Chapter Three

The Planning Function

3.1. Introduction to Planning

The Meaning of Planning

o Planning – is the dynamic process of making decisions today about future actions outlining
What missions or goals to be achieved, What actions should be taken, How the end can be
achieved, When to achieve it, Who is to do it, Where to do it.
o Planning - is preparing today for tomorrow; it is the activity that allows managers to determine
what they want and how to get it: They set goals and decide how to reach them. Planning
focuses on the future: what is to be accomplished and how.
Answers six basic questions in regard to any intended activity:
 What (the activity or activities).
 When (the time frame in which it will be accomplished)
 Where (the place or places where the plans or planning will reach its conclusion).
 Who (which people will perform the tasks).
 How (the specific means or methods to accomplish activities).
 What resources (resources necessary to accomplish activities).
o Planning is a process of deciding what to do and how to do it before action is required.
Planning involves selecting missions and goals and the actions to achieve to them; it requires decision-
making, that is, choosing from among alternative future courses of actions. Managers who develop
plans but do not commit themselves to action are simply wasting time. The outcome of the planning
function is a plan, a written document that specifies the courses of action a firm will take.
 In planning managers:
 Assess the future
 Determine goals and objectives of the organization and develop the overall
strategies.
 Determine resources needed to achieve the objectives

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 3.2. Types of Plans

Plans can be classified on different bases or dimensions. The most important ones are:
1. Repetitiveness (frequency of use)
2. Time dimension/ horizon (duration) &
3. Scope/ breadth dimension.
Classification of Plans Based On Repetitiveness
Based on repetitiveness, plans are classified into two, as Standing plans and Single use plans.
1. STANDING PLANS
Standing plans are plans that are used again and again; followed each time; and designed to deal with
organizational issues or problems that recur frequently. By using standing plans management handles
repetitive problems. Standing plans include mission or purpose; goals and objectives, strategy; policy;
procedure and rule.
A. Vision and Mission
The Vision
 It is a dream, hope, wish, aspiration or desires that the organization wants to become in the
future.
 Imaginative future picture of the organization
 A vision statement should answer the basic question, “What do we want to become?”
The Mission
 Mission defines the fundamental purpose of an organization, describing why it exists (purpose)
and what it does (its activities)
 Mission is a very broad and general statement about the basic purpose of the organization.
 The description of an organization’s reasons for existence
 The fundamental and unique purpose that sets a company apart from other firms
It describes an organization in terms of its:
 Purpose: what the organization seeks to accomplish (WHY DO WE EXIST?)
 Target Audience: the target group or beneficiaries of the organizations work (WHO DO WE
SERVE?)
Product: type of product or service that the business delivers for its customers.

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 B.GOALS AND OBJECTIVES
GOAL
 A goal is a long term outcome that the business wants to achieve.
 Goals are end results or desired outcome that the business want to achieve.
 Goals are outcome statements that define what an organization is trying to accomplish
 Desired accomplishments or long term destination of the company
 Goals focus on the result
 Goals are end
OBJECTIVES
 Objectives are the specific and measurable actions your company must take to reach its
goals.
 They give you a clear understanding of the specific tasks or activities that needs to be
completed in order to get your organization closer to the goal.
 Objectives give you a clear understanding of what you—and your teams—need to do to
achieve your organizational goal.
 Objectives are means to an end
A statement of an objective makes clear.
 What is to be accomplished
 How much is to be accomplished
 By when it is to be accomplished
 By whom it is to be accomplished
Each goal should have at least one objective
Characteristics of good (effective) objective (SMART)
Specific:
 Objectives should be clear and specific
 Objectives should Properly specify what your business want to accomplish
 Answering questions like what, who, where, why, and how.
Measurable:
• There should be criteria's, numbers or percentages that are used to measure progress and
evaluate success.
• Objectives should be expressed quantitatively

