PLANNING 02

Edmundo B. Casaul, Jr.

Department of Agrbusiness
College of Economics and Management
Central Bicol State University of Agriculture
Definition:

 any activity concerned with choosing the best means

to achieve a given goal taking into consideration
available resources – including time
 decision making about the future or preparing now
for tomorrow
 identifying and weighing alternative courses of
action before the time for commitment or action has
come

2 Planning
Definition:

 in layman’s language, is thinking and looking ahead

 with good planning, mistakes, wastes, and delays are
eliminated or reduced to the minimum –
minimization of the costs of production – more
profits or services
 planning is the first function of management
 vital in making management decisions. Wrong
planning results in wrong decisions

3 Planning
Main reason why management involve
in planning:

They want their actions to be both effective and

efficient

Effective – if it achieves its objectives

Efficient- if achieving the objective the cost is at
its least amount of resources used

4 Planning
Plans prepared by different level of
management:

1) Top Level Managers – prepares long-term planning

for the entire organization
Includes: corporate mission, objectives, major
policies & strategies

2) Middle-level Managers – planning with more

specific objectives of implementing the general goals
of top-level managers

5 Planning
Plans prepared by different level of
management:

3) First-level Managers – responsible for the

scheduling of workers and developing the
procedures for doing the job

“The success of planning from these different level

of management depends on close coordination
and harmony”

6 Planning
 Identification of Opportunities
and Threats

Evaluation of Present
Situation

Strategic Planning
Goal Setting

Determination of Premises

Matching Process: Evaluation

of Alternatives and Selection
of Course of Action

Programming
Operations Planning
Budgeting
The Planning Process in
7 Planning Business
THE PLANNING PROCESS IN BUSINESS

I. Identifying Opportunities and Threats

Opportunities – external factors which is favorable
to the business
e.g. demand for smaller cars, demand for
low cost housing
Threats – factors which had a negative effect
/challenge to the business
e.g. increased competition, price
standardization, climatic disturbances,
increased production of substitute products
“assess the external factors of the business”
8 Planning
THE PLANNING PROCESS IN BUSINESS

II. Evaluation of Present Situation

- next step after determining the impact of
opportunities and threats to the business
- determining the gap between targets and
present levels of performance
- considers the internal factors of the business

9 Planning
 THE PLANNING PROCESS IN BUSINESS

III. Goal Setting

Three Stages:
1) statement of purpose or the basic goal of the
organization
2) statement of the mission/specific path or direction to
take to achieve the purpose
3) statement of objectives clarifies the strategies that
the firm will take to fulfill its purpose

10 Planning
 THE PLANNING PROCESS IN BUSINESS

Purpose: Earn profits for owners

Mission: Offer a full range of consumer products

Objectives: maintain leadership in sales in the

retail trade industry

11 Planning
 THE PLANNING PROCESS IN BUSINESS

IV. Determining Planning Premises

- planning premises are assumptions about the future
- this forms the basis of the detailed plans of a firm
- this concerns the external and internal variables which
has a great impact on the firm’s future performance
- Example:
External – expected growth of the economy,
expected marketing strategies of
competitors
Internal – firm’s present staffing, present wage

12 Planning
 THE PLANNING PROCESS IN BUSINESS

V. Evaluation of Alternatives
- process of weighing all available alternatives/
opportunities and eliminating those that will not
contribute in attaining the set goals
Reasons:
1) lack of resources required
2) negative attitudes of management/owners
- from the selected alternatives, a decision
must be made on which course of action is
to be taken
- the decision must come from the President
13 Planning
 THE PLANNING PROCESS IN BUSINESS

VI. Programming
- translates broad plans to be undertaken by an
enterprise to specific activities usually this extends over
a period of several years

This involves:
1) preparation and analysis of proposals for new
products and making decisions on these
proposals
2) evaluation of on-going product lines with the
objective of improving their profitability
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 THE PLANNING PROCESS IN BUSINESS

3) coordination of the separate programs for the

optimum profits of the enterprise
Output of Programming:
1) Marketing Plan – pricing, product dev’t, promotional
efforts, distribution channels, and personnel
requirement of each product
2) Production Plan – plant capacity and utilization,
inventory levels, etc for each product
3) Capital Expenditure Plan – purchase of needed
equipment or machineries
4) Staff Plan – employees requirement per division
15 Planning
 THE PLANNING PROCESS IN BUSINESS

