CHAPTER THREE

THE PLANNING FUNCTION

I. MEANING, NATURE AND IMPORTANCE OF PLANNING

The Meaning of Planning

o Planning – is the dynamic process of making decisions today about future actions; and it is a selection or choice among
alternatives as to: What missions or objectives be achieved, What actions should be taken, What organizational positions
be assigned, How the end can be achieved, When to achieve it, Who is to do it, Where to do it. It bridges the gap between
where we are now and where we want to be.

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 goal or goals).

 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 steps or methods to reach the goals).
 What resources (resources necessary to reach the goals).

o Planning is a process of deciding what to do and how to do it before action is required.

Planning involves selecting missions and objectives 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.

Nature of Planning
Discussing the following points can highlight the nature of planning.

1. The contribution of planning to purpose and objectives

Every organization is established (exists) for the accomplishment of group purpose or objective. So, the purpose of any plan and its
derivatives or supporting plans is to facilitate the accomplishment of organizational objectives.

2. The primacy of planning

All the five managerial functions - planning, organizing, staffing, directing and controlling- are designed to support the
accomplishment of organizational objectives. However, planning precedes the execution of all other managerial functions, because
all other managerial functions must be planned if they are to be effective. This does not mean that planning is the most important
of all other managerial functions, because to be important or useful all other functions have to accompany it.

Although in practice all the functions mesh as a system of action, planning is unique in that it involves establishing the objectives
necessary for all group effort. The entire gist of initiating, exercising, and activating the managerial functions of organizing,
staffing, directing and controlling is to bring the objectives formulated during planning into fruition. In fact, the concept of
especially control would be unthinkable without planning because any attempt to control without plans is meaningless, since there
is no way for people to tell whether they are going where they want to go (the result of the task of control) unless they first know
where they want to go (part of task of planning). Plans thus furnish the standards of control. Since planning and controlling are so
much inseparable, they are treated as the Siamese twins of management.

3. The pervasiveness /Universality of planning

Planning is a function of all managers, although the character and breadth of planning varies with each manager’s authority and
with the nature of policies and plans outlined by superiors. That is, all managers-from presidents to first-level supervisors plan.
Even for personal life we plan. “It is difficult to call a person a manager if he or she doesn't plan “Koontz

4. Planning and information

CHAPTER 3: PLANNING 1
Basically no plan exists without information. To plan managers have to gather relevant information from around the environment.
Information is one of the valuable resources for planning to exist.

5. Planning is a continuous process

Planning deals with the future and the future is full of uncertainties. Hence, planning is subject to revision. It needs frequent
revision in response to changes in the internal and external environments of the organization. Therefore, so for as the organization
is in operation, planning is in continuous process. The more continuous the planning is, the higher its efficiency is.

6. Planning is a means to an end

Planning is not an end by itself. It is a means to an end (meeting objectives). Planning is an instrument that pushes people towards
the achievement of objectives.

7. Plans are arranged in a hierarchy

Plans are first set for the entire organization. The corporate plan then provides the framework for the formulation of divisional,
departmental, and sectional goals. Each of these organizational components sets its plans, programs, projects, budgets, resource
requirements, etc.

As shown in the figure below, unit plans are summed up to form sectional plans and these in turn form departmental plans. Finally,
the different divisional plans when summarized at corporate level, form corporate plan.
Fig. Hierarchy of plans
Corporate/Strategic plans

Departmental/divisional plans
Sectional plans

Operational plans

The Importance of Planning

1. It provides direction and sense of purpose

It is through planning that we can establish our objectives. Plans focus attention on sepicifc targets and direct employees effort
toward important outcomes. Once organizations known what they can do and can't do over the future, they began to set objectives
based on their capacity and the order of activities needed to accomplish their objectives. It provides direction and a common sense
of purpose. This shared purpose enables both employees and managers to coordinate, unite, and guide their actions.

