CHAPTER 3:PLANNING

3.1 Introduction
 Planning is the first managerial function that all managers
perform at different levels.
 It is very important because it lays down the groundwork for
the other functions.
Objectives of the chapter
After studying this chapter, you should be able to:
 explain the meaning, nature and importance of planning;
 discuss the characteristics of planning ;
 understand the different types and classification of plans;
 describe the major steps of the planning process;
 explain the practical limitation of planning;
 3.2 Meaning Nature and Importance of Planning
3.2.1 Meaning of Planning
 Planning is the most fundamental function of
management.
 An organization can succeed in effective utilization of
its scarce resources when its management decides in
advance its objective, and methods of achieving them.
 Without this coordinated effort, the results are chaos,
confusion, and wastage of resources.
 It bridges the gap between where we are now and
where we want to be.
 Cont’d

 Planning is preparing today for tomorrow; planning

answers six basic questions in 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 goal)
 Cont’d
3.2.2 The Nature of Planning
The essential nature of planning can be understood by focusing on
the following points.
 The primacy of planning: planning precedes the execution of all

other managerial functions,

 Planning is a continuous process: Planning is a never-ending

activity of a manager. However, this does not mean that the

manager never completes work on a specific