Chapter – 4

PLANNING
Planning means deciding in advance what is to be done, when is to be done, how is to be
done and by whom is to be done. So that it is a process of thinking before doing.

Definition: “Planning is deciding the best alternative among others to perform different
managerial operations in order to achieve the predetermined goals” – Henry Fayol.

Importance of Planning

1. Planning provides direction – Planning provides direction for action. This ensures
effective implementation of plans and direction of effort towards attainment of
objectives. If you don’t know where you are going, no road will take you there.
2. Planning reduces uncertainty – Planning enables an organization to cope up with
uncertainty and change. With the help of planning, an enterprise can predict future
events and make due provisions for them.
3. Planning reduces overlapping and wasteful activities – Planning co-ordinates the
activities of individuals and departments in an orderly manner, which will help to avoid
wasteful activities.
4. Planning promotes innovation and creativity – Planning is a process of thinking in
advance; there is a scope for finding better methods for productivity. This makes the
managers innovative and creative.
5. Planning facilitates decision making – Planning helps in decision making by
selecting the best alternative among the various alternatives.
6. Planning establishes standards for control – Plans serve as standards for evaluation
of performance. It will help to ensure proper control by comparing the actual
performance with the standard performance.

Features of Planning

1. Planning Focuses on objectives – Every organization has its own objectives and
every plan must contribute towards the accomplishment of these objectives.
2. Planning is the primary function of management – Planning is the first function of
management. All other functions are performed to implement the plan.
3. Planning is pervasive – Planning is required at all levels of management, top
management undertakes long range plans, middle management is concerned with
departmental plans and the lower level management is related to short term plans.
4. Planning is continuous – Planning is an on-going process. Usually a plan is prepared
for a specific period of time. At the end of the period a new plan is prepared in
accordance with the requirement of future condition. E.g. Shortage in raw material in a
month may lead to revise the plan for the next month.
5. Planning is futuristic – Planning is looking ahead and preparing for the future. Hence
forecasting is the essence of planning. E.g. Keeping an umbrella in our bag with us
foreseeing the chance of rain.

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 6. Planning involves decision making – If there are various alternatives to achieve an
objective, then we have to select the best one (decision making) only after proper
analysis. E.g. If a company has three suppliers for the same raw materials, they have
to select only the best one by analyzing all the facts such as price, promptness, quality
etc.
7. Planning is a mental exercise – Planning is an intellectual process which involves
foresight, imagination and judgment.

Limitations of Planning

1. Rigidity (inflexibility) – Planning restricts the individual skill, initiative and creativity,
because employees are required to work strictly in accordance with the plans.
2. Planning may not work in dynamic environment – The scope for planning is limited up
to a certain extent especially in the organizations having rapid changing situations e.g.
Fashionable products.
3. Planning reduces creativity – Managers at middle and lower levels are just implementing
the plans formulated by the top management, thus it reduces the creativity among them.
4. Huge Cost – Planning is a very expensive and time consuming process which involves the
collection of data, analysis, interpretation etc. Hence it is not suitable for quick decisions as
well as for small concerns.
5. Time consuming – Sometimes plans to be drawn up take so much time, but there is no
much time left for their implementation.
6. Does not guarantee success – Planning may create a false sense of security in the
organization that everything is going smooth; it affects independent thinking and creativity
of managers.

Planning Process (Steps in Planning)

Developing Selecting the

1. Setting the objectives – The first step in planning is the establishment of objectives.
The objectives must be clear and specific. The objective of the entire organization is
laid down first, and then it is broken down into departments and individuals. E.g.
Rs.10000 profit is the objective for this month, then it is divided as how many units may
be produced by production department, how many units may be sold by sales
department etc.
2. Develop Planning Premises – Planning is done for the future which is uncertain,
certain assumptions are made about the future environment. These assumptions are
known as planning premises. E.g. A business is anticipating increase in the sales of
computers assuming that sales tax on computers will be decreased by the government.
3. Identifying alternatives – There are alternative ways for achieving the same goal. For
example, to increase sales, different ways are there, like advertisement, reducing
prices, improve quality etc.
4. Evaluating alternatives – The positive and negative aspects of each alternative should
be evaluated based on their feasibility and consequences.

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 5. Selecting the best alternative – After analyzing the merits and demerits of each
alternative, the most appropriate one is to be selected by evaluating cost, risk, benefit to
organization etc.
6. Implementation of plans – Implementation means putting plans into action to achieve
the objective. For the successful implementation, the plans are to be communicated to
the lower levels at every stage.
7. Follow Up – Plans are to be evaluated regularly to check whether they are proceeding
in right way, shortfalls can be located and remedial actions can be taken well in
advance.

Types of Plans

An organization has to prepare a plan before making any decision related to business
operations. These plans can be classified into single-use plans and standing plans.

Single use plan – It is developed for a one-time event or project. Such a course of action is
not likely to be repeated in future. The duration of such plan may depend upon the type of
project, may be for one day, a week or a month such as organizing an event, a seminar, a
conference etc. Single use plans includes Budgets, Programmes and Projects.

Standing plan – It is used for activities that occur regularly over a period of time. It is usually
developed once but is modified from time to time to meet business needs as required.
Standing plans include Policies, Procedures, Methods and Rules.

Based on what the plans seek to achieve, plans can be classified as follows:

Types of Plans

Objectives Strategy Policy Procedure Method Rule Programme Budget

1. Objectives – Objectives are the ends towards which an activity is aimed. They are the
results to be achieved. In other words objectives are the goals, aims or purpose that
the organization wishes to achieve. Examples of Objectives: Improvement in the sale of
a product by 10%.
2. Strategy – It is a comprehensive plan for accomplishing an organization’s objectives by
considering the business environment, i.e., changes in economic, social, political, legal
environment etc. E.g., discount sale, scratch coupon, gifts for customers etc. are some
of the strategies that can be adopted for sales promotion. It has three dimensions:
a) Determining long term objectives
b) Adopting a particular course of action
c) Allocating the resources required to achieve the objectives
3. Policy – It is a guideline in decision making to various managers. It defines the limit
within which decisions can be made. E.g. “Promotion is based on merit only” states that
while taking decision on promotion, merit will be the sole criterion.

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 4. Procedure – Procedure is a chronological order or steps to be undertaken to enforce a
policy. E.g. To implement the policy of selecting employees, the selection procedure
may be developed consisting of Inviting applications, tests, interviews, references and
then prepare the list of selected candidates.
5. Rules – Rules are the guidelines for conducting an action. They specify what should be
done or not to be done in a given situation. E.g. Office opens at 10am, smoking is
prohibited inside the office.
6. Methods – Methods provide detailed and specific guidance for day to day action. Eg.
Time rate system or Piece rate system in wage payment, most suitable method is to be
adopted in the organization for better performance.
7. Programs – It includes all the activities necessary for achieving a given task. E.g.
Opening 5 new branches in different parts of the country, deputing employees for
training, installing a new machine etc.
8. Budget – It is a plan which states the expected results of a given period in numerical
terms. E.g. Production Budget, sales budget, cash budget, expenditure budget etc.

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