2. It reduces uncertainties and anticipates the future/ preparing for change

Planning is based on systematic and careful forecasts of future states of the economy, markets, technology, etc to reduce
uncertainties to the extent they occur according to expectation. Thus, it is while planning that the manager should consider the
potential areas for changes in the future; rather than merely reacting to it. Managers should cope with changes in their own
organizations and functions in their environment through planning. Anticipating and preparing for possible future changes enables
managers to control their environment. In so doing, planning answers “what-if” questions. In planning, managers develop several
"what if" questions in order to reduce the risk of unpredictable future, so far as we plan for the future. By asking what if questions
managers develop alternatives.

3. It provides basis for controlling

Standards /controlling mechanisms/ are developed during planning. It specifies what is to be accomplished and provides a standard
for measuring progress.

4. If forces managers see the organization as a system

While planning managers have to consider parts because the plan of one part (department) affects the operation of the whole
organization so far as parts of an organization are interdependent.

5. It promotes efficiency
Planning provides the opportunity for a greater utilization of the available organizational resources - because in planning we
determine how many resources are necessary to reach the goals, and how to use these resources.

6. It provides the base for cooperative and coordinated efforts

CHAPTER 3: PLANNING 2
Management exists because the work of individuals and groups in organizations must be coordinated, and planning is one
important technique for achieving coordinated effort. Planning provides the basis for organized and coordinated effort by defining
the objectives of the organization and the means for their achievement.

7. Developing managers
The act of planning involves high level of intellectual activity. Those who plan must be able to deal with abstract and uncertain
ideas and information. Planners must think systematically about the present and the future. Through planning, the future state of
the organization can be improved if its managers take an active role in moving the organization toward that future. Planning then
implies that managers should be proactive and make things happen rather than reactive and let things happen. Through act of
planning, managers not only develop their ability to think futuristically but, to the extent that their plans are effective, their
motivation to plan is reinforced. Also, the act of planning sharpens manager's ability to think as they consider abstract ideas and
possibilities for the future. Thus, both the result and the act of planning benefit both the organization and its managers.

8. It provides guideline for decision making

Decisions in an organization will be made in alignment with the plans and in accordance with desired outcomes. Managers make
decisions on problems of recurring nature based on strategies and policies of the organization. Through specifying the actions
necessary to accomplish the goals of the organization, planning serves as a framework for decision-making. It forces managers to
make analytical thinking and evaluate alternatives through improved decisions.

Limitations of Planning
a. Planning is risky
This is because of uncertainties in the future and absence of accurate and adequate data.

b. It is a difficult and complicated task

Planning involves complex and interdependent decisions. Thus requires patience and commitment from those who are involved in
the planning process. In addition to this, rapid changes in technology and customers’ tastes and preferences will also make
planning difficult and exceptionally complex.

c. It is expensive and time consuming

Planning requires financial, physical, human, and time resources. The collection of the necessary data from various sources, the
analysis, organizing and interpreting data consume time and requires a huge amount of financial outlay.

d. It is affected by external factors

External factors can put strain on the success of planning. These factors could be external impositions, government intervention,
natural calamities, import-export policies, taxation and labor laws that can limit the success of planning.

II. ORGANIZATIONAL OBJECTIVES

 Objectives are the important ends of planning toward which organizing, staffing, leading and controlling are aimed.
 Objectives are the important ends toward which organizational and individual efforts or activities are directed.
 Objectives are essential starting points in planning because they provide direction for all other managerial activities.
 While enterprise objectives are the basic plan of the firm, department may also have its own objectives. Its objectives
naturally contribute to the attainment of enterprise objectives, but the two sets of objectives may be entirely different.
E.g. Objective of Business – To make a certain profit by producing a given line of home entertainment equipment.
Objective of manufacturing department - To produce the required number of TV sets of given design and quality at a
given cost.

These two objectives are consistent, but they differ in that the manufacturing department alone cannot ensure accomplishing the
company’s objectives.
Goals and objectives can be used interchangeably.

 Mission/Purpose - denotes the reason for the existence of an organization.

- denotes the organizations fundamental reason for existence.
Purpose and mission can be used interchangeably.

 Target – identifies specific qualitative or quantitative ends (points).

