UNIT THREE

THE PLANNING FUNCTION

Introduction

This unit describes one of the five functions of management that is planning. It explains the importance
of planning in management. It explains why planning is important in management and other economic
activities. The types of plans are introduced and described in this unit. It also illustrate the steps in the
planning process in lined with detail activates that should be done in each step. Organizational objective
and its sound characteristics also included in this unit.
2.1 Concepts and need for planning
2.1.1 Concepts of planning
Planning is the management of the organization's future in an uncertain environment.
Planning - is the process of setting objectives and determining the steps needed to attain them?
 Is systematic preparation for tomorrow, today
 Is an orderly process that allows managers to determine what they want and how
they get it.
 Deals with ends (what is to be done).
Planning is anticipating the future events and determining how to meet the demands of such event.
Planning answers six basic questions in regard to any intended activity- what, when, where, who, how,
and how much.
 What- refers to goal or objectives
 When- refers to question of timing
 Where- refers to place where planning ends?
 Who- refers to specific people who will perform the plan
 How- refers to method for reaching
 How much- refers to the expenditure of resources
In planning managers:
 Assess the future
 Determine objectives of the organization and develop the overall strategies.
 Determine resources needed to achieve the objectives

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Planning encompasses defining the organization’s objectives or goals, establishing an overall
strategy, development of schedules and developing a comprehensive hierarchy of activities to
integrate and coordinate.
2.1.2 Need for planning
Planning is important for every organization irrespective of its size, objectives, and location. Because
decisions without planning would become random this may lead to failure of entire organization.
Planning is important for several reasons:
1. It provides direction for an organization by specifying objectives
2. It reduces risk and uncertain of the future
3. It allows organizational members to concentrate on common organization's objective
4. It provides criteria for decision making
5. It provides basis for control or it facilitates control
2.2 Types of Plans
Plan can be classified in to different types based on various criteria (basis):
1. repetitiveness,
2. time dimension and
3. Scope or breadth dimension.
1. Classification of plans based on repetitiveness
On the basis of repetitiveness plans can be classified in to two:
i. Single use plans
ii. Standing plans
i. Single use plans
Single use plans are those plans which have no more use after objective is accomplished. Once activity
for which they have been made is over, single use plans have little or no use at all. They include:
programs, projects, and Budgets.
Program is set of goals, policies, procedures, rules, job assignments, resources to be employed, and oth
er elements necessary to carry out a given course of action.
 Is set of activities used to accomplish objectives or used to solve some problem.
Project: is specific action plan formulated to complete various aspects of a program which can be distin
ctly identified as a clear-cut grouping of activities with definite objectives and completion time.
Budget - is a statement of expected results expressed in numerical terms. Budget is a plan that shows
how money will be spent over a certain period of time. Even if budget is often thought as control

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technique, it is also a plan since it sets forth objective to attain. Sometimes called as 'numerical plan' as
they are quantitative in nature.
ii. Standing Plans
Standing plans are type of plans which can be used again and again once they made. They remain useful
for long period in dealing with repetitive situations.
They include: policies, procedure, and rules.
Policy- is a general statement designed to guide employees' actions in recurring situations. It establishes
broad limits, provides direction, but permits some initiative and discretion on the part of the supervisor.
Thus, policies are guidelines.
 Policies are guidelines to decision making. Policies establish abroad framework within which
managers at different levels make decisions.
 are general guide to thinking and action
Policies are important for an organization as they:
 provide guidance to decision making
 Channels all decisions toward the attainment of objectives.
 Ensure consistency and uniformity in decision making.
Procedures _ are sequences of steps or activities involved in making decisions or performing other
tasks. A procedure is a sequence of steps or operations describing how to carry out an activity and
usually involves a group. It is more specific than a policy and establishes a customary way of handling a
recurring activity. Thus, less discretion on the part of the supervisor is permissible in its application. An
example of a procedure is the sequence of steps in routing of parts. Procedures aim at laying down a
mechanism for orderly performance and coordination of various organizational activities so as to avoid
random actions and operations. Like policies, procedures also contribute in consistency of
organizational activities by providing steps.
Rules; are on-going specific plans influencing human behavior or conducts at work place. A rule is an
established guide for conduct. Rules include definite things to do and not to do. There are no
exceptions to the rules.
 Rules are fixed plans and define what should and what should not be done. (Guide to action).
 Unlike polices, rules don't allow for interpretation or decisions. Decisions are needed only in
making the rules. . An example of a rule is "No Smoking
2. . Classification of plans based on time dimension

