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CHAPTER FOUR
PLANNING

“ Failing to plan is planning is to fail.”

Alan Lakein
Introduction
 Planning is a primary management function.
 It is the activity that allows managers to determine what they
want and how to get it.
 It involves:
 Selecting of the missions and objectives
 Selecting actions to achieve them
 Decision-making that is, choosing from among alternative future
courses of action.
 Planning and controlling are closely interrelated

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 Planning is an ever-present feature of modern life
 Personal or informal plans give purpose to our lives. In a
similar fashion, more formalized plans enable
managers to mobilize their intentions to accomplish
organizational purposes
 In organizations, planning is the process of setting
goals and choosing the means to achieve those goals.
It is the processes of determining how the
organization can get where it wants to go
 Without plans:
 Managers cannot know how to organize people and
resources
 They may not even have a clear idea of what they
need to organize
 They cannot lead with confidence or expect others to
follow them MANAGEMENT THEORY AND
Too often, faulty plans affect the futurPeRACoTIfCEt-hOeMBeA5n41tire
 Planning is preparing today for tomorrow. It provides answers
to at least six basic questions in regard to any
intended activity:
@What (the goal or goals)
@When (the timeframe for accomplishment of an activity)
@Where (the place or places where the plans or planning will
reach its conclusion)
@Who (which people will perform the tasks)
@How (the specific steps or methods to reach the
goals) @How much (resources necessary to reach the
goals)

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 Goals provide a sense of direction. Without a goal,
individuals and their organizations tend to muddle along
 Goals focus our efforts. In selecting a single goal or a set of

related goals, we establish priorities and make a

commitment about the way we will use our scarce resources.
 Goals guide our plans and decisions.

 Goals help us evaluate our progress. A clearly stated,

measurable goal with a specific deadline becomes a

standard of performance that lets individuals and
managers alike evaluate their progress. Thus, goals
are an essential part of controlling

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 Objectives: this refers to specific future goals
 Actions: determining specific, preferred means
to achieve objectives
 Resources: identifying the resources and resource limits
or scarcity of an organization
 Implementation: this refers to the activity of
assigning and directing personnel to carry out the plan

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 In most cases managers recognize the value of planning, however,
many fail to plan properly because of various types of fears.
Hence, the best way to overcome these fears is to recognize the many
benefits of planning.
 Protective purpose of planning: minimizes risk by reducing the
uncertainties surrounding business conditions
 Affirmative purpose of planning: increases the degree of organizational
success
 Coordination purpose of planning: establishes a coordinated effort within
the organization. Absence of planning = absence of coordination =
organizational inefficiency
 Fundamental purpose of planning: helps the organization reach its
objectives. The primary purpose of planning is to
facilitate the accomplishment of organizational objectives

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 Objectivity: Planning should be factual, logical, realistic and
based on objective.
 Futurity: Plan is a forecast of some future action that must
have the quality of futurity.
 Flexibility: No one can foresee the future. Therefore, plans
must have flexibility to adjust smoothly and quickly to
the changing conditions.
 Stability: is related to flexibility. A stable plan will not have to
be abandoned because of long-term changes
 Comprehensiveness: must be comprehensive to provide
guidance, but not so detailed as to be unduly restrictive.
 Clarity and Simplicity: plan must be simple, not ambiguous
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 Strategic vs. Operational.
i. Strategic plans: designed by high-ranking managers
and define the broad goals for the organization.
ii. Operational plans: contain details for carrying
out, or
implementing, those strategic plans in day-to-day
activities.
 Long term vs. Short term plan
i. Long term: Plans covering 5 years or more
ii. Short term: Plans covering 1 years or less
 Specific vs. Directional plans
i. Specific: plans that are clearly defined (no
room for interpretation)
 ii. Directional:
Single plans that are flexible and set out
use vs. Standing
plans general
i. guidelines
ii Single
Standinuse: one time 92
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 Strategic and operational plans differ in three major ways:
i. Time Horizons
ii. Scope: Strategic plans affect a wide
range of
organizational activities; whereas operational plans have
a narrow and more limited scope.
iii. Degree of Detail: Strategic goals are stated in terms that
look simplistic and generic., whereas operational plans as
are stated in relatively finer detail.