In short Mission/ purposes, objective, goals/ Targets differ in scope.

Purpose/missions  objective  Targets/goals

CHAPTER 3: PLANNING 3
Nature of Objectives
1. Goals are predetermined or stated in advance.
2. Goals describe future desired results toward which present efforts are directed.
3. Goals should be specific and measurable. If possible, goals should be expressed in quantitative terms.
4. Goals should have defined time period. They should specify the time period over which goals will be achieved and
measured. However, the long-range objectives should provide the direction for short-range objectives.
5. Objectives should be continually adjusted in light of environmental changes. However, too frequent changes and
adjustments may cause confusion and disruption of plans, strategies, policies, budgets, etc.
6. Goals should be challenging but realistic. If a goal is too difficult employees may give up. If too easy, and routine type they
may not feel motivated. Therefore, goals should be set within the existing resource base and not beyond the department’s time,
equipment, labor, and financial resources. This gives workers job satisfaction and a great desire to work hard. A difficult job is
something beyond the resource capacity of the organization and the individual employee. It ends up with failure to achieve the
stated goals.
7. Objectives have hierarchy
In planning, broader and more comprehensive objective with long time frame will be formulated at the very top. These top-
level objectives must successfully be broken down to more specific and shortsighted sub-objectives because moving the
organization to goal attainment calls for achieving these sub-objectives which are the means by which objectives are attained.
Each level of objective stand as ends relative to the levels below it and as a means relative to the level above it.

In short, like all management activities objectives have hierarchy. It ranges from the broadest organizational objectives to
specific /individual objectives. Organizations typically have three levels of goals: strategic, tactical, and operational.

Strategic goals - are broadly defined targets or future end results set by top-level management. Such goals typically address
issues relating to the organization as a whole rather than specific divisions or departments and may sometimes be stated in
fairly general terms. Strategic goals are sometimes called official goals because they are formally stated by top management.

Tactical goals - are targets or future end results usually set by middle management for specific departments or units. Goals at
this level spell out what must be done by various departments to achieve the results outlined in the strategic goals. Tactical
goals tend to be stated in more measurable terms than is sometimes true of strategic goals.

Operational goals - are targets or future end results set by lower management that address specific, measurable outcomes
required from lower levels.

The three levels of goals can be thought of as forming a hierarchy of goals. With a hierarchy, goals at each level need to be
synchronized so that efforts at the various levels are channeled ultimately toward achieving the major goals of the organization.
In this way, the various levels of goals form a means-end chain, in which the goals at the operational level (means) must be
achieved in order to reach the goals at the tactical level (end). Likewise, the goals at the tactical level (means) must be reached
in order to achieve the goals at the strategic level (end).
8. Multiplicity of objectives
Even though there is only one broad and overall organizational objective, there are other multiple (many) objectives that are under t
umbrella of the overall plan which are directed to attain the overall plan. It would have been relatively easy to achieve an objective and
sub-objective had an organization had only a single basic objective. But in reality organizations do have a multitude of objectives and a
attempt to disregard this fact can invite failure to organizations.

E.g. Organizational (Broad) objective: profit maximization

Satisfaction of customers
Other objectives Research & development
Employee development

9. Integrating character
In order to achieve the broad organizational objective there should be harmony or integration among objectives.
Multiple Objectives  Integration  Network of objectives

10. Network of objectives

Objectives of an organization form network, that is, objectives are interrelated and interdependent. The union of the individual
objectives to form an overall objective makes network of objectives. If there were no network of objectives, it would be very

CHAPTER 3: PLANNING 4
 difficult to achieve organizational objectives because people with their individual objective will pursue their activity as right and
coordination can never be possible.

11. Primacy of objectives

Objectives are primary to organization because they are the very reason for the existence of an organization.