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Taking time in consideration a plan can be categorized in to three. Basically planning deals with future
and the future is measured in time. Hence it is convenient and acceptable to think of different kinds of
planning in terms of the time periods for which the planning is intended.
I. Long range plans
Long range plans are those plans which have longer time horizon; they are concerned with distant future
than immediate future. The time may range from 5 to 10 years based on the size and the type of
organizations.
II Intermediate plans
Intermediate range plans are those plans with a time horizon between one and five years. They range
between long and short-term plans.
III. Short range plans
Short range plans are those plans with time dimension it is not possible to have a right time horizon
guide line. For a plan to be short range or long range, it depends on the size of an organization and
nature of business of an organization. So short range plan for one organization may be an intermediate
or long range plan for the other organization.
3. Classification of Plans Based on Scope (Breadth)
Based on their scope or breadth plans can be classified in to three types: strategic plans, tactical plans,
and operational plans.
(i) Strategic plans
Strategic planning produces fundamental decisions and actions that shape and guide what an
organization is, what it does, and why it does it. It requires broad-scale information gathering, an
exploration of alternatives, and an emphasis on the future implications of present decisions. Top level
managers engage chiefly in strategic planning or long range planning. They answer such questions as
"What is the purpose of this organization?" "What does this organization have to do in the future to
remain competitive?" Top level managers clarify the mission of the organization and set its goals. The
output needed by top management for long range planning is summary reports about finances,
operations, and the external environment.
Strategic planning is the process of developing and analyzing the organization's mission, overall goals,
general strategies, and allocating resources. A strategy is a course of action created to achieve a long-
term goal. The time length for strategies is arbitrary, but is probably two, three, or perhaps as many as
five years. It is generally determined by how far in the future the organization is committing its
resources. Goals focus on desired changes. They are the ends that the organization strives to attain.

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Traditionally strategic planning has been done annually. However, many companies are doing away
with annual business plans altogether and moving to a system of continuous planning, to permit quicker
response to changing conditions. Thus, the strategic plan involves adapting the organization to take
advantage of opportunities in its constantly changing environment.
Generally, Strategic plans _ Performed by top-level management
 Mostly long range in its time frame
 Expressed in relatively general terms
 Type of planning that provides general future based direction to organization.
(ii) Tactical plans
Top level managers set very general, long-term goals that require more than one year to achieve.
Examples of long-term goals include long-term growth, improved customer service, and increased
profitability. Middle managers interpret these goals and develop tactical plans for their departments that
can be accomplished within one year or less. In order to develop tactical plans, middle management
needs detail reports (financial, operational, market, external environment). Tactical plans have shorter
time frames and narrower scopes than strategic plans. Tactical planning provides the specific ideas for
implementing the strategic plan. It is the process of making detailed decisions about what to do, who
will do it, and how to do it. Tactical planning is the process of developing action plans through which
strategies are executed. Tactical plan- is a plan used to develop means needed to activate and implement
strategy.
Generally, Tactical plans:
 performed by middle level managers
 Have shorter time frame, more detail and narrower scope than strategic plans
 Guide submits of an organization
(iii) Operational plans
Supervisors implement operational plans that are short-term and deal with the day-to-day work of their
team. Short-term goals are aligned with the long-term goals and can be achieved within one year.
Supervisors set standards, form schedules, secure resources, and report progress. They need very
detailed reports about operations, personnel, materials, and equipment. The supervisor interprets higher
management plans as they apply to his or her unit. Thus, operational plans support tactical plans. They
are the supervisor's tools for executing daily, weekly, and monthly activities. Operational planning is
the process of setting short-rang objectives and determining in advance how they will be accomplished.
To sum up, Operational plans:

