Essentials of

Planning
Md. Imran Hossain
Assistant Professor
1
Department of Finance
Jagannath University
 What Is Planning?
• Planning
• involves defining the organization’s goals, establishing an overall
strategy, and developing a comprehensive set of plans to integrate
and coordinate organizational work
• informal planning - nothing is written down
• little or no sharing of goals
• general and lacking in continuity
• formal planning - written
• defines specific goals
• specific action programs exist to achieve goals
 Definition of Planning
• Weihrich & Koontz “Planning involves selecting missions
and objectives and the actions to achieve them; it
requires decision making, that is, choosing from among
alternative future courses of action”.
• McFarland “Planning may be broadly defined as a
concept of executive action that embodies the skills of
anticipating, influencing & controlling the nature
&direction of change”.
• Terry “Planning is the selection & relating of fact &
making & using of assumption regarding the future in the
visualisation & formation of proposed activities believed
necessary to achieve desired result.”
 Set Control Growing Provide
Standards complexities Direction

Need for
Reasons Rapid socio-
Economic
R&D activity for Planning changes

Minimize Reduce the

Growth of
Waste / Impact of
trade union
Redundancy Change
Does Planning Improve
Performance?
• Financial results

• Environmental concerns

• Quality and implementation

 Why Do Managers Plan?
/ Importance of planning
• Purposes of Planning
• Planning is the primary management function that establishes the basis
for all other management functions
• Planning establishes coordinated effort
• Planning reduces uncertainty
• Planning reduces overlapping and wasteful activities
• Manage complexities & competition
• Planning establishes goals and
standards used in controlling
• To increase org effectiveness
Why Do Managers
Plan? (cont.)
• Planning and Performance
• Generally speaking, formal planning is associated with:
• Higher return on assets
• Higher profits
• Quality of the planning process and the appropriate implementation of
the plans probably contribute more to high performance than does the
extent of planning
• External environment may undermine the effects of formal planning
• Planning/performance relationship is influenced by the planning time
frame
 Features/ nature of
planning
• Planning is an intellectual process
• Planning determines the future course of action
• Primarily concerned with looking into future
• Involves selection of suitable course of action, means there are
several alternatives for achieving objectives
• All levels are concerned with the determination of future course of
action.
• Planning is the most basic to all mgmt functions
• Planning is pervasive function of mgmt
• Planning is flexible because future is always dynamic
• Planning is a pervasive & continuous managerial function involving
complex processes of perception, analysis, conceptual thought,
communication, decision,& action
Benefits of planning
• Reduces uncertainty
• Encourage innovation & creativity
• Improves motivation
• Achieve better coordination
• Facilitates control
• Planning leads to success
• Focuses attention
 (1)
Mission
or Purposes,
(2) Objectives or goals,
(3) Strategies,
(4) Policies,
(5) Procedures,
(6) Rules,
(7) Programs, and
(8) Budgets

Hierarchy Of Plans
Hierarchy of Plans (cont..)
Plans can be classified as
(1) mission or purposes,
(2) objectives or goals,
(3) strategies,
(4) policies,
(5) procedures,
(6) rules,
(7) programs, and
(8) budgets
Hierarchy of Plans
(cont..)
• The mission, or purpose, identifies the basic purpose or
function or tasks of an enterprise or agency or any part of it
• Objectives, or goals, are the ends toward which activity is aimed
• Strategy is the determination of the basic long‑term objectives
of an enterprise and the adoption of courses of action and
allocation of resources necessary to achieve these goals
• Policies are general statements or understandings that guide or
channel thinking in decision making
• Procedures are plans that establish a required method of
handling future activities
Hierarchy of Plans –
cont.

• Rules spell out specific required actions or

non actions, allowing no discretion
• Programs are a complex of goals, policies, procedures, rules, task
assignments, steps to be taken, resources to be employed, and
other elements necessary to carry out a given course of action
• A budget is a statement of expected results expressed in numerical
terms
 Steps in Planning
1. Being Aware of Opportunities
2. Establishing Objectives or Goals
3. Developing Premises
4: Identify / Determining Alternative Courses
5. Evaluating Alternative Courses
6. Selecting a Course
7. Formulating Derivative Plans
8. Quantifying Plans by Budgeting
 STEPS IN PLANNING
• Being aware of opportunity :In light of Market, Competition Customer
desire, Our strengths Our weaknesses
• Setting objectives or goals: Where we want to be& what we want to
accomplish & when
•  Considering planning premises: In what environment will our plans
operate
•  Identifying alternatives: What are the most promising alternatives to
accomplishing our objectives
•  Comparing alternatives in light of goals sought Which alternative meets
our goals at lowest cost &at highest profit
•  Choosing an alternative Selecting the course of action
•  Formulating derivative plans such plans as to :- Buy equipment Buy
materials, Hire& train workers,
• Budgets: Develop such budgets as Volume & price of sales, operating
expenses necessary for plans, Capital expenditure
 