Benefits of Objectives
i. Objectives provide basis for the performance of all managerial functions. They serve as a
benchmark for the formulation of plan, policies, strategies, rules, budgets, procedures, etc. Organizing exists when there are
objectives and courses of action required for implementing plans, organizing signifies the need for staffing by creating jobs and
positions and coordinating all organizational efforts to desired results.

ii. Objectives provide guidelines for action. They help clarify expectations. When goals are set, organization members are more
likely to have a clear idea of the major outcomes that they are expected to achieve. Without goals, organization members can all
be working very hard but may collectively accomplish very little as if they were rowers independently rowing the same boat in
different directions and together making very little progress. Goals direct and channel employees’ efforts by describing future
desired results. They provide focus and direction for employees by prescribing what ‘should be’ done. And, they also help to
allocate resources and tell employee how and where to direct their strongest efforts. Goals are basic for cooperative and organized
effort.

iii. Objectives can limit employee activities. They serve to prescribe what ‘should be done’ and
‘what should not be done’ by the employees.

iv. Objectives provide a unique identity for organizations. Organizations have unique characteristics.
They have their own values and identities that help one to differentiate them from others in the industry.

v. An organization’s goal can serve as a source of employee motivation. It helps to uplift their
morale. By presenting a challenge, goals tell what characterizes success and how to achieve it. Accomplishment of organizational
goals provides employees a sense of achievement and satisfaction. The added motivation develops from meeting goals, feeling a
sense of accomplishment, and receiving recognition and other rewards for reaching targeted outcomes. On the other hand,
managing employees based on the accomplishment of objectives rather than on the tasks and activities of every worker
(management by objectives-MBO) can serve as an incentive to employees.

vi. Objectives provide performance standards and bases for control. Control is the function of
measuring, comparing and evaluating performance against predetermined standards. Thus, control will be meaningless in the
absence of standards provided by objectives.

How Goals Facilitate Performance

In order to make use of goals, managers need to understand just how goals can facilitate performance. Goals facilitate performance
if they have the following components: goal content, goal commitment, work behavior, and feedback.

Goal Content: Goals that are effective in channeling effort toward achievement at the strategic, tactical, and
operational levels have a content that reflects five major characteristics. Goals should be challenging, attainable, specific and
measurable, time limited, and relevant.

Goal commitment: A critical element in using goals effectively is getting individuals and/or work groups to be
committed to the goals they must carry out. Goal commitment is one's attachment to, or determination to reach, a goal. Without
commitment, setting specific, challenging goals will have little impact on performance. Research indicates that five major factors
positively influence goal commitment: supervisory authority, peer and group pressure, public display of commitment, expectations
of success, and incentives and rewards.

Work Behavior: Given goals and commitment, how does the goal-setting process ultimately influence behavior?
Research so far suggests that goal content and goal commitment affect an individual's actual work behavior by influencing four
work behavior factors: direction, effort, persistence and planning.
Direction: Goals provide direction by channeling attention and action toward activities related to those goals, rather than to other
activities. Thus goals to which we are committed can help us make better choices about the activities that we will undertake.
Effort: In addition to channeling activities, goals to which we are committed boost effort by mobilizing energy. As indicated by
the research on goal setting, individuals are likely to put forth more effort when goals are difficult than when they are easy.g
Persistence: Persistence involves maintaining direction and effort on behalf of a goal until it is reached, a requirement that may
involve an extended period of time. Commitment to goals makes it more likely that we will persist in attempting to reach them.
CHAPTER 3: PLANNING 5
Planning: In addition to the relatively direct efforts on direction, effort and persistence, goals also have an important indirect effect
on work behavior by influencing planning. Goal setting affects planning because individuals who have committed themselves to
achieving difficult goals are likely to develop plans or methods that can be used to attain those goals. With easy goals, however,
little planning may be necessary.

Feedback: feedback to employees as to their performance will let them know if they have worker as to the expectation.
By comparing their performance with the set goals, managers should give feedback on employees’ performance that will help them
evaluate themselves and direct their effort towards achievement.

III. The Planning Process

Like other managerial activities planning has its own processes or series of steps. These steps are interrelated and there is no rigid
boundary between or among these steps, and one is the base for the other.

