Departement of Management

CHAPTER TWO
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 programs 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?

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Key Elements of Planning

1. • Objectives
• Objectives are goals or targets that the firm wishes to reach within a stated
amount of time.
• Planning requires managers to anticipate /expect for/ what is likely to happen in
the future.
• It is the future destination of the organization, which all employees directed by.
• The where will we want to be in the future!

2. Action
• Are the specific steps the firm intends to take to achieve the desired objectives?
• The activities or tasks the firm thinks to undertake to achieve the objectives.
• It is about “how we will get where we want to be?”

3. Resource allocation
• Plan identifies what resources are required, where they come from, and how they
will be deployed.
• A manager should be aware of resource constraints and how it would be
efficiently used.
• Decisions regarding resource allocation determine whether the goals can be
realistically achieved.
• The “how much it costs”

4. Implementation Guidelines

• Plan consists of implementation guidelines the specify how the intended actions
will be carried out.
• It involves
– Division of tasks among different actors,
– Specification of reporting relationships
– Establishing the timeline for accomplishing each task.

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Departement of Management

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.

Corporate plans
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.

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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.

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Departement of Management

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.

ii. 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
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Departement of Management

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 indescribing 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.
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
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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

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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

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

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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

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
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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.

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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 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
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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.

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