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CHAPTER THREE: THE PLANNING FUNCTION

3.1. Meaning and importance of managerial planning

3.1.1. The concept of planning
Planning is the most fundamental function of management. Different authorities define it in different
ways. The following is however, the commonly used definition of planning:

Planning is the process of deciding in advance about the short and long-run objectives of the
organization and selecting courses of action for accomplishing them.
The primary purpose of planning is to minimize the risk or obstacles surrounding future operations.
From this point of view, planning can be defined as the process of preparing for change and coping
with uncertainty by formulating the means for attaining goals. It is anticipatory decision making that
establishes organizational goals and specifies the methods of achieving them.
In general, planning involves determination of objectives, formulation of programmes and courses of
action for attaining them, developing of schedules and timing of action as well as assignment of
responsibilities for their implementation.
Planning tries to answer the following basic questions:
a. Where are we now?
b. Where do we want to be?
c. What is the gap?
d. How can we get there?
The following figure can summarize the basic questions that address the function of planning

3) Gap?

[Current status] 4) How to bridge [Future image]

the gap?
1) Where are we now? 2) Where we want to be?

3.1.2. The Naturel characteristics of planning

i. Planning is the foundation (primacy) of management: Planning provides all the basis
from which all future management functions arise.
ii. Planning is a continuous process: It is a never – ending activity of a manager. Plans tend
to be a statement of future intentions relating to objectives and means of attaining them.
iii. Planning is persuasive: Planning is the function of all mangers. It is needed and
practiced at all managerial levels. Every manger has a planning function to perform within his
particular areas of activities. Thus, planning is inherent in everything a manager does. Therefore,
planning is a persuasive function of management.
iv. Planning is participatory:
v. Plans are arranged in a hierarchy: Plans are first set for the entire organization. Such
plans are called corporate plans. The corporate plan provides the framework for the formulation of
divisional, departmental and sectional goals. The following figure demonstrates the hierarchical
arrangement of plans.

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Departmental / Divisional / Plans

Sectional plans
Unit plans
Hierarchy of plans
vi. Planning commits the organization into the future:
vii. Planning is the antithesis of status-quo:
viii.Planning is subject to flexibility:
ix. Planning is action oriented.
3.1.3. The Importance of Planning
i. Provides direction.
ii. Minimizes risk and uncertainty.
iii. Focuses attention on the organization’s goals.
iv. Facilitates control.
v. Leads to success.

3.2. Types of plans

Plans can be classified into various categories based on different dimensions. These dimensions
include:
 Repetitiveness
 Time dimension,
 Scope/ breadth dimension, and
 Flexibility dimension.
3.2.1. Classification of Plans Based on Repetitiveness
Based on repetitiveness plans can be classified into two; namely, standing plans and single use plans.
A. Standing plans:
Standing plans are used again and again over a long period of time. Once established, standing plans
continue to apply until they are modified or abandoned. Standing plans help managers in disposing of
routine problems in predetermined and consistent manner. They include: polices, procedures, methods,
rules and standards.
i. Policies – are general statements that serve as guides of administrative action or decision-making.
They direct the way in which activities are to be achieved. They are concerned with “how” of
administrative action.
ii. Procedure- show the sequence of activities. Procedures indicate the steps to be accomplished as
well as the required time and order of performance. They are series of steps to be used in achieving
certain objectives.
iii. Rules- are statements that either prescribe or prohibit action by specifying what an individual may
or may not do in a given situation. A rule is a very specific and detailed guide to action. It is
established to direct or restrict action in a fairly narrow manner. Compared to policies and
procedures, rules are narrow in scope, specific in their application, and allow few or no deviations
form a stated statement.
The drawback of rules is that they tend to limit flexibility and initiative. To avoid the unpleasantness,
members would follow the rules. They are only interested in meeting the rules rather than achieving
goals.
Methods- are sub-units of a procedure. They show clearly as to how a step of procedure should be
performed.