1. Establishing objectives
As objectives provide the direction for all other managerial functions, especially planning, objective setting is an important first
step in the planning process. Objectives specify the expected results and indicate the end points of what is to be done, where the
primary emphasis is t be placed, and what is to be accomplished by the network of strategies, policies, procedures, rules, budgets,
and programs. They provide the direction necessary for achievement and without them there is little to keep a manager from
simply wandering in all directions. Objectives are then, the ‘guiding light’ for the entire management process.

Objective setting is a three steps process, which involves assessing the present situation, anticipating future conditions, and then
setting the objectives. It is only after the managers have at least the rudimentary knowledge about their capabilities and available
opportunities that objective setting does make sense.

Organizations do not have one set of objectives, which each manager attempts to achieve. Rather, setting objectives involves
establishing objectives for the entire organization, each subordinate work unit, and the long range as well as the short range. The
hierarchy of objectives starts at the top of the organization with overall organizational objectives and proceeds downwards with
narrower and more specific objectives for each level managers, derived from the objectives at the level

Objectives developed by organizational levels and peer managers should be compatible with one another. Top-level management
should set the stage for goal setting by lower level management, thereby ensuring maximum use of resources. Enterprise objectives
give direction to the major plans which define the objective of every major department. Major department objectives, in turn,
control the objectives of subordinate departments and so down the line.

2. Developing premises
Planning premises are assumptions about the environment within which the plan is to be carried out. Once objectives are
established managers have to investigate the company's environment to know factors that facilitate or block the attainment of these
objectives. This involves examining the external and internal factors which affect the performance of the organization: the external
environment (for Treats and Opportunities) through PEST analysis and internal environment (for Strengths and Weaknesses)
through Self-Audit.

 Strengths are internal competencies possessed by the organization in comparison with the competitors. These include
structure and policies of the organization, location, financial soundness, knowledge of personnel, qualities of facilities, and so
on.
 Weaknesses are attributes of the organization which tend to decrease its competence in comparison to its competitors.
 Threat is reasonably probable events which if it were to occur, would produce significant damage to the organization.
 Opportunity is a combination of circumstances, time, and place which if accompanied by a certain course of action on the
part of the organization, is likely to produce significant benefits.

The key element of planning at this stage is forecasting. It is based on the forecasts made in different areas that premises are made.

Because the future is so complex, it would not be profitable or realistic to make assumptions about every detail of the future
environment of a plan. Therefore, premises are, as a practical matter, limited to assumptions that are critical, or strategic, to a plan,
that is, those that most influence its operation.

3. Determining alternative courses of actions

CHAPTER 3: PLANNING 6
Alternatives are courses of actions that are available to a manager to reach a goal. In developing alternatives, a manager should try
to create as many roads to the objective as possible. Usually the most common problem is not finding alternatives but reducing
number of alternatives so that the most promising may be analyzed.

4. Evaluating alternative courses of action

Having sought out alternative courses, managers evaluate the benefits, costs and effects of alternative courses in light of their
weight to goals and premises. Because there are so many alternative courses in most situations and there are numerous variables
and limitations to be considered, evaluation can be exceedingly difficult. This is a step in planning process that operations research
and mathematical as well as computing techniques have their primary application to the field of management.

5. Selecting a course of action

This is the point at which the plan to be adopted is chosen or selected. It is the real point of decision-making. The analysis of each
alternative’s disadvantages, benefits, costs and effects should result in determining one course of action that appears better than the
others. If no one alternative emerges as clearly the best, consideration should be given to combining parts or the entire content of
two or more alternatives. Whatever the course chosen, it should be one that gives you the most advantages and the fewest serious
disadvantages.

6. Formulating derivative plans

At step 5 planning is ended. Formulating derivative plans means formulating other plans based on one major plan.

7. Numberizing plans by budgeting

Numberizing plans is converting them into budgets. Plans will have meaning when they are changed into numbers. Budgeting is
the means of adding various plans together and set important standards against which planning process can be measured.