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  Are first line managers' tools for exciting daily, weekly, and monthly activities.
 Performed by operational level managers.
 Are Specific and more detail than others.
2.3 Planning process
Planning is not something which is made all once at a time. The planning process is rational and
amenable to the scientific approach to problem solving. It consists of a logical and orderly series of
steps. A person involved in planning pass through number of steps to make effective plans. Process of
planning indicates the major steps taken place in planning. The steps generally involved in planning are:
Step-1 Establishing objectives
The first step in planning is to establish objectives for the enterprise and then for each subordinate work
unit.
Objectives are the driver of planning processes. Objectives are established at all levels of the
structure, beginning at the top level and running down to first line managers. Strategic goals and
objectives are developed to bridge the gap between current capability and the mission. They are aligned
with the mission and form the basis for the action plans. Objectives are sometimes referred to as
performance goals. Generally, organizations have long-term objectives for such factors as return on
investment, earnings per share, or size. Furthermore, they set minimum acceptable standards or
common-sense minimums. In addition, certain limitations, either explicit or implicit, such as "must
provide jobs for existing employees" may exist. Objectives elaborate on the mission statement and
constitute a specific set of policy, programmatic, or management objectives for the programs and
operations covered in the strategic plan. They are expressed in a manner that allows a future assessment
of whether an objective has been achieved.
Step 2. Environmental Analysis and forecasting
The next point for planning is an awareness of environment, both internally and externally.
Organization should maintain a continual assessment of the environment to determine its own
weaknesses and strengths internally and to be aware of opportunities and threats in external
environment. . Based on this analysis of internal and external environment forecasting (predicting) of
different environmental factors such as economics, technological, political etc can be made to assist real
planning. Conduct a situation or SWOT analysis by assessing strengths and weaknesses and
identifying opportunities and threats. A situation or SWOT (Strengths, Weaknesses, Opportunities,
and Threats) analysis is critical to the creation of any strategic plan. The SWOT analysis begins with a
scan of the external environment. Organizations must examine their situation in order to seek
opportunities and monitor threats. Sources of information include customers (internal and external),
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suppliers, governments (local, state, federal, international), professional or trade associations
(conventions and exhibitions), journals and reports (scientific, professional, and trade).

SWOT is the assumptions and facts on which a plan will be based. Analyzing strengths and weaknesses
comprises the internal assessment of the organization. Assess the strengths of the organization. What
makes the organization distinctive? (How efficient is our manufacturing? How skilled is our workforce?
What is our market share? What financing is available? Do we have a superior reputation?) Assess the
weaknesses of the organization. What are the vulnerable areas of the organization that could be
exploited? (Are our facilities outdated? Is research and development adequate? Are our technologies
obsolete?) What does the competition do well?

Analyzing opportunities and threats comprises the external assessment of the environment. Identify
opportunities. In which areas is the competition not meeting customer needs? (What are the possible
new markets? What is the strength of the economy? Are our rivals weak? What are the emerging
technologies? Is there a possibility of growth of existing market?) Identify threats. In which areas does
the competition meet customer needs more effectively? (Are there new competitors? Is there a shortage
of resources? Are market tastes changing? What are the new regulations? What substitute products
exist?) The best strategy is one that fits the organization's strengths to opportunities in the environment.