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A. Business Mission: Each business unit needs to define its
specific mission within the broader company mission.
B. SWOT Analysis:
 External Environment Analysis (Opportunities

and Threat) technologic

 Macro
political-legal, and social-cultural)
environment forces (demographic, al,
 economic,
Microenvironment actors (customers,competitors,
distributors, and suppliers) that affect its ability to
earn profits.
 Internal Environment Analysis (Strength and Weakness)

 Periodical evaluation of internal strengths & weaknesses in

marketing, financial, manufacturing & organizational
competencies.
C. Goal Formulation
 Turning objectives into measurable goals facilitates management

planning,
implementation, and control. 95
D. Strategy Formulation
 Goals indicate what a business unit wants to achieve; strategy describes

the
game plan for achieving those goals
 Michael Porter has identified three generic strategic thinking
i. Overall cost leadership: Here the business works to achieve the
lowest production and distribution costs so that it can price
lower than competitors and win more market share.
ii. Differentiation: Here the business concentrates on achieving
superior performance than important customer benefit area, such as
being the leader in service, quality, style, or technology
iii. Focus: Here the business focuses on one or more narrow market
segments, getting to know these segments intimately and pursuing
either cost leadership or differentiation within the target segment.
 Firms that do not pursue a clear strategy (“middle-of-the-roaders”) do the

worst.
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E. Program Formulation
 Once the business unit has developed its principal strategies, it must work
out detailed supporting programs.
F. Implementation
 A clear strategy and well-thought-out supporting programs may be useless
if the firm fails to implement them carefully. Implementation is vital
to effective management of the marketing process.
G. Feedback and Control
 As it implements its strategy, the firm needs to track the results and
monitor new developments in the internal and external environments.
Peter Drucker pointed out that it is more important to “do the right
thing” (effectiveness) than “to do things right” (efficiency). The most
successful companies excel at both.

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1. Being Aware of Opportunities
2. Establishing Objectives: Objectives specify the expected results 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 network of strategies, policies, procedures, rules, budgets, and
programs.
3. Developing Premises: Establish, circulate and obtain agreement to utilize
critical planning premises such as forecasts, applicable basic policies and existing
company plans.
4. Determining Alternative Courses
5. Evaluating Alternative Courses
6. Selecting a Course
7. Formulating Derivative Plans
8. Numberzing Plans Budgeting: Converting plans into budgets. The overall budgets of an
enterprise represent the sum total of income and expenses, with resultant profit or
surplus, and the budgets of major balance sheet items such as cash and capital
expenditures.
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 Although all levels of management typically are
involved in the planning process, lower-level
managers are highly involved with the
every day operations of the organization
and therefore, normally have less time to
contribute to planning than top management.
 Middle-level managers usually spend more
time planning than lower-level managers,
but less time than upper-level managers.
 Concerning the scope of planning, lower-level
managers plan for the short run, middle level
manager plan for a some what long run, and
upper level managers for even long run.
 As managersthe
manageme move
spenfrom lo w e rn l long-
Am erica
e v el t
n C olleg e of Tec hn ology -
 Organizational objectives are the ends toward which business
activity is aimed. They make company’s mission tangible
and measurable.
 They are statements that identify what the organization intends
to achieve or accomplish.
 Objectives describe what each unit and individual in an
organization is expected to achieve in a concrete and
specific terms.
 They are the standards against which actual performance can
be compared and controlled.

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 As far as possible, objectives are expressed in quantitative, measurable,
concrete terms, in the form of a written statement of desired results to
be achieved within a given time period
 A well-written objective should state what is to be accomplished and when
it is to be accomplished. In the following sample objectives, note that
the desired results are expressed quantitatively, in units of output,
dollars, or percentage of change
 To increase subcompact car production by 240,000 units during the next production year.
 To reduce bad-dept loss by $50,000 during the next six months
 To achieve an 18 percent increase in Brand X sales by December 31 of the current year
 Three-way test to judge how well objectives are written:
i. Test 1: Does this objective tell me exactly what the intended result is?
ii. Test 2: Does this objective specify when the intended result is to be accomplished?
iii. Test 3: Can the intended result be measured?
 Statements of intention that fail one or more of these three tests do not
qualify as objectives and will tend to hinder rather than help the
planning process.