8. Implementing the plan

After the optimum alternative has been selected, the manager needs to develop an action plan to implement it. This is a step where
by the entire organization will be in motion or real operation. All the planning in the world will not help an organization realize
objectives if plans cannot be implemented. Implementation involves determining who will be involved, what resources will be
assigned, how the plan will be evaluated, and the reporting procedure.

9. Controlling and evaluating the results

Once the plan is implemented, the manager must monitor the progress that is being made, evaluate the reported results, and make
any modifications necessary. The environment that a plan is constructed in is constantly changing, so the plans may have to be
modified. Or modification may be needed because a plan was not quite “perfect” when it was implemented. Hence, managers need
to make certain that the plan is going according to expectations and making necessary adjustments.

IV. Types of Plans

Plans can be classified on different bases or dimensions. These are:
- Scope/breadth dimension,
- Time dimension, and
- Use/repetitiveness

i. Scope/Breadth Dimension
Scope refers to the comprehensiveness of the plan, or it refers to the level of management where plans are formulated. This
dimension creates hierarchy of plans. Based on scope/breadth we can classify plans into: Strategic, Tactical and Operational.

Strategic Plan: is organization wide plan that is formulated or developed by top-level management in consultation with the board
of directors and middle level management. It applies to the entire organization.
- Looks ahead over the next two, three, five or more years.
- Develops the direction for the entire organization.
- Is primarily concerned with solving long-term problems associated with external environmental influences.
- Establishes overall objectives and positions for an organization in terms of its environment.

The following are distinguishing characteristics of strategic plan.

1. It requires looking outside the organization for threats and opportunities.
2. It requires looking inside the organization for strengths and weaknesses
3. It takes a longer view, i.e. it covers a relatively long time horizon > 5 years.
4. It tends to be top management responsibility, but it reflects a mentality useful at all levels.
5. It is expressed in relatively general non-specific terms.

CHAPTER 3: PLANNING 7
Strategic plans address such questions as:
- What business are we in?
- What business should we be in?
- Where will we be in ten years if we continue doing what we are now doing?
The difference between a firm would like to be (where we want to be) and where it will be if it does nothing is called the Planning
gap. Strategic planning is primarily concerned with closing that gap.
 The success or failure of an organization depends up on the success or failure of strategic plans. It makes premises for tactical
plans.

Tactical Plan: refers to the implementation of activities and the allocation of resources necessary for the achievement of the
organization’s objectives.
- is an intermediate plan that helps to reduce long range planning into intermediate one by increasing the amount of specificity
and making the actions goal oriented. Tactical plans are specific and more goal oriented than strategic plans. Middle level
management in consultation with lower level management develops them.
- Tactical plans are the means charted to support the implementation of the strategic plans and achievement of tactical
goals. They are concerned with shorter time frames and cover a narrower scope (narrower range of activities).
- Structures a firm’s resources to achieve maximum performance.
- Concerned with what the lower level units within each division must do, how they must do it, and who will have the
responsibilities for doing it.
- Tactical plans make premises for operational plans.
- is narrower in scope than strategic plan and wider than operation plan; but more detailed than strategic plan and less
detailed than operational plan
E.g. what is the best pricing policy?
Which city or town is suitable for marketing our products?

Operational Plan: is concerned with the day to day activities of the organization and is made at the lower level management in
consultation with middle level management. Operational plans spell out specifically what must be accomplished to achieve
specific/operational goals. It is concerned with the efficient, day-to-day use of resources allocated to a department manager’s area
of responsibility.
- Operational plans have relatively short time frame (< 1 yr). It is the most detailed (more specific) and narrowest plan compared to
the above two; because it is to be implemented day-to-day.

E.g. –What production technique is best?

- What materials are needed for operation?

 Unless operational goals are achieved in organizations, tactical and strategic plans will not be successful and goals at those
levels will not be achieved.

ii. Time Dimension

Time dimension refers to the time periods for which the planning is intended. Based on the length of time a plan covers, we do
have three types of plans: Long-range (five years or more), medium-range (between one and five years) and short-range plans (one
year or less).

 Time dimension and scope dimension are the same except the former is about the length of time that the plan covers and
the later about the level of management where the plan is formulated.