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Standards- are units for measuring performance. They are established to measure the time, quantity,
quality or wastage level, and cost of work. However, all kinds of jobs do not lend themselves to
quantitative measurement. It is worth-noting that standards are established and used when
performance can be measured.
B. Single – use plans
Single use plans are designed to accomplish objectives usually within a relatively short period of time.
They are non-recurring in nature and deal with problems that probably will not be repeated in the same
form in future. In general, single use plans are predetermined courses of action developed for
relatively unique, non-repetitive situations. The three basic types of single use plans are programmes,
projects and budgets.
i. Programmes -are large-scale planned activities which have distinctive mission, time schedule, and
assignment of responsibility. Programmes consist of objectives, policies, procedures, and methods so
managed and designed to provide a course of action to achieve goals. Programmes are means of
achieving some designed results within the scheduled time.
ii. Projects – are usually a component part of a specific programme. They are less
complex and narrow in scope than programmes and require fewer resources.
iii. Budgets – are numerical plans that deal with the future allocation and utilization of
various resources to different activities in the organization. Budgets are primarily designed and
used to allocate and utilize the resources of an organization, which include: financial, human,
material and any other essential resources. As most people think, budgets are not defined in
monetary terms only. Thus, they are also used to control the allocation and utilization of labour,
raw materials the or space, machine hours and so on. To be more specific, some of the common
non-financial budgets include: sales, production-materials, manpower, time and space budgets, etc.
Budgets usually serve as a control device for feed-back and evaluation purpose. They exercise
control by allocating resources cross departments in advance, and by specifying how these
resources are to be utilized. They provide standards against which planned performance can be
compared to actual performance. It helps to preserve the organization’s resources and promote
efficiency.
3.2.2. The Time Dimension of Plans
Planning must encompass a sufficient period of time in the future to fulfill the commitments resulting
from current decisions. Accordingly, we can classify plans into three, based on the typical time frames
used in describing planning periods as: (i) Long –range, (ii) Intermediate-range, and (iii) Short-range,
plans.
i. Long-range plans
Long range planning has longer time horizon. It is concerned with the distant future. The time
period of long-range plans is usually more than five years. Long-range plans are intended as
guidelines from which we can develop our intermediate range and short range plans with specific
commitments to action.
ii. Intermediate-range plans – are those plans, which provide a link between long-range and
short-range plans. They cover a time period usually between 1 – 5 years, though it may vary with
the type and scope of the enterprise.
iii. Short-range plans – are plans which specify what resources will be committed and what
actions will be taken in the immediate future. Short-range plans usually constitute the steps toward
the implementation of long-range plans. As a result, they will be more detailed and specific than
the intermediate and the long-range plans. Short-range plans usually cover a period of one year or
less, in most cases.
The following table shows the different planning time horizons with their corresponding example.

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Time Horizon Examples

Short – range plans Annual plans like sales plan, production plan, materials
requirements plan, operating expense budget, short-term
training.
Intermediate – range plans - Modernization of production
equipments and office facilities.
- Development of employees
Long – range plans - Long-term leases of production
equipment, transport equipment, and warehouse facilities.
- Construction of new plants.
- New product development
3.2.3. Scope/Breadth Dimension of plans
The scope / breadth dimension of plans is a method of categorizing plans based on the range of
activities covered. Some plans are very broad and long-range, focusing on key organizational
objectives. Accordingly, plans are classified into three categories based on their scope or breadth.
These include:
(i) Strategic plans;
(ii) Tactical plans;
(iii) Operational plans.
i. Strategic plans – Strategic plans determine the organization’s mission objectives, major
courses of action and the allocation of major resources necessary to achieve the organization’s
objectives. Strategic plans thus provide the organization with the overall long-range direction and
lead to the development of policies. Strategic planning is usually done taking into account the
environmental threats and opportunities and the internal strengths and weaknesses of the
organization.
Strategic plans are generally:
 performed by top level managers;
 mostly long-range in their time frame;
 expressed in relatively general non-specific term; and
 a type of planning that provides general direction to the organization.
ii. Tactical plans – focus on the process of developing action plans through which strategies
are executed. As mentioned earlier, strategic plans focus on what the organization will be in the
future; whereas tactical plans emphasize how this will be accomplished. Tactical plans refer to the
implementation of activities and the allocation of resources necessary for the achievement of the
organization’s objectives. They specifically focus on short-term implementation of activities and
resource allocations.

The following are typical examples of tactical planning:

 Developing annual budget for each department, division, project;
 Choosing specific means of implementing strategic plans;
 Deciding on course of actions for improving current operations.
iii. Operational Plans – are the most specific and detailed plans, focusing on the day-to-day and
week-to-week activities of the organization. Such plans include: Production schedules, sales
plans, lesson plans, etc.