 Types Of Plans
Frequency
Breadth Time Frame Specificity of Use

Strategic Long term Directional Single use

Operational Short term Specific Standing
 Types Of Plans
• Types of Plans based on Breadth
• strategic plans - apply to the entire organization
• establish organization’s overall goals
• seek to position the organization in terms of its environment
• operational plans - specify the details of how the overall goals are to
be achieved
• tend to cover short time periods
Types Of Plans
• Types of Plans based on Time
• long-term plans - time frame beyond three years
• definition of long term has changed with increasingly uncertain organizational
environments
• short-term plans - cover one year or less
• Types of Plans based on specification
• specific plans - clearly defined with little room for interpretation
• required clarity and predictability often do not exist
• directional plans - flexible plans that set out general guidelines
• provide focus without limiting courses of action
 Specific Versus Directional
Plans

© Prentice Hall, 2002

 Types Of Plans
• Types of Plans based on frequency of use
• single-use plans - one-time plans specifically designed to meet the needs of a
unique situation
• standing plans - ongoing plans that provide guidance for activities performed
repeatedly
• include policies, procedures, and rules

7-20
 In The Hierarchy Of
Organizations
Strategic Top
Planning Executives

Middle-Level
Managers

First-Level
Operational Managers
Planning
 Developing Plans (cont.)

• Approaches to Planning
• traditional, top-down approach
• planning done by top managers
• formal planning department - specialists whose sole responsibility is to help to write
organizational plans
• plans flowed down to lower levels
• tailored to particular needs at each lower level
• most effective if plan is a workable document used by organizational members for
direction and guidance
Developing Plans (cont.)
• Approaches to Planning (cont.)
• inclusive approach
• employees at each level develop
plans suited to their needs
• employees acquire greater sense of
the importance of planning when
they participate in the process
• plans more likely to be used in
directing and coordinating work
 Principles of planning based on Purpose
and Nature Of Planning 
. Principle of contribution to objectives: Purpose of every plan
& all supporting plans is to promote accomplishment of enterprise
objectives
. Principle of objectives: If objectives have to be meaningful to
people, they must be clear, attainable, & verifiable
. Principle of primacy of planning.:... Planning logically
precedes all other managerial functions
. Principle of efficiency of plans: Efficiency of a plan is
measured by the amount it contributes to purpose & objectives as
offset by the costs required to formulate and operate it and by
unsought consequences.
Principles--the Structure Of Plans
 
. Principle of planning Premises: The more thoroughly
the individuals who are charged with planning, understand
and agree to utilize consistent planning premises, the more
coordinated enterprise planning will be
 
. Principle of the strategy and policy frame work: The
more strategies and policies are clearly understood and
implemented in practice, the more consistent and effective
will be the frame work of enterprise plans
 
Principles--the Process Of Planning
 
. Principle of limiting factor: In choosing among
alternatives, the more accurately individuals can recognize and
solve for those factors which are limiting or. critical to attainment of
desired goals, the more easily and accurately they can select the
most favorable alternative
. The commitment principle: Logical planning should cover a
period of time in the future necessary to foresee as well as possible,
through a series of actions, the fulfillment of commitments involved
in a decision made today
 
 Principles--the Process Of Planning
(Cont..) 
. Principle of flexibility...:. Building flexibility into plans will
lessen danger of losses incurred through unexpected events, but
cost of flexibility should be weighed against its advantages
. Principle of navigational change: The more that planning
decisions commit individuals to a future path, the more
important it is to check on events and expectations periodically
and redraw plans as necessary to maintain a course toward a
desired goal
 
 Developing Plans

• Contingency Factors in Planning

• level in the organization
• operational planning dominates managers’
planning efforts at lower levels
• strategic planning more characteristic of planning
at higher levels
Developing Plans (cont.)

• Contingency Factors in Planning (cont.)