All strategic plans are long-range plans.

All tactical plans are medium-range plans.
All operational plans are short-range plans.

iii. Use Dimension

Use dimension refers to the extent to which plans will be used on a recurring basis, i.e. based on how repeatedly/frequently a given
plan is used. Based on this dimension we do have two types of plans: standing plans and single use plans.

Standing Plans: are plans that provide an ongoing guidance for performing recurring activities.
- They are plans which are formulated to be used again and again for the day-to-day operation of the organization.
That is, repetitive situations or actions require the development of such plans. They become necessary when the same kinds of
actions are to be taken over and over again. Standing plans become valuable under relatively stable situations.
Once established, standing plans allow managers to conserve time used for planning and decision-making because similar
situations are handled in a predetermined, consistent manner.
CHAPTER 3: PLANNING 8
E.g. A bank can more easily approve or reject loan requests if criteria are established in advance to evaluate credit ratings,
collateral assets, and related applicant information.
The major types of standing plans are policies, rules and procedures.

CHAPTER 3: PLANNING 9
 a. Policies: is a general guide that specifies the broad parameters within which organization members are expected to operate in
pursuit of organizational goals.
- Policies are general statements or understandings which guide or channel thinking and actions in decision-making to
achieve organizational objectives.
Not all policies are “statements”, they are often merely implied from the actions of managers.

Policies have the following characteristics:

1. Policies define an area within which a decision is to be made and ensure that the decision will be consistent with and
contribute to an objective.
2. Policies help to decide issues before they become problems; make it unnecessary to analyze the same situation every time it
comes up and unify other plans.
3. Policies tell us what to do in a general sort of way.
4. Policies provide discretion within limits since they are guides to decision-making. Policy is a means of encouraging
discretion and initiative, but within limits. The amount of freedom will naturally depend up on the policy and in turn will
reflect position and authority in the organization.
5. Policies must be flexible.

 Policies are usually established formally and deliberately by top managers of the organization. They can also emerge
informally and at lower levels in the organization from a seemingly consistent set of decisions on the same subject made over
a period of time.

Policies are established at the top because:

a. They feel it will improve the effectiveness of an organization.
b. They want some aspect of the organization to reflect their personal values (E.g. Dress codes)
c. They need to clear up some conflict or confusion that has occurred at a lower level in the organization.
Examples of policy:
1. Except for token gifts of purely nominal or advertising value, no employee shall accept any gift from
any supplier at any time.
2. Hiring university trained engineers
3. To promote from within
4. We accept returned merchandise

b. Rules: spell out specific required action or non-actions, i.e., actions that must be or must not be taken, allowing no discretion, in
a given situation.
E.g. No smoking, cheating is prohibited.
 A rule is an ongoing, specific plan for controlling human behavior and conduct at work.
 The purpose of policies is to guide decision-making by marking off areas in which managers can use their discretion.
Although rules also serve as guides, they allow no discretion in their application.
 Rules are the most explicit of standing plans and are not guides for thinking or decision-making. Rather, they are substitutes
for them. The only choice a rule leaves is whether or not to apply it to a particular set of circumstances.

c. Procedures: are statements that detail the exact manner in which certain activities must be accomplished. They put the precise
order of activities to be carried out to do a task and thus, procedures are chronological sequences of required actions. They provide
detailed step-by-step instructions as to what should be done. Procedures prescribe exactly what actions are to be taken in a specific
situation and specify the chronological sequence of activities. For example, material procurement, university admission, bidding,
etc.

When we compare the above three, policies, procedures and rules, we can understand that all are alike in the sense that they are
directives to guide people’s behavior to the desired ends and they are plans which are to be followed in the future. Conversely,
procedures and rules are different from policies in that the formers are guides to actions while the latter are guides to thinking. So,
procedures and rules render no freedom and hence should be used when we want to discourage initiative or repress thinking. But,
policies must permit freedom within limits and hence are used when people’s involvement, participation or initiative is desired.

