economic conditions, production costs and prices, probable
competitive behaviour, capital availability, govt. control and so on.
External premises include total factors in task environment like
political, social, competitors plans and actions, govt policies etc.
Internal factors include organisations policies, resources of various
types and the ability of the organization to withstand environmental
pressure
As one moves down the organizational hierarchy, the composition of
planning premises changes from external to internal
A superiors plans become premises for the subordinate

Identification of Alternatives
A

particular objective can be achieved

through various actions
An organization can grow by expanding in
the same field of business or product line,
diversifying, joining hands with other firms
etc.
Preliminary criteria to be defined.(minimum
investment required, matching with the
present business etc.)

Evaluation of Alternatives

Various alternatives which are considered feasible in terms of

preliminary criteria may be taken for detailed evaluation.
Evaluation of alternatives in terms of its contribution to organizational
objectives in the light of its resources and constraints
This presents a problem because each alternative may have certain
positive points on one aspect but negative on others
For ex, one alternative may be most profitable but requires heavy
investment with long gestation period; another may be less profitable
but involves less risk.
No certainty about the outcome of any alternative because it is related
with future
It is affected by a large no of factors making evaluation work quite
complex
Done with the help of quantitative techniques and operations research

Choice of Alternative
Sometimes

evaluation shows that more than one

alternative is equally good. In such a case, a
planner may choose more than one alternative
Furthermore, alternative course of action is to be
undertaken in future which is not constant
A course of action chosen keeping in view the
various planning premises may not be the best
one if there is change in planning premises.
Therefore, planner must be ready with alternative,
called contingency plan, which can be
implemented in changed situation

Formulation of Derivative Plan

Once

plan has been formulated, its broad goals

must be translated into day-to-day operations of
the organization
Middle and lower-level managers must draw up
the appropriate plans, programmes and budgets
for their sub-units, described as derivative plans.
(Ex. Buying raw materials, recruiting and training
personnel, developing new products etc.) In
developing these derivative plans lower-level
managers take steps similar to those taken by
upper-level managers

Establishing Sequence of Activities

These

determined to put plans into action.

Based on plans at various levels, it can be
decided who will do what and at what time.
Budgets prepared to give plans more
concrete meaning for implementation

Types of Planning
Dimensions

Types of Planning

1.Coverage of activities

Corporate and Functional

planning
Strategic and
tactical/operational planning

2.Importance of contents

3.Time period involved

4.Approach adopted

5.Degree of formalisation

Long-term and short-term

planning
Proactive and reactive
planning
Formal and informal planning

Corporate Planning

Corporate planning denotes planning activities at the top

level (corporate level), which cover the entire
organizational activities
The basic focus is to determine the long-term objectives of
the organization as a whole and then to generate plans to
achieve these objectives bearing in mind the probable
changes in environment
Because of long-term orientation involved and strategic
aspects covered in corporate planning, it is also used as
synonymous to long-term planning or strategic planning
However, there is growing opinion which disfavors the use
of long-range planning as synonymous with corporate
planning because it underemphasizes the comprehensive
nature of corporate planning

 The process of corporate planning is concerned

with all aspects and not only the long range
Differences between corporate planning and
long-range planning can be understood by
classifying the more comprehensive corporate
planning further into segments
Normally corporate planning is divided into
strategic planning or long-range planning and
operational, tactical, or short range planning

Functional Planning

Corporate Planning is integrative whereas functional

planning is segmental and is undertaken for each major
function of organization like marketing, production etc
At the second level functional planning is undertaken for
sub functions within each major function
For example, marketing planning is undertaken at the level
of mktg. department and to put marketing plan in action,
planning at sub functions of marketing like sales, sales
promotion, marketing research etc., is undertaken
Functional planning is derived out of corporate planning
and, therefore should contribute to the latter

Strategic and Operational planning

Comprehensive

corporate planning may be divided

into strategic and operational depending on the
direction of actions set in the organization
One part of the planning sets future direction of
the organisation and another part confines itself to
devise actions to proceed in that direction. The
former is strategic planning and latter is
operational planning.
Examples of strategic planning : plannned growth
rate in sales, diversification of business into new
lines, types of products to be offered etc. Usually
ranges between 3 and 5 years

Operational Planning
Usually

covers one year or so.