• degree of environmental uncertainty
• when uncertainty is high, plans should be specific, but flexible
• length of future commitments
• commitment concept - plans should extend far enough to meet those commitments
made when the plans were developed
• the more that current plans affect future commitments, the longer the time frame for which
managers should plan
 Contemporary Issues In Planning

• Criticisms of Planning
• 1. Planning may create rigidity
• unwise to force a course of action when the environment is fluid
• 2. Plans can’t be developed for a dynamic environment
• flexibility required in a dynamic environment
• can’t be tied to a formal plan
• 3. Formal plans can’t replace intuition and creativity
• mechanical analysis reduces the vision to some type of programmed
routine
 Contemporary Issues In Planning
(cont.)

• Criticisms of Planning (cont.)

• 4. Planning focuses managers’ attention on today’s
competition, not on tomorrow’s survival
• plans concentrate on capitalizing on existing business opportunities
• hinders managers who consider creating or reinventing an industry
• 5. Formal planning reinforces success, which may lead to
failure
• success may breed failure in an uncertain environment
 Contemporary Issues In Planning
(cont.)
• Effective Planning in Dynamic Environments
• develop plans that are specific, but flexible
• recognize that planning is an ongoing process
• change directions if environmental conditions warrant
• stay alert to environmental changes
 Barriers to effective planning
• Difficulty of accurate premising
• Problems of rapid change
• Internal inflexibilities
policy & procedural inflexibility
capital investment
• External inflexibility
political climate
trade unions
technology changes
• Time & cost factors
• Failure of people in planning
 How Do Managers Plan?
• The Role of Goals and Plans in Planning
• goals - desired outcomes
• provide direction for all management decisions
• represent the criteria against which actual work accomplishments can be measured
• plans - outline how goals are going to be met
• Types of Goals
• all organizations have multiple objectives
• no single measure can evaluate whether an organization is successful
• financial goals - relate to financial performance
• strategic goals - relate to other areas of performance

7-34
Stated Objectives From Large US
Companies

© Prentice Hall, 2002 7-35

 How Do Managers Plan?
(cont.)
• The Role of Goals and Plans in Planning (cont.)
• Types of Goals (cont.)
• stated goals - official statements of the
organization’s goals
• real goals - those goals that an organization
actually pursues
Establishing Goals

• Approaches to Establishing Goals

• traditional goal setting - overall goals established at the top of the organization
• overall goals broken down into sub-goals for each level of the organization
• higher-level goals must be made more specific at lower levels
• network of goals creates a means-ends chain
• Sub-goals constrain subordinates’ behavior
• assumes that top managers know what is best for the organization
 How Do Managers Plan?
(cont.)
• Establishing Goals (cont.)
• Approaches to Establishing Goals (cont.)
• management by objectives (MBO) - specific performance goals are jointly
determined by employees and their managers
• progress toward accomplishing these goals is periodically reviewed
• rewards are allocated on the basis of this progress
• MBO consists of four elements
• goal specificity
• participative decision making
• explicit time period
• performance feedback

7-38
 Traditional Objective Setting

Top
“We need to improve
Management’s
the company’s performance”
Objective

Division “I want to see a

Manager’s significant improvement
Objective in this division’s profits”

Department
“Increase profits, regardless
Manager’s
of the means”
Objective

Individual “Don’t worry about

Employee’s quality: just work fast”
Objective
 Steps in a Typical MBO
Program

© Prentice Hall, 2002 7-40

Establishing Goals (cont.)
• Approaches to Establishing Goals (cont.)
• management by objectives (cont.)
• increases employee performance and organizational productivity
• depends on support of top managers for MBO
• problems with MBO
- can be useless in times of dynamic change
-overemphasis on personal rather than
organizational goals
-may be viewed simply as an annual exercise
in paperwork
 Establishing Goals (cont.)

• Characteristics of Well-Designed Goals

• should be written in terms of outcomes
• should be measurable and quantifiable
• should be clear as to a time frame
• should be challenging but attainable
• should be written down
• should be communicated to all organization members who need to know
the goals
 Establishing Goals (cont.)

• Steps in Goal Setting

• 1 - Review the organization’s mission
• 2 - Evaluate available resources
• 3 - Determine the goals individually or with input from others
• should be congruent with the organizational mission and goals in other
organizational areas
• 4 - Write down the goals and communicate them to all who need to
know them
• 5 - Review results and whether goals are being met
Hierarchy of Goals

FIGURE 4–1
 Principles of Goal-Setting
 Set SMART goals—make them specific,
measurable, attainable, relevant, and timely.
Choose areas (sales revenue, costs, and so
forth) that are relevant and complete.
 Assign specific goals.
 Assign measurable goals.
 Assign doable but challenging goals.
 Encourage participation.
 Use executive assignment action plans, or
management by objectives.