3.2.4. Flexibility Dimension of Plans

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Plans are also classified as variable plans, alternative plans, and supplementary plans, based on the
degree of their flexibility to respond to environmental uncertainties.
i. Variable plans – state figures in terms of ranges to allow for the uncertainty of the
environment. For instance, the time estimated for a phase of a project might be stated as “three
months plus or minus one week.” The advantage of variable plans is that one can easily estimate
the tolerable limits for the organization.
ii. Alternative plans – are similar to variable plans in recognizing environmental
uncertainties, except that, in this case, the planner usually sets up two or more entirely separate
plans.
iii. Supplementary plans – are used to reduce that constraining effects of the original plan by
providing a prearranged appeal channel.
3.3. Organizational Objectives
The management process begins with setting organizational objectives. Objectives give meaning and
purpose to the organization. Without objectives, without something to achieve, organizations would be
purposeless. Objectives determine the scope of future events. They serve as reference points to
concentrate resources and efforts. Therefore, objectives determine what action to take today to obtain
results tomorrow.
3.3.1. The Nature/Characteristics of Objectives
Like any other management function, objectives have certain basic features. Obviously, objectives
state end results, and overall objectives usually need to be supported by sub-objectives. Generally
speaking, objectives have the following features and/or characteristics.
i. Objectives Form a Hierarchy
In many organizations objectives are structured in a hierarchy of importance. Thus, there are objectives
within objectives. The hierarchy of objectives is a graded series in which organization’s goals are
supported by each succeeding managerial level down to the level of the individual. The objectives of
each unit contribute to the objectives of the next higher unit. Each operation has a single objective
which must fit in and add to the final objectives. The following figure demonstrates the hierarchy of
objectives ranging from top management to individual objectives.
Means Ends

Overall
objectives
Divisional
objectives
Department objectives
Individual
Objectives
Hierarchy of objectives in the form of a means-ends chain.
ii. Objectives Form a Network
Objectives interlock in a network fashion. They are inter-related and inter-dependent. The concept of
network of objectives implies that, once objectives are established for every department and every
individual in an organization, these subsidiary objectives should contribute to meet the basic objectives
of the total organization.
iii. Multiplicity of Objectives
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Organizations pursue multifarious (many and various) objectives. At every level in the hierarchy,
goals are likely to be multiple. For example, the marketing division may have the objective of sale and
distribution of products. This objective can be broken down into a group of objectives for the product,
advertising, research, and promotion managers. The advertising manager’s goals may include:
designing product messages carefully, create a favorable image of the product in the market, etc
3.3.2. Importance of Objectives
All organizations are goal seeking, that is, they exist for the purpose of achieving some goals,
efficiently and effectively. In general, objectives serve the following major functions:
i. Legitimacy – objectives describe the purpose of the organization so that people know what
it stands for and will accept its existence and continuance. Objectives thus help to legitimize the
presence of organization in its environment.
ii. Direction – objectives provide guidelines for organizational efforts. Once objectives are
formulated, every activity is directed toward their achievement, every individual contributes to
meet the goals.
iii. Coordination – objectives keep activities on their track. They make behavior in
organizations more rational, more coordinated and thus more effective, because every one knows
the accepted goals to work toward. In setting effective goals managers help members at all levels
of the organization to understand how they can best achieve their own goals by directing their
behavior toward the goals of the organization.
iv. Benchmarks for Success – objectives serve as performance standards against which actual
performance may be checked. They provide a benchmark for assessment. They help in the control
of human effort in an organization.
v. Motivation – Goals / objectives are motivators. The setting of a goal (objective) that is
both specific and challenging leads to an increase in performance because it makes it clear to the
individual what he is supposed to do. He can compare how well he is doing now versus how well
he has done in the past and in some instances how well he is performing in comparison to others.
3.4. The Planning Process
The process of planning refers to the specific steps followed in developing organizational plans. The
following are the major steps that a planning process should follow.
a. Understanding the existing situation: The influence of the external environment is of great
concern in planning. As a result, it is essential to be aware of the external opportunities and threats
that can affect the planning process. Thus, the organization is required to analyze the following and
other environmental situations while involving in the planning process.
 Analyze the economic situation (competition, price, demand, supply, etc.).
 Analyze the political situation (government policies, taxation, peace and stability etc.).
 Analyze the social and cultural situations (culture of the society, direction of culture change,
attitude of the society towards different products etc).
Moreover, it is important to examine the internal situations and determine the existing strengths and
weaknesses of the organization. Thus, planning requires a realistic diagnosis of the existing strength,
weaknesses, opportunities and threats of the organization.
b. Forecasting: Planning is deciding about what is to be done in the future. As a result, it becomes
essential to have information about what the future would look like. Thus, the manager is required to
make certain assumptions based on forecasts of the future in order to plan properly.
c. Establishing objectives/goals: The next step of the planning process is to identify the
objectives/goals of the organization. The objectives fixed must clearly indicate what is to be achieved,
where action should take place, who is to perform it, how it is to be undertaken, and when it is to be
accomplished. Objectives also need to be measurable. Thus, scheduled completion dates, quantity
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standards, cost limitations, quality specifications, should be established in advance while trying to
achieve the objectives.
d. Determine and evaluate alternative plans (course of actions): Next to the establishment of
objectives, alternative plans are developed and thoroughly evaluated. Thus, once alternative courses of
action are determined, they must be evaluated. Usually, alternative plans or course of actions are
evaluated against such factors like cost, risks, benefits, organizational facilities, etc. Compute oriented
mathematical plans or techniques can also be used to find out the best course of action.
e. Selecting the plan (course of action) and formulate derivative plans: This step of the planning
process involves selection of the most desirable plan and the development of derivative plans.
Selection of one course of action to face future challenges introduces inflexibility in the planning
process. Once a choice is made and a master plan prepared, derivative plans must be developed to
support it.
f. Implementing the plan: After the optimum alternative plan or course of action has been selected,
the manager is required to develop an action plan to implement it.
g. Controlling and evaluating the results: Once the plan is implemented, the manager is responsible
to monitor and evaluate the progress made. He may be required to make the necessary modifications
based on the evolution results. It is likely for plans to be affected by environmental factors. In such a
situation, modification of plans becomes very essential.