It

is aimed at sustaining the organization in its

production and distribution of current products or
services to the existing markets

Operational

planning is undertaken out of

Strategic Planning. The various examples of
Operational planning : adjustment of production
within given capacity, increasing the efficiency of
operating activities through analyzing past
performance, budgeting future costs,
programming the comprehensive and specific
details of future short-term operations, and so on.

Difference between Strategic and

Operational planning
1.Range

of choice. Strategic planning guides the

choice among the broad directions in which the

organization seeks to move and concerns the
general planned allocation of its managerial,
financial, and physical resources over future
specified period of time
Operational planning aims at contributing to
strategic planning as the former tries to achieve
results and actions suggested by the latter.

2.Type of Environment
Strategic

planning takes into account the external

environment and tries to relate the organization
with it.
It usually encompasses all the functional areas of
the organization and is affected within the existing
and long-term future characteristics of various
environmental factors
Operational planning mostly focuses on internal
organizational environment so as to make
effective use of given resources

3.Primacy
Strategic

planning precedes operational planning

since the latter is primarily concerned with the
implementation of the former
Strategic planning sets trends and direction for
managerial actions;time horizon is usually quite
long
Operational planning concerned with short term
programmes implementing step-by-step progress
towards basic organizational goals

4.Level of Formulation
Strategic

planning formulated by top level

management and other specified planning staff in
the organization. At this level managers can take
overall view and have necessary capability to
relate the organization with external environment
Operational Planning usually spread over a wide
range within the organization and is generally
performed by operating managers with the help,
of subordinate staff
Since two planning groups are widely separated in
the organization, some incompatibility may exist
between two types of planning

Long-Term and Short-Term planning

Some

parts of the organization have requirements

that entail planning for many years into the future,
while others require planning over only a short
horizon
Capital expenditure is subject to long-range
planning
Planning period determined by- the industry
peculiarities, the market demand, the availability
of resources, the lead time involved in the product
life cycle

Ideal planning period depends upon Commitment principle (implies

that long-range planning is not really planning for future decisions, but
rather planning the future impact of todays decisions)
A decision is a commitment, normally of funds, direction of action, or
reputation.
Costs incurred on purchasing a machine may be recouped in ten years
and management must foresee the situation for the coming ten years
Similarly, a small manufacturer of spare parts who completes his
production cycle consisting of raw material acquisition, production,
inventory, sales and collection of money in six months or so requires a
commitment period of six months only and planning period covers only
this period.

Long-term Planning

Is of strategic nature and, involves more than one-year

period extending to twenty years or so. More common is 3
to 5 years
Long-term plans usually encompass all the functional areas
of the business and are affected within the existing and
long-term framework of economic, social and technological
factors
Long-term plans also involve the analysis of environmental
factors
Basic changes in organization structure and activities
become the real output of such plans
Examples of such changes may be new product dev,
product diversification, individuals in the organization,
developments of new markets, etc

Short-term Planning
Also known as Operational or tactical Planning, usually
covers one year.
These are aimed at sustaining organization in its
production and distribution of current products or services
to the existing markets
These plans directly affect functional groups- production,
marketing, finance, etc.
Within its time dimensions they answer pertinent questions
about a particular function as follows:
Why is the action required?
What action is to be taken
What will the action accomplish?
Coordination of Short-term and Long-term Planning

Proactive and Reactive Planning

This

classification is based on the

organizations response to environmental
dynamics
Planning is an open system approach and is
affected by environmental factors which
keep on changing continuously.
However organizations response to these
changes differ

Proactive Planning

Designing suitable courses of action in anticipation of likely

changes in the relevant environment.
Organizations that use proactive planning use broad
planning approaches, broad environmental scanning,
decentralised control and reserve some resources to be
utilised for their future use
These organizations do not wait for environment to change
but take actions in advance of environmental change
Example companies like Reliance Industries, Hindustan
Lever etc. , have adopted this approach and their growth
rate has been much faster than others

Reactive Planning

In Reactive Planning, organizations responses come after

the environmental factors have taken place
In such a situation, organizations lose opportunities to
those organizations which adopt proactive approach
because, by the time, reactors are ready with their plans,
the contextual variables of planning show further changes
Therefore their plans do not remain valid in the changed
situations
This approach of planning is useful in an environment
which is fairly stable over a long period of time