V. Budget Preparation
- budgeting is the translation of programs to financial
and other quantitative data
Budget – must be stated in monetary terms
supplemented by non monetary amounts
like unit sold or produced
- usually covers one year

16 Planning
 THE PLANNING PROCESS IN BUSINESS

Types of Operating Budget:

1) revenue budget – projected sales in unit x selling

price
2) expense budget – cost of goods sold and operating
expenses

17 Planning
 TYPES OF PLANS

1) Strategic Plans
- pertains to the future position of the entire
business of the firm
- usually long term in nature – 3-5years
- based on competitive strengths and weaknesses
of the firm
- this define the direction and growth of the firm
- involves the three levels of management
- top management formulates the corporate
objectives

18 Planning
 TYPES OF PLANS

1) Strategic Plans
- lower management develop relevant objectives
and plans on how to attain them
- this predicts external business environment –
gov’t policies, competitions
Output:
1) statement of company’s goals, purpose and missions
2) types of business it will pursue
3) decision whether the company will broaden or shrink
its existing business

19 Planning
 TYPES OF PLANS

2) Operating Plans
- concerned with the day-to-day activities of the
business
- provides the specifics as to how the strategic
plan will be attained
- pertains to activities in specific department
- shorter in time frame ( 1 year)
e.g. sales budget – prepared by sales
division
production budget – by the head of
the production division
20 Planning
 OTHER TYPES OF PLANS

1) Programs and Projects

Programs – refers to a larger activity units
- collection of related plans or projects
usually “expansion program”
e.g. building of new factory, recruitment and
training of new workers,
Projects – activity which has a specific starting
and ending point involves non-repetitive
activities
e.g. construction of a building, conducting
market survey
21 Planning
 OTHER TYPES OF PLANS

2) Policies, Procedures and Rules

Policies – these are general statements or
understandings that guide company
personnel in making decisions
e.g. customer policy, personnel policy,
pricing policy, return goods policy
Rules or Procedures – specific instructions or
definite actions to be taken or not to be
taken with respect to task or situation
e.g. no exchange no return, gate pass,
vehicle trip ticket, uniform rule, ID

22 Planning
 TOOLS FOR PLANNING AND DECISION MAKING

1) Forecasting
- process of developing assumptions about the
future that are relevant to the predicted
levels of variables
e.g. sales projection – volume to be sold in
qty or amt per month, quarter, year
2) Linear Programming
- quantitative tools for calculating the optimal
combination of resources and activities
- used in the production schedule

23 Planning
 TOOLS FOR PLANNING AND DECISION MAKING

3) Break-even Analysis
- a condition where the sales and the cost equals
to zero
- result is the starting point for a firm to produce in
order to gain profit
- total revenue = total cost
- helps management in deciding on selling prices,
product mixes and the selection of
alternatives

24 Planning
 CHARACTERISTICS OF PLANNING

1. Planning is goal-oriented.
2. Planning is made to achieve desired objective of the
business.
-the goals should be accepted otherwise
individual efforts & energies will go misguided
and misdirected.
3. Planning identifies the action that would lead to
desired goals quickly & economically.
-it provides sense of direction to various activities.

25 Planning
 CHARACTERISTICS OF PLANNING

4. Planning is looking ahead

5. Planning is done for future.
-it requires peeping in future, analyzing it and
predicting it
-thus planning is based on forecasting
6) A plan is a synthesis of forecast.
-it is a mental predisposition for things to happen
in future.
7) Planning is an intellectual process

26 Planning
 CHARACTERISTICS OF PLANNING

8) Planning is a mental exercise involving creative

thinking, sound judgment and imagination.
-it is not a mere guesswork but a rational
thinking
- a manager can prepare sound plans only if he
has sound judgment, foresight and
imagination
9. Planning is always based on goals, facts and
considered estimates.
10) Planning involves choice & decision making

27 Planning
 CHARACTERISTICS OF PLANNING

11. Planning essentially involves choice among various

alternatives.
-therefore, if there is only one possible course of
action, there is no need for planning
because there is no choice.
-thus, decision making is an integral part of
planning
-a manager is surrounded by number of
alternatives.
- he has to pick the best depending upon the
requirements & resources of the enterprise