3.5. Decision-Making
3.5.1. Definition of Decision-making
A decision is the selection of a course of action from among a set of alternatives. Decisions usually
imply alternatives. A decision problem demands two or more alternatives. Decisions are also made to
achieve goals. In general, decision-making may be viewed as the process by which individuals select a
course of action from among alternatives to produce a designed result. It is a process made up of four
continuous interrelated phases which include:
 explorative (searching);
 speculative (analyzing);
 evaluative (weighing)
 selective (commitment).
a. Explorative: The decision maker must find occasions for making a decision. He must
make a realistic appraisal of where the firm is, what the current problems are. Asking “What
should be done?” and “What are the challenges?” represents searching.
b. Speculative: The decision maker must analyze various factors affecting a “decision
problem” so that an appropriate response can be obtained. “How to take advantage of the
challenging opportunities in the environment?” and “How to utilize the resources to get the
maximum possible benefit for the organization?” indicate analyzing.
c. Evaluative: The decision maker is expected to make a cost-benefit analysis of various
alternatives. Asking “what are the costs?” and “what are the potential benefits?” indicates
evaluating.
d. Selective: This is a question of making a choice among alternatives.
3.5.2. Types of Decisions
The quality of decision-making skills is one of the critical factors in managerial success. Managers are
evaluated by the decisions they make and, more often, by the results obtained from their decisions. As
a result, it is useful to distinguish between decisions made by managers at different levels in the
organization. Managers are usually involved in making two types of decisions as indicated below.

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a. Programmed Decisions
A programmed decision is one that is routine and repetitive. Rules and polices are established well in
advance to solve recurring problems quickly. For example, a hospital establishes a procedure for
admitting new patients; a supervisor administers disciplinary actions against workers reporting late for
work etc. Thus, programmed decisions can be made in a routine way on the basis of pre-established
set of alternatives.
b. Non-programmed Decisions: usually deal with unique/unusual problems. In such cases, the
decision maker is forced to make decision in a poorly structured situation where there are no
readymade courses of action to resort. Deciding how to restructure an organization, to improve
efficiency, where to locate a new company warehouse, whom to promote to the vacant position of
Regional Manger, are examples of non-programmed decisions.

3.5.3. The Decision – making Process.

The decision-making process describes the elements of an organization that accepts and processes
information inputs and transforms them into useful conclusions. To make good decisions, managers
should invariably follow a sequential set of steps. If managers do not go through a systematic and
rational sequence, they are likely to make a decision that will solve the wrong problem.
The decision making process can be described graphically as follows.