Formal and Informal Planning

This classification is based on the degree of formalisation which is used

in undertaking planning activities.
FORMAL PLANNING
Is in the form of well-structured process involving different steps.
Large organizations create separate corporate planning cell placed at
sufficiently high level in the organization
These are staffed by people with different backgrounds like engineers,
statisticians, MBAs, economists, etc., depending on the nature of of
organizations business
These cells monitor the external environment on continuous basis
When any event in the environment shows some change, the cells go
for detailed study of the impact of the event and suggest suitable
measures to take advantages of changing environment

Informal Planning
Undertaken generally by smaller organizations
The planning process is based on managers
memory of events, intutions and gut-feelings
rather than based on systematic evaluation of
environmental happenings.
Usually corporate planning affairs are not
entrusted to any single cell or department but
become the part of managers regular activities
Since the environment for smaller organizations
is not complex, they

Types of Plans
A

plan is defined as a commitment of resources to

a particular course of action believed necessary to
achieve specific results.
Several types of Plan-Major and Minor
Planning process in whatever way it is undertaken,
results into several individual plans or component
parts which are bound together for consistent
operations.
Such plans may be classified in two ways:
standing plans and single-use plans, strategic
plans for implementing a strategy known as
implementation or operational plans

Standing and Single use plans

Standing Plans provide guidelines for further course of action and are
used over a period of time
Examples: organizational mission and long term objectives, strategies,
policies, procedures and rules.
Single use plans are relevant for a specified time and after the lapse of
that time, these plans are formulated again for the next period
Examples: budgets, projects, quotas, targets etc.
It would be inefficient for a bank to develop a single-use plan for
processing a loan application of each new client. Instead, it uses one
standing plan that anticipates in advance whether to approve or turn
down any request based on information furnished, credit ratings and
the like

Strategic and Operational Plans

Strategic Plans: are major ones which define the long term
course of action for an organization in the light of its
environment
These include determination of organizational objectives
for long term period, major policies and strategies
These are implemented through various operational plans,
both major and minor
Examples of major operational Plans are projects, budgets;
minor plans are in the form of quotas and targets to be
achieved within a specified period.
Procedures are rules provide guidelines to put plans,
particularly the operational ones into action

Hierarchy of organizational plans

MISSION

OR PURPOSE
OBJECTIVES
STRATEGIES
POLICIES
PROCEDURES AND RULES
PROGRAMMES AND PROJECTS
BUDGETS
QUOTAS AND TARGETS

Barriers to Effective Planning

1. Difficulty of Accurate Premising :

Planning exercise is undertaken under certain assumptions

of future events which are determined by a large no of
factors in the environment.
Thus a limiting factor in planning is the difficulty of
formulating accurate premises.
Since the future cannot be known with accuracy, premising
is subject to a margin of error
Though margin of error can be minimised by making
suitable forecast of future events, perfection cannot be
expected

2. Problems of Rapid Change

Rapid changes take place in external environment
In a complex and rapidly changing environment,
complications that make planning extremely difficult often
magnify the succession of new problems
The problem of change is more complex in long range
planning than in short range planning
Present conditions tend to weigh heavily in planning, and
by overshadowing future needs may sometimes result in
error of judgement
In rapidly changing conditions, planning activities taken in
one period may not be relevant for another period because
conditions in two periods are quite different

3.Internal Inflexibilities
Major

internal inflexibilities are : psychological,

policy and procedures, and capital investment
(i) Psychological inflexibilities : is in the form of
resistant to change. Managers and employees in
the organization may develop pattern of thought
and behaviour that are hard to change
They look more in terms of present rather than
future

(ii) Policy and Procedural inflexibility

Once

they are established , they arec difficult to

change.
Though these policies, procedures and rules are
meant to facilitate managerial action by providing
guidelines, they often tend to be too exacting and
numerous that they leave little scope for
managerial initiative and flexibility
Such problems more prominent in bureaucratic
organizations

(iii) Capital Investment

Once

funds are invested in fixed assets, the

ability to switch future course of action
becomes rather limited, and investment
itself becomes a planning premise
During the entire life of the fixed assets,
this inflexibility continues unless the
organization can reasonably liquidate its
investment or change its course of action,
or it can afford or write off the investment