Though both rules and procedures repress thinking, they are different. Unlike procedures, rules (1) guide actions without
specifying a time sequence (2) spell out that a certain action must or must not be taken. Procedures, however, specify a time
sequence. In fact a procedure may be looked upon as a sequence of rules. A rule, however, may or may not be part of a procedure.

Single use plans: are plans aimed at achieving a specific goal that, once reached, will most likely not recur in the future and
dissolved when these have been accomplished.
- Are designed to accomplish a specific objective usually in a relatively shorter period of time and it is non repetitive.
CHAPTER 3: PLANNING 10
 - They are detailed courses of action that probably will not be repeated in the same form in the future.
The major types of single use plans are programs, projects, and budgets.
E.g. A firm planning to build a new warehouse-location, construction costs, labor availability, zoning restrictions.

a. Programs: is a comprehensive plan that coordinates a complex set of activities related to a major non-recurring goal.
- Are a complex of goals, policies, procedures, rules, task assignments, steps to be taken, resources to be employed and other
elements necessary to carryout a given course of action
- Single use plans may use standing plans and other single use plans to be effective.

Single use plan = Standing plans + Single use plans

A program may be as large in scope as placing a person on the moon or as comparatively small as improving the reading level
of fourth grade students in a school district. Whatever its scope, it will specify many activities and allocations of resources
within an overall scheme that may include such other single use plans as projects and budgets.
* A program may be repeated with modification but not as it is.

b. Projects: is a plan that coordinates a set of limited scope activities that do not need to be divided into several major projects in
order to reach a major non-recurring goal.
- Projects are the smaller and separate portions of programs. Each project has limited scope and
distinct directives concerning assignments and time. Each project will become the responsibility of designated personnel
who will be given specific resources and deadlines.
E.g. Building a warehouse can be taken as a program. In the warehouse example, typical projects might include the preparation
of layout drawings, a report on labor availability, and recommendations for transferring stock from existing facilities to
the new installation.

c. Budgets: are statements of expected results expressed in numerical terms.

- Are statements of financial resources set aside for specific activities in a given period of time.
- Budget is a single use plan that commits resources to an activity over a given period. It may be expressed in Birr, labor
hours, units of product, machine hrs, or any other numerically measurable term.
- It may be referred to as a “numberize” program.
Budgets are also control devices. However, making a budget is clearly planning.

Characteristics of a Good Plan

Every sound business plan must have these characteristics:
Objectivity
Planning should, first all, be based on objective thinking. It should be factual, logical and realistic. It should be directed to
achieving organizational goals rather than personal objectives.
 Futurity
Since a plan is a forecast of some future action, it must have the quality of futurity; otherwise, it has little value as a basis for
future action. If a plan is to be effective, it must foresee with reasonable accuracy the nature of future events affecting the
industry and the firm. The inability to foresee future events, a human limitation that we cannot overcome, is the weak link in
planning process.
Flexibility
Because no one can foresee the future, plans must have flexibility. They must adjust smoothly and quickly to changing
conditions without seriously losing their effectiveness. The more difficult it is to predict the future, the more flexible the plans
must be.
 Stability
 Stability is related to flexibility. A stable plan will not have to be abandoned because of long-term changes in the company’s
situation. It may be affected by long-range developments, but it should not be changed materially from day to day.
 Comprehensive
 A plan must be comprehensive enough to provide adequate guidance, but not so detailed as to be unduly restrictive. It should
cover everything required of people, but not in such detail that it inhibits initiative.
 Simplicity and clarity
 Although a good plan must be comprehensive, it should also be simple. A simple plan seeks to attain its objective with the
fewest components, forces, effects and relationships. A plan should not be ambiguous. Lack of clarity makes understanding
and implementation difficult.
 Contingency planning is the development of alternative plans for use in the event that environmental conditions evolve
differently than anticipated, rendering original plans unwise or unfeasible.
 Planning staff- is a small group of individuals who assist top-level managers in developing the various components of the
planning process.

CHAPTER 3: PLANNING 11
CHAPTER 3: PLANNING 12