28 Planning
 CHARACTERISTICS OF PLANNING

12. Planning is the primary function of management

13. Planning lays foundation for other functions of
management.
-it serves as a guide for organizing, staffing,
directing and controlling
-all the functions of management are performed
within the framework of the plans laid out
- therefore planning is the basic or fundamental
function of management
14) Planning is a continuous process

29 Planning
 CHARACTERISTICS OF PLANNING

15) Planning is a never ending function due to the

dynamic business environment.
- plans are also prepared for specific period of
time and at the end of that period,
- plans are subjected to reevaluation and review
in the light of new requirements and
changing conditions
16) Planning never comes into end until the enterprise
exists. Issues, problems may keep cropping up
and they have to be tackled by planning
effectively

30 Planning
 CHARACTERISTICS OF PLANNING

17) Planning is all pervasive.

-it is required at all levels of management and in
all departments of enterprise.
- the scope of planning may differ from one level
to another.
- the top level may be more concerned about
planning the organization as a whole whereas the
middle level may be more specific in departmental
plans and the lower level plans implementation of
the same

31 Planning
 CHARACTERISTICS OF PLANNING

18) Planning is designed for efficiency

19) Planning leads to accomplishment of objectives at
the minimum possible cost.
- it avoids wastage of resources and ensures
adequate and optimum utilization of resources.
- a plan is worthless or useless if it does not value
the cost incurred on it
- therefore planning must lead to saving of time,
effort and money

32 Planning
 CHARACTERISTICS OF PLANNING

20) Planning leads to proper utilization of men, money,

materials, methods and machines
21) Planning is flexible
22) Planning is done for the future.
- since future is unpredictable, planning must
provide enough room to cope with the changes in
customer’s demand, competition, and govt.
policies etc.
“Under changed circumstances, the original plan of
action must be revised and updated to make it more
practical”

33 Planning
 MANAGEMENT BY OBJECTIVES (MBO)

The manager and the subordinates discuss together the

goals set for the subordinate with the understanding
that the extent to which the goals are attained will be a
major factor in evaluating and rewarding the
subordinate’s performance.

Goal:
Get the participation of subordinates in goal setting and
in the process get them to commit to accomplish the
goals set.

34 Planning
 MANAGEMENT BY OBJECTIVES (MBO) STEPS:

1) Superiors communicate to subordinates organizational

goals and expected subordinate’s goals
2) Superiors discuss with the subordinates-
a) subordinates’ goals and both parties should agree
on a set of objectives. (The objective should be
verifiable or measurable and should be
accomplished within time frame.)
b) resources required to attain goals

35 Planning
 MANAGEMENT BY OBJECTIVES (MBO) STEPS:

3) Periodic reviews should be conducted to monitor

performance and to discuss reasons for deviations of
actual performance from targets.

4) Manager or superior discusses evaluation of

subordinate the reward given (promotion or salary
adjustment) or punishment (no pay increase or no
promotion).

36 Planning
 MANAGEMENT BY OBJECTIVES (MBO) STEPS:

- MBO is a useful technique in clarifying organizational

goals and the roles of subordinates in the attainment of
these goals

- MBO can also be dysfunctional or demotivating if

subordinates’ goals are not acceptable and are used for
rewarding or punishing personnel

- success of an MBO program – by setting and acceptance

of subordinates’ goals

37 Planning
 References:

Rodriguez, R.A. and E.S. Echanis. 1997. Fundamentals of

Management Text & Philippine Cases, 3rd Ed. Metro
Manila, Diwata Publishing, Inc.

Kay, Ronald D. and W.M. Edwards.1999. Farm Management,

4th Ed. The McGraw-Hill Companies,Inc.

Hodgetts, Richard M. and D.F. Kuratko.1998. Effective Business

Management, 6th Ed. The Hayden Press Hardcourt Brace
College Publishers.

38 Planning
 Application:

Case Analysis

39 Planning
ISSUES IN
PLANNING
 Issues in Planning

1) The benefits and costs of planning

2) Who should plan
3) How far ahead to plan
4) The need for flexibility
5) Organizational size and formal planning

41 Issues in Planning
 The benefits and costs of planning
- does planning guarantee success?
- not 100%, because of environmental uncertainty

Reasons for failure of plans:

1. Lack of commitment and support for the plan from top
management
2. Lack of understanding or commitment from lower level
managers who play a key role in the implementation of plans
- lack of participation in the formulation of plan
3. If functional strategies developed are not supportive of
overall company goals or objectives