The SWOT analysis is used as a baseline for future improvement, as well as gap analysis. Comparing
the organization to external benchmarks (the best practices) is used to assess current capabilities.
Benchmarking systematically compares performance measures such as efficiency, effectiveness, or
outcomes of an organization against similar measures from other internal or external organizations. This
analysis helps uncover best practices that can be adopted for improvement. (See Camp, R. C.
Benchmarking: The search for industry best practices that lead to superior performance. Norcross, GA:
Industrial Engineering and Management Press, 1993.) Benchmarking with other organizations can help
identify a gap. Gap analysis identifies the progress required to move the organization from its current
capabilities to its desired future state. In this way, the organization can adapt to the best practices to
improve organizational performance.
Step 3. Determining alternative course of Action
Once objectives are set, the management must identify alternative ways for reaching them. When
developing alternatives a manager should try to create as many roads to each objective as possible. In
fact, in most cases the challenging is not to find alternative ways but to decide which ones are best. To
decide on best ones it requires evaluation.
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Step 4. Evaluating the alternatives
Each alternative needs to be evaluated to determine which one best achieves the objectives. In
evaluating managers should assess cost (disadvantages) and benefits (advantages) of all alternatives.
The assessment may include both financial and non financial considerations.
Step 5. Select the best alternatives
After evaluating all possible alternatives, managers will select alternative that remains better than others.
It may be an alternative with least disadvantages and most advantages.
Step 6. Implementing the plan
After the alternative course of action selected, it is important to develop an action plan to execute the
plan. In this step method for implementation will be suggested.
Step 7. Controlling and evaluating the results
Once the plan is implemented it needs monitoring. Managers should monitor the progress being made,
evaluate the reports made based on results, and make any necessary modifications, because factors in
environment are constantly changing, plans must be modified to cope up with changes.

3.4 Value, Mission, Vision, Goals, Objectives, and Targets

These words are often the most confusing words in management field. They are somewhat similar but
not exactly the same in their meanings.
Values
Each supervisor's approach to management will reflect his or her values, as well as those of the
organization. Building trust starts with creating culture based on shared values. Values are traits or
qualities having intrinsic worth, such as courage, respect, responsibility, caring, truthfulness, self-
discipline, and fairness. Values serve as a baseline for actions and decision-making and guide employees
in the organization's intentions and interests. The values driving behavior define the organizational
culture. A strong value system or clearly defined culture turns beliefs into standards such as best quality,
best performance, most reliable, most durable, safest, fastest, best value for the money, least expensive,
most prestigious, best designed or styled, easiest to use. If asked, "What do we believe in?" or "List our
organization's values" all employees in the organization should write down the same values. For
example, McDonald's values were captured in its motto of "Q.S.C. & V." which stands for quality,
service, cleanliness, and value.

Supervisors need to appreciate the significance of values and value systems. Values affect how a
supervisor views other people and groups, thus influencing interpersonal relationships. Values affect
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how a supervisor perceives situations and solves problems. Values affect how a supervisor determines
what is and is not ethical behavior. Values affect how a supervisor leads and controls employees. Since
employees often base behavior on perceived values it is critical to ensure their perceptions reflect
organizational values. Supervisors must communicate, encourage and reinforce the desired values and
related behaviors to integrate them into the organizational culture.

Mission
A mission is a broad definition of a business that differentiates it from all other organizations. It is the
justification for the organization's existence. The mission statement is the "touchstone" by which all
offerings are judged. In addition to the organization's purpose other key elements of the mission
statement should include whom it serves, how, and why. The most effective mission statements are
easily recalled and provide direction and motivation for the organization.

Since an organization exists to accomplish something in the larger environment, its specific mission or
purpose provides employees with a shared sense of opportunity, direction, significance, and
achievement. An explicit mission guides employees to work independently and yet collectively toward
the realization of the organization's potential. Thus, a good mission statement gets the emotional
bonding and commitment needed. It allows the individual employee to say; "I know how I should do my
job differently."
Vision
Erich Fromm pointed out; "The best way to predict your future is to create it." A vision might be a
picture, image, or description of the preferred future. A visionary has the ability to foresee something
and sees the need for change first. He or she challenges the status quo and forces honest assessments of
where the industry is headed and how the company can best get there. A visionary is ready with
solutions before the problems arise.
Managers require more vision than ever because change is coming faster than ever. Leaders have the
ability to make their vision real by engaging the minds, as well as the hearts of others.
Microsoft's early vision statement was "A Computer on Every Desk and In Every Home." Microsoft's
vision has evolved [1998 the "Connected PC and the Connected TV"- the idea of integrating the
intelligence and interactivity of PCs with the video and sound of TV] to 2002 "to enable people and
businesses throughout the world to realize their full potential."