1 2 3 4 5 6
Awareness Diagnose Develop the Implement
of and state the Evaluate the
potential Select the best & follow-
problem problem alternatives
alternatives alternative up the
decision

Internal Environment
Feed-back
Decision Making – the basic step
External Environment
i. Awareness of the problem (Define the problem)
The first step in the decision-making process is recognizing a problem. The manager needs to become
aware that a problem exists and that is important enough for managerial action. Problems generally
arise because of disparity between what is and what should be.
ii. Diagnose and state the problem
 Once aware of a problem, the manager must state the real problem. He must try to solve the
problem, not the symptoms. What appears to be the problem initially, may turn out to be
superficial ultimately. It may not be the real problem at all.

iii. Developing Potential Alternatives

The statement of the problem in clear, measurable terms, enables executives to develop alternatives.
Developing alternative solutions to the problem guarantees adequate focus and attention on the
problem. It helps managers to fully test the soundness of every proposal before it is finally translated
into action. Managers should encourage people to develop different solutions for the same problem.
iv. Analyze / Evaluate the Alternatives
In this step, the decision maker tries to outline the advantages and disadvantages of each alternative.
The consequences of each alternative would also be considered.
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v. Select the Best Alternative

In this step, the decision maker merely selects the most appropriate alternative or combination of
alternatives from the alternatives listed along with their correspondent advantages and disadvantages.
The following four criteria are commonly used for making the right choice among available
alternatives:
a. The risk
b. Economy of effort
c. Timing
d. Limitation of resources
vi. Implement and Verify / Follow-up the Decision
After making a decision, a manager is required to implement it.
. He must seek feed-back regarding the effectiveness of the implemented solutions and establish
follow-up procedures to evaluate the effects of the decision
3.5.4. The Decision-making Environment (condition)
Decision-making does not take place in a vacuum. There are various conditions that affect the
decision-making process and the decision maker as well. Consequently, decisions are made under the
conditions of certainty, risk, uncertainty and conflict or competition.
i. Decision-making under certainty
Decision-making under certainty implies that all the information required to arrive at a final decision is
known with complete certainty. Thus, the decision-making under certainty model assumes that
manager taking decision has full knowledge of the certainty of the information, its non-ambiguity and
stability. This means that, a manager making decision under certainty relies on a standing plan or
policy, and in such a condition decisions are made routinely.
ii. Decision-making under risk
In the condition of risk, a decision maker (manager) knows what the problem is and is aware of all
possible outcomes and their probability of occurrences. He knows what the alternatives are. But does
not know how each alternative will work. Thus, the manager is faced with the dilemma of choosing
the best alternative available.
iii. Decision-making under uncertainty
This is the most difficult decision making condition for the manager. Hence, a manager cannot develop
probability estimates for various alternatives. Thus, in the situation of uncertainty the manager is not
able to determine the exact odds (probabilities) of the potential alternatives available.
iv. Decision-making under conflict or competition
In this decision condition, there is a clash of interest of competitive firms and every decision maker
carefully considers the actions of his opponents and takes a decision that minimizes loss or maximizes
the gain.

3.5.5. Management By Objectives

Management by objectives (MBO) is a system of managing in which managers work together with
subordinates to establish objectives and design plans to achieve them. It is a process by which
managers and subordinates work together in identifying goals, setting objectives, and designing plans.
i. Central Goal Setting: Under this stage the top management sets different goals for the
entire organization with the help of other managers positioned at different levels. Once the
organizational goals are established, they should be made known to all the concerned members of
the organization and be clearly understood by them.
ii. Preparation of Departmental Divisional and Individual Goals: The step that follows
after the development of the organizational goals is preparing goals for the different departments,
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divisions and individuals as well. These goals are usually prepared by a joint effort of the
subordinates and the concerned managers. The main concept here is that, everybody gets involved
in the goal setting activities and develops a sense of responsibility to work towards the
achievement of the jointly set objectives.
iii. Matching Goals and Resources: The objectives are not ends by themselves unless we
make available the required resources and the means to achieve them. Consequently, the concerned
manager is responsible to make sure that all the subordinates are provided with the necessary tools
and materials to achieve the intended goals effectively.
iv. Review and Appraisal of Performance: The manger is required to conduct periodic review to
monitor performance and check the progress made towards the achievement of the goals. By doing
so, he will be able to recognize any unanticipated problem encountered while performing the actual
task. Moreover, such a practice can improve the moral of the subordinates.
Advantages of MBO
i. Sets clear goals
ii. Motivates (encourages) employees
iii. Develops managerial skill.
iv. Improves communication between management and subordinates
v. Reduces conflict.
vi. Facilitates control.
vii. Apart from the above-mentioned advantages, the usage of MBO system can ensure better
performance of the organization, provide coordinated effort to the organization, etc.

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