42 Issues in Planning
 “The failures in planning must not obscure its
potential benefits”

Planning
1) provides guidance on the overall directions of the firm;
2) contributes to greater consistency and efficiency in the
conduct of the varied activities of the firm;
3) enables a business to prepare for the future, and
4) develop a competitive advantage over its rivals in the market

43 Issues in Planning
 The costs of planning

 salaries of personnel involved in planning

 training costs for planning models or tools
 time and efforts spent by top management and other
managers
 the cost of planning information – conducting surveys or
market research

“In designing a planning system, management should

weigh all these costs against the expected benefits”

44 Issues in Planning
 Who should plan?

- top-down planning – top management plays the primary role

in initiating and shaping the basic plans of the organization

Advantage:
1) certainty of support for the plan from the top management
especially on resources
Disadvantage:
if plan is prepared by specialized planning staff
1) unrealistic
2) no commitment from implementers (lower management)

45 Issues in Planning
 Who should plan?

- bottom-up planning – plans begin from and are prepared by

middle/lower level managers

Advantage:
1) certainty of support for the plan from implementer
Disadvantage:
1) lower level managers have parochial perspectives and may
not plan effectively for the whole firm;
2) they maybe frustrated and demotivated if the plan will be
revised by top management

46 Issues in Planning
 Who should plan?

- Top-down and Bottom-up planning –

Steps:
1) plans start at the top, planning premises are formulated
2) premises are then communicated downward through
guidelines;
3) lower level management make a concrete and detailed
plans;
4) top management approves

47 Issues in Planning
 Who should plan?

- Top-down and Bottom-up planning –

Advantages:
1) Facilitates communication through the participation of top-
middle-lower management
2) Commitment to the plan by key personnel (understanding
the company goals/objectives)
3) Realistic and functional strategies will be developed
4) Access to important data and information that are critical to
the attainment of goals

48 Issues in Planning
 Who should plan?

- Top-down and Bottom-up planning –

Disadvantage:
1) More time consuming that the other alternative
approaches

“The delay involved in developing consensus among the

implementers through participative planning maybe offset by
the speed and quality of implementation which comes with the
commitment and understanding of the plan among
implementers at various levels in the organization who are
involved in the design of the plan” – Peter Drucker
49 Issues in Planning
 How far ahead to plan/The Planning
Horizon

- Managers frequently focuses on the preparation of short-

range plans and avoid long-term planning
Reasons:
1) long term plan is beset with many uncertainties which is
costly
2) motivated to develop short term plans because of the
immediate impact on the day-to-day activities

50 Issues in Planning
 How far ahead to plan/The Planning
Horizon

- Long-term plan is needed due to:

1) projects that commit company resources over extended
periods;
2) Projects that require several years before becoming fully
operational and profitable,
3) Projects that are immediately operational but require several
years before the company is able to recover the initial
investments

51 Issues in Planning
 Planning and Flexibility

Management can adopt these practices to maintain a measure

of flexibility in their future operations:

1) Contingency Planning – selecting variables which has a

critical success impact, prepare alternatives scenarios and
alternative plans to each scenario

2) Phased Implementation – phase by phase implementation of

the project and selling the completed project

52 Issues in Planning
 Planning and Flexibility

3) Leasing or Subcontracting – leasing instead of buying

- provides the flexibility of exit if the project fails
-subcontracting – avoids or postpones expansion of
present facilities and immediate investments in
machineries or equipment

4) Multi-purpose Facilities – projects can be easily disposed

should management decide to discontinue the project
which requires the purchase of facilities or equipment

53 Issues in Planning
 Organizational size and formal planning

- Small business – planning is not that formal

- the owner-manager administers the planning
- “one-man management”
- lack of planning knowledge – a major handicap

- Large businesses – resort to formal planning as a

mechanism for coordinating and integrating the
different planning activities in the firm

54 Issues in Planning
 References:

Rodriguez, R.A. and E.S. Echanis. 1997. Fundamentals of

Management Text & Philippine Cases, 3rd Ed. Metro
Manila, Diwata Publishing, Inc.

Kay, Ronald D. and W.M. Edwards.1999. Farm Management,

4th Ed. The McGraw-Hill Companies,Inc.

Hodgetts, Richard M. and D.F. Kuratko.1998. Effective Business

Management, 6th Ed. The Hayden Press Hardcourt Brace
College Publishers.

55 Issues in Planning
 Application:
Case Analysis

56 Issues in Planning