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Goal _ is expected (desired) performance to be accomplished but it is not set specifically- is desired
future outcome that an organization strives to achieve generally. Goal is an end that the organization
strives to attain. However, the supervisor cannot "do" a goal. Supervisors break down processes, analyze
them, set objectives and then drive hard to achieve them. Doing the same thing and expecting different
results doesn't work. E.g.to increase profit.
Target _ is expected performance set for specific individual in an organization.
 is more specific in nature than objectives.
Objective An objective is simply a statement of what is to done and should be stated in terms of results.
A mnemonic aid to write objectives is SMART (Specific, Measurable, Attainable, Result-oriented,
Time-limited).
Characteristics of good (effective) objective (SMART)
There are some characteristics of effective objectives, so effective objectives are mostly:
Specific; Objectives should state the exact level of performance expected specifically. An objective
must be specific with a single key result. If more than one result is to be accomplished, more than one
objective should be written. Just knowing what is to be accomplished is a big step toward achieving it.
What is important to you? Once you clarify what you want to achieve, your attention will be focused on
the objective that you deliberately set. You will be doing something important to you.
Measurable- as much as possible objectives should be expressed quantitatively, therefore, it is possible
to easily determine whether or not goals have been achieved. An objective must be measurable. Only an
objective that affects behavior in a measurable way can be optimally effective. If possible, state the
objective as a quantity. Some objectives are more difficult to measure than others are. However,
difficulty does not mean that they cannot be measured. Treatment of salespeople might be measured by
looking at the absenteeism and turnover rates among the sales force. Also, salespeople could be asked to
fill out a behavioral questionnaire anonymously giving their observations of the supervision they
receive. Customer service could be measured by such indices as the number of complaints received, by
the number of customers lost, and by customer interviews or responses to questionnaires. Development
of subordinates could be measured by determining the number of tasks the subordinate has mastered.
Cooperation with other functions could be measured by length of delay in providing requested
information, or by peer ratings of degree of cooperation.

Avoid statements of objectives in generalities. Infinitives to avoid include to know, to understand, to

enjoy, and to believe. Action verbs are observable and better communicate the intent of what is to be

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attempted. They include writing, to apply, to recite, to revise, to contrast, to install, to select, to
assemble, to compare, to investigate, and to develop. How will you know you've progressed?
Appropriate- objectives should be prepared in suitable, acceptable and achievable manner.
Realistic and challenging- objectives should be attainable or real rather than fantasy. An objective must
be attainable with the resources that are available. It must be realistic. Many objectives are realistic. Yet,
the time it takes to achieve them may be unrealistic. For example, it is realistic to want to lose ten
pounds. However, it is unrealistic to want to lose ten pounds in one week. What barriers stand between
you and your objective? How will each barrier be overcome and within what time frame? It is
also better to have challenging objectives as far as they could motivate workers if attained.
Time bound _ objectives should be set with in specific time limits or target dates for their attainment.
The objective should be traceable. Specific objectives enable time priorities to be set and time to be used
on objectives that really matter. Are the time lines you have established realistic? Will other competing
demands cause delay? Will you be able to overcome those demands to accomplish the objective you've
set in the time frame you've established?
Write Meaningful Objectives
Although the rules are difficult to establish, the following may be useful when writing an objective.
1. Start with an action or accomplishment verb. (Use the infinitive form of the verb. This means to start
with "to.")
2. Identify a single key result for each objective.
3. Give the date of the estimated completion.
4. Be sure the objective is one you can control.
5. To test for validity of SMART objectives, ask yourself the following questions.
» S = Exactly what is my objective?
» M = What would a good job look like?
» A = Is my objective feasible?
» R = Is my objective meaningful?
» T = Is my objective traceable?
3.5 PLANNING TECHNIQUE
Managers Can Improve the Quality of their planning by applying variety of Planning tools and
techniques .The important fanciful of planning is management by objectives (MBO) and forecasting
1. Management By Objective (MBO)
MBO is a system in which specific performance objectives are jointly determined by subordinates and
their supervisors, progress toward objectives is periodically reviewed, and rewards are allocated on the
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basis of this progress. An effective planning tool to help the supervisor set objectives is Management by
Objectives (MBO). MBO gained recognition in 1954 with the publication of Peter Drucker's book The
Practice of Management. MBO is a collaborative process whereby the manager and each subordinate
jointly determine objectives for that subordinate. To be successful MBO programs should include
commitment and participation in the MBO process at all levels, from top management to the lowest
position in the organization.