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 Like the overall planning process, objective setting is a top-to-
bottom proposition.
 Top managers set broader objectives with linger time horizons
than do successively lower levels of managers.
 In effect, this downward flow of objectives creates a means-
ends chain.
 Supervisory-level objectives provide the means for achieving
middle-level objectives (ends) which, in turn, provide
the means for achieving top-level objectives (ends).

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 The zenith of the hierarchy of objectives is the purpose, which
has two dimensions.
i. Purpose of society: contribute to the welfare of the people by
providing goods and services at a reasonable cost.
ii. Mission or purpose of the business:
 The next level of the hierarchy contains more
objectives, such as those in the key result areas. These are the
specific
areas in which performance is essential for the success of the
enterprise.
 At the lower level, objectives are made at divisional,

departmental and individual levels

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10
4
 MBO is defined as a comprehensive managerial system that
integrates many key managerial activities in a systematic
manner toward the effective and efficient achievement of
organizational
 Besides itsand individual
usage for objectives.
performance it is
appraisals, instrument for motivating an
individuals. How?
 Planning and development
 Career planning
 Reward system
 Budgeting
 Benefits of MBO
 Improvement of managing through results-oriented planning
 Clarification of organizational roles, structures and delegation of
authority
according to the results expected of the people occupying the
roles
 Encouragement
Effective controls, of measuring
personal commitment
results, leMAato their
NdA own
iGnEgMENtoT and 105
organizational goals
TcHEoOrRrYeAcNtDive actions
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Planning Techniques for Assessing the Environment
i. Environmental scanning: Competitor intelligence is a
process by which organizations gather information
about their competitors.
ii. Forecasting
iii. Benchmarking: The four steps:
a. Forming a benchmarking planning team to determine
what needs to be benchmarked,
b. Comparative organizations
c. Data collection methods (gathering internal and external
data; analyzing data to identify performance gaps)
d. Preparing and implementing an action plan
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Planning Techniques for Allocating Resources
i. Budgeting: Budgets can either be variable or fixed. Managers might
also use cash, revenue, expense, or profit budgets.
ii. Scheduling: A Gantt chart is a scheduling chart that shows actual
and planned output over a period of time. A load chart is a
modified Gantt chart that schedules capacity by entire
departments or specific resources. PERT network analysis is
useful for large, complex projects because it depicts the
sequence of activities needed to complete the project and
the time or cost associated with each.
iii. Breakeven analysis: is calculated by dividing total fixed costs by
the price per unit minus the variable cost per unit.
iv. Linear programming: used to help solve resource allocation
problems as it shows the optimum way to combine
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resources to produce a certain number of output A
Contemporary Planning Techniques
 Flexibility is important to today's planning techniques because
the environment can be both dynamic and complex.
i. Project management: the task of getting a project's
activities done on time, within budget, and
according to specifications. The steps include
defining objectives; identifying activities and resources;
establishing sequences; estimating time for
activities; determining project completion date;
comparing with objectives; and determining
additional resource requirements.
ii. Scenario planning: is important because managers can use
it to play out potential situations under
different environmental conditions.
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 Decision making is defined as the selection of a course of action
from among alternatives; it is at the core of planning.
 Managers see decision making as their central job as they must
constantly choose what is to be done, who is to do it, and
when, where, and occasionally even how it will be done.
 The most important function of management.
 Decision making is, however, only a step in planning,
 A course of action can seldom be judged alone, because virtually
every decision must be geared to other plans.
 Organizations can only function smoothly and efficiently if their
managers make sound decisions. Such decision includes
the allocation and utilization of scarce resources (human,
financial,
material and time). 28
 Decision making: set of activities involved in diagnosing a problem
and generating and selecting one alternative from among a set
of alternatives.
 Choice making: narrowest concept referring to the stage at the end
of decision making process, when a solution is selected.
 Problem solving: - this encompasses both decision making and
choice making plus activities undertaken after the decision is
made (implementation of the chosen course of action).