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Achievable:
Objectives must be possible to achieve.
• In terms of time, budget, personnel, equipment, technology, skills and expertise, regulations and
level of commitment and motivation of employees.
Relevant:
• Objectives must be developed based on the current conditions and realities of the environment
Time-bound:
• Objectives should have a defined timeline for completion.
• Objectives should be set with in specific time limits or target dates for their accomplishment.
C. Strategies
 Strategies are the means by which long-term objectives will be achieved.
 A strategy is the plan or method used to achieve the objective.
 It outlines the approach or methods that will be used to accomplish the objective.
 Mechanisms by which long-term objectives are realized
D. Policies
 A policy is a guiding principle or set of rules that governs how decisions are made and actions
are taken within an organization.
 Policies are general statements which provide guideline in decision-making to various
managers.
 The main purpose is to ensure consistency (uniformity) in decision making
E. Procedures _ are sequences of steps or activities involved in making decisions or performing other
tasks. A procedure is a sequence of steps or operations describing how to carry out an activity and
usually involves a group.
Like policies, procedures also contribute in consistency of organizational activities by providing
steps.
F. Rules; are on-going specific plans influencing human behavior or conducts at work place.
 Rules are fixed plans and define what should and what should not be done. (Guide to action).
 Rules are already decided measures that are applied in response to a certain action. Their

 Violation of rules is generally associated with some sort of disciplinary action or penalty.
 Are rigid and applied without any scope of deviation.
 An example of a rule is "No Smoking

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2. Single – Use Plans
Single use plans are those plans which have no more use after objective is accomplished. Once activity
for which they have been made is over, single use plans have little or no use at all. They include:
programs, projects, and Budgets.
A. Program- is set of goals, policies, procedures, rules, job assignments, resources to be
employed, and other elements necessary to carry out a given course of action.
 Is set of activities used to accomplish goals or used to solve some problem.
B. Project- is specific action plan formulated to complete various aspects of a program which can
be distinctly identified as a clear-cut grouping of activities with definite objectives and
completion time.
C. Budget - Budgets are plans that specify resources for specific activities in a given period of
time.
 Budget is the resources required in numerical terms.
 Is a plan that shows how money will be spent over a certain period of time.
D. Classification of Plans Based On Time
All planning deals with the future; and the future are measured in time. All the kinds of plans are
interrelated and one is the derivative of the other. Plans in terms of time periods are classified into three
as long term/ range; intermediate range and short range.
1. Long – range planning: has longer time horizon; and usually concerned with the future direction
of the organization but not concerned with the immediate future but with distant future. The time
usually ranges from 5-10 years, but the time length is a relative term that depends on the size & the
nature of the organization.
2. Intermediate – range planning: ranges between long & sort range planning; and they are usually
developed for 1-5 years, but the time dimension can also vary depending on the size & nature of the
organization.
3. Short – range planning: are not developed separately. They are also taken as operational plans
derived from the long ranging or intermediate plans. The time length is commonly taken as less
than 1 year. What is long or short range in most cases depends on the size of the organization & the
type of business of the organizations.

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 Classification Based On Scope/ Breadth
Planning that is strategic in nature; focuses on changing the competitive position and the overall
performance of the organization is the long term. Based on scope, plans are classified into 3 categories
as Strategic plan; Tactical plan & Operational plan.
1. Strategic planning
Strategic plan is a general plan outlining decisions of resources allocation, priorities, and action/ steps
necessary to reach strategic goals. It is a process of analyzing & deciding the organs mission; objective;
strategy (major courses of action) and the major resource allocations. It is also developed by top level
managers; mostly long –range in its time horizon; expressed in relatively general, non-specific terms &
a type of planning that provides a general direction to the organization. Strategic planning is the process
by which the organization's strategies are determined. In the process, three basic questions are
answered:
 Where are we now?
 Where do we want to be?
 How do we get there?
The "where are we now?" question is answered through the first three steps of the strategy formulation
process:
 Perform internal and external environmental analyses,
 Review vision, mission and goal ,objectives, and
 Determine SWOT: Strengths, Weaknesses, Opportunities and Threats.
SWOT analysis is very crucial. Going on to strategy choices without a comprehensive SWOT analysis
is risky. Strengths and weaknesses come from the internal environment of the firm. Strengths can be
exploited, built upon and made key to accomplishment of mission and objectives. Strengths reflect past
accomplishments in production, financial, marketing and human resource management. Weaknesses are
internal characteristics that have the potential to limit accomplishment of mission and objectives.
Weaknesses may be so important that they need to be addressed before any further strategic planning
steps are taken. Opportunities and threats are uncontrollable by management because they are external
to the firm. Opportunities provide the firm the possibility of a major improvement. Threats may stand
in the way of a firm reaching its mission and objectives.