4. External inflexibilities
Managers do not have control over these.
3 environmental factors generate inflexibilities

for
an organizational planning :political climate, trade
unions and technological changes
(a) Political Climate. Every organisation, to a
greater or lesser degree, is faced with the
inflexibility of the political climate existing at any
given time
Attitudes of govt. towards business, taxation
policy, regulation of business etc generate
constraints on the organizational planning process

4. External inflexibilities
(b)

Trade Unions. The existence of trade unions,

particularly those organised at the national level,
tends to restrict freedom of planning
They set up wages and other associated benefits,
they affect the planning process by putting
limitations on the work that can be undertaken by
the organisation
They set up work rule and productivity. To that
extent, managers are not free to make decisions
of their choice

(iii) Technological Changes

The

rate and nature of technology changes

also present very definite limitations upon
planning.
When there is a change in technology, it
has to face numerous problems resulting
into higher cost of production and less
competitive competence in the market
However, the organization cannot change
its technology so frequently

5. Time and Cost Factors

Planning is costly and time consuming process.

The various steps of planning may go as far as possible because there
is no limit of precision in planning tools
Managers can spend unlimited amounts of time in forecasting,
evaluating alternatives, developing supporting plans, or attending
other aspects of planning, if they do not have limitations of time and
money.
If managers are busy in preparing elaborate reports and instructions
beyond certain level, they are risking their effectiveness.
Planning cost increases if planning becomes more elaborate and
formalised
Apart from direct cost involved in managers time, financial
compensation for those who are involved in planning, paper work, etc.,
also makes planning costly to the organisation directly

6. Failure of People in Planning

Many reasons why people fail in planning at the

formulation level as well as implementation level

Some of the major reasons for failure are:failure to

formulate sound strategies,
lack of clear and meaningful objectives,
tendency to overlook planning premises,
failure to see the scope of plan,
excessive reliance on the past experience,
lack of top management support ,
lack of adequate control techniques etc.

Measure for making planning

effective
Managers

have to make attempts in two directions

: understanding the features of a good plan that
results from the planning process and taking
actions for making planning process effective
FEATURES OF A GOOD PLAN
1.Linked to long-term objectives: a budget is a
short term plan ( a year). However while allocating
resources to various units and functions of the
organization, the focus must be on the
achievement of long-term objectives through
annual resource allocation

2.Direction for Action clearly and specifically. Specify

actions as well as outcomes
3. Consistent in terms of internal and external factors
4.Feasible. Strike balance between ambition and feasibility
5.Simplicity : simple to understand because formulated by
one group of personnel and implemented by another group
6. Flexible enough to incorporate unforeseen events. Two
principles of flexibility in planning are:
Principle of Flexibilty:the more the flexibility can be built
into plans, the less the dangers of loses incurred by
unexpected events; but the cost of flexibility should be
weighed against the risks involved in future commitments
made.

 Principles

of Navigational Change: This is based on

the principle of a navigators checking constantly
where his ship is going in this vast ocean
If it is not going on the right path, he changes it
according to planned path to reach at the
destination
Similarly a manager should constantly check his
plans that these are proceeding in the right way

Measures for Making Planning

Effective
1.

Establishing Climate for Planning: Top level

Managers should remove obstacles to planning
and present facilities
This can be done by setting goals, establishing
and publishing planning premises, involving all
managers in planning process, reviewing
subordinates plans and their performance, and
ensuring managers have appropriate staff
assistance and information

2. Initiative at Top Level

Must originate at top level and must be supported by top

management
When top management rigorously reviews subordinates
programmes, it naturally stimulates planning interest
throughout the organization
3.Participation in Planning process:the best planning is
likely to be done when managers are given opportunities to
contribute to plans affecting areas over which they have
authority
Participation takes place through information to
subordinates, seeking suggestions and consulting
them.This leads to their commitment, loyalty to planning
and enthusiasm to implement the plan.
MBO, PLANNING COMMITTEE, GRASS-ROOT BUDGETING

 4.

Communication of Planning Elements viz.

goals, planning premises, organisational
policies and strategies, the general and
specific means of attaining them etc.
5. Integration of Long and Short term plans
6. An Open System Approach.