MBO begins when the supervisor explains the goals for the department in a meeting. The subordinate
takes the goals and proposes objectives for his or her particular job. The supervisor meets with the
subordinate to approve and, if necessary, modify the individual objectives. Modification of the
individual's objectives is accomplished through negotiation since the supervisor has resources to help the
subordinate commit to the achievement of the objective. Thus, a set of verifiable objectives for each
individual are jointly determined, prioritized, and formalized.
The supervisor and the subordinate meet periodically to review the latter's progress. Communication is
the key factor in determining MBO's success or failure. The supervisor gives feedback and may
authorize modifications to the objectives or their timetables as circumstances dictate. Finally, the
employee's performance is measured against his or her objectives, and he or she is rewarded
accordingly.

Elements of MBO
1. Top level goal setting effective MBO begins with the objective being set by top managers which is
open for discussion by managers and subordinates to reach up on the common objectives.
2. Individual targets- in an effective MBO each manager and subordinate has clearly defined
responsibilities or expected results
3. Participation- both managers and subordinates are participating in objective setting.
4. Autonomous of individuals- Once the objective is set, subordinates have a right to select methods of
attaining the objectives.
5. Performance review- managers and subordinates periodically meet to review progress toward the
objectives
6. Reward- those individuals who meet the objectives in performance review are rewarded. The rewords
may be recognition, praise, pay increase etc-------
Shortly MBO Principles

Cascading of organizational goals and objectives

Specific objectives for each member
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 Participative decision making
Explicit time period
Performance evaluation and feedback.
Steps in MBO
Effective MBO passes through different steps:
1. Setting individual objectives and plans
with each subordinate the manager jointly set objectives the participation of subordinates in the
objective setting process is away of strengthen their commitment to achieve their goals.
2. Giving feedback and evaluating performance
Employees must know how much they are progressing toward their objectives. Thus, managers and
subordinates should meet frequently to review progress and evaluate performance communication is key
factor in determining success of failure of MBO
3. Rewarding according to performance
employees' performance should be measured against their objectives. Employees who meet their
objectives should be rewarded through recognitions, praises. Pay rises and so on.
Fig 3.1 Management By Objective

Research has demonstrated that when top management is committed and personally involved in
implementing MBO programs, they significantly improve performance. This finding is not surprising

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when one considers that during the MBO process employees determine what they will accomplish. After
all, who knows what a person is capable of doing better than the person does him or herself?
Benefits and limitations of MBO
 Benefits
 MBO uplifts workers motivation
 MBO allows managers and subordinates share experience
 Limitation
 It consumes much time

2. Forecasting techniques
Forecasting is one of the tools for planning and decision making. To plan, managers must make
assumptions about future events. Forecasting is the process of developing assumptions or premises about
the future that managers/ planners can use in planning and decision making. To carry out various kinds
of forecasting, managers use different techniques. The common models are the quantitative forecasting
techniques and the qualitative forecasting techniques

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