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 2. Tactical planning:
Tactical plan is a plan aimed at achieving tactical goals and developed to implement specific parts of
strategic plan. It refers to the process of developing action plans through which strategies are executed.
It is concerned with shorter time frame & narrower scopes than strategic planning. Departmental
managers in organizations are often involved in tactical planning. The strategic planning & tactical plan
are highly interrelated.
3. Operational planning:
Operational plans focuses on carrying out technical plans to achieve operational goals. Operational
planning is mainly short range; more specific & detailed. It is made at operational level & concerned
with day- today; week – to - week activities of the organizations.
4. Contingency planning:
Contingency planning is an approach that has become very popular in today's rapidly changing
business envelopment. It is the determination of alternative courses of action to be taken if the original
plans are disrupted or become inappropriate due to the changing circumstances. It is proactive in nature
& the management tries to anticipate changes in the environment and prepares to cope with the future
events. It is necessary at each level of management and for strategic, tactical, and operational plantings.
It is the development of two or more plans based on different conditions. The plan to be implemented is
determined by the specific prevailing situation.

3.3. The Planning Process

The planning process indicates the major steps taken in planning. And generally there are 10 steps in
planning process
Step 1: Understanding the existing situation
Awareness to the external environment to the organization is great important in planning to identify
opportunities (O) and Threats (T) and identifies Strength (S) and Weaknesses (W) of an organization.
To understand external environment organizations should analyze economic situations (competition,
prices, demand, supply, etc.); Political situations (government policies, taxation, peace and stability,
etc.); Socio – cultural situations: (culture of the society, direction in change of the culture, attitude of
the society towards different products, etc.); Environmental situations and Technological situations. In
addition to external environment, understanding the internal environment is also essential, i.e. different
types of resources an organization possesses. Therefore managers must look at O and T as well as S and
Ws, and understand what problems they wish to solved and why, and know what they expect to gain.

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Step 2: Forecasting
Forecasting is assumption what the future looks like. To decide where one wants to go, it is necessary
to have information about what the future looks like. Planning is deciding what is to be done in the
future. The future is full of uncertainties; the manager must make certain assumptions about it in order
to plan properly. These assumptions are based on forecasts of the future.
Step 3: Establishing goals
They specify the expected results and indicate the end points what is to be done, where the primary
emphasis to be located and what is to be accomplished by the network of strategies, policies,
procedures, rules, budgets and programs.
Step 4: Determining the alternative courses of action
Determining the alternative courses of action is searching for & examining alternative course of action
(strategies), especially for those not immediately apparent. The more common problem is not finding
alternatives but reducing the number of alternatives
Step 5: Evaluating alternative courses of action
Evaluating alternative courses of action is assessing the alternatives by weighing them in light of
premises and goals. It is seeking out alternative courses and examining their strong & weak points.
Step 6: Selecting a course of action
Selecting a course of action is the point at which the plan is adopted. It is the real point of decision
making.
Step 7: Formulating derivative plans
Formulating derivative plans means formulating other plans based on one major plan. Derivative plans
are those which support the basic or main plan.
Step 8: Numberizing plans by budgeting
After decisions are made & plans are set, the final step is giving them meaning. Budgeting is to
numberized plans by converting them into budgets. The organization’s budget represents the sum total
of income & expenses. If done well, budgets become a means of adding together various plans & also
set important standards against which planning progress can be measures.

Step 9: Implementing the plan

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After the alternative course of action selected, it is important to develop an action plan to execute the
plan. In this step method for implementation will be suggested.
Step 10: Controlling and evaluating the results
Once the plan is implemented, the manager must monitor the progress, i.e. evaluate the reported
results, and make any modifications necessary. Plans have to be modified because the environment is
constantly changing. Modification is needed because plans are not quite perfect when they are
implemented.