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i. Programmed decisions
 Made in accordance with written or unwritten policies, procedures,
or rules that simplify decision making in recurring situations
by limiting or excluding alternatives.
 Limit our freedom because the individual has less latitude in
deciding
ii. Nonwhat to do.
programmed decisions
 Specific solutions created through an unstructured process to deal
with non routine problems.
 Deal with unusual or exceptional problems
 As one moves up the organizational hierarchy, the ability to make
non programmed decisions becomes more important.
 Most management development programs try to improve managers’
abilities to make non programmed decisions, usually by teaching
them to analyze problems systematically and to make logical
decisions.

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  Problem solving decisions in organizations are typically made under three
different conditions or environments: certainty, risk and uncertainty.
i. Certain environments: exist when information is sufficient to predict the results
of each alternative in advance of implementation. Certainty is an ideal
condition for managerial decision making. Unfortunately certainty is the
exception instead of the rule in decision environments.
ii. Risk environments: exist when decision makers lack complete certainly
regarding the outcomes of various course of action, but they are aware of
the probabilities associates with their occurrence.
Uncertain environments: exist when managers have so little information on
iii.
hand that they can not even assign probabilities to various alternatives and
their possible outcomes. This is the most difficult of the three decision
environments. Uncertainty forces decision makers to heavily rely on individual
and group creativity to succeed in problem solving.

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 Managers who weigh their options and calculate optimal
levels of risk are using the rational model of decision
making. This model is especially useful in making
non programmed decisions
 No approach to decision making can guarantee that a manager
will always make the right decision. But managers who
use a rational, intelligent, and systematic approach are
more likely than other managers to come up with high
quality solutions
 The basic process of rational decision making involves the
four stages discussed in the following slides

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A thorough investigation has three
aspects:
i. Define the Problem: the problem has to be defined in terms of
the organizational objectives that are being blocked. This
helps to avoid confusing symptoms with problems.
ii. Diagnose the Causes. Managers can ask a number of diagnostic
questions.
iii. Identify the Decision objectives. decide what would constitute an
effective solution. Most problems consist of several elements, and
a manager is unlikely to find one solution that will work for all of
them. If a solution enables managers to achieve organizational
objectives, it is a successful one.
 What should be noted about all three aspects of problem
investigation is the importance of a manager’s
education about the world and his or her imagination!
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 This stage may be reasonably simple for most programmed
decisions but not so simple for complex non-
programmed decisions, especially if there are time
constraints.
 Too often the temptation to accept the first feasible alternative
prevents managers from finding the best solutions for
their problems.
 To prevent this, no major decision should be made until
several alternatives have been developed.
 To increase their creativity at this task, some managers turn to
individual or group brainstorming, in which
participants spontaneously propose alternatives even
if they seem unrealistic or fantastic. 34
 Once managers have developed a set of alternatives, they must evaluate each
one on the basis of three key questions
i. Is this alternative Feasible? In terms of resources & legal/ethical
obligations?
ii. Is The Alternative a Satisfactory Solution? does it meet the decision objectives?
does it have an acceptable chance of succeeding?
iii. What are the Possible Consequences for the Rest of the
Organization? Alternatives with negative consequences should be eliminated,
of course, and alternatives with positive consequences will usually be favored
over those with merely neutral consequences.
 When selecting from among alternatives, managers can use three basic approaches.
i. Experience: Reliance on past experience
ii. Experimentation: scientific inquiry
iii. Research and Analysis: solving a problem by first comprehending it. It
involves a search for relationships among the more critical of the variables,
constraints, and premises that bear upon the goal sought. It is the pencil-
and-paper (or, better, the computer-and-printout) approach to decision making.
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 Managers are ready to make plans to cope with the requirements and
problems that may be encountered in putting it into effect.
 Implementing a decision involves more than giving appropriate orders.
 Resources must be acquired and allocated as necessary.
 Responsibility needs to be assigned for the specific tasks involved.
 Procedure are set up for progress reports and prepare to
make corrections if new problems should arise.
 Actions taken to implement a decision must be monitored.
 Are things working according to plan?
 What is happening in the internal and external environments as a result of
the decision?
 Are people performing according to expectations?
 What is the competition doing in response?

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American College of Technology -
MANAGEMENT THEORY AND 11
PRACTICE - OMBA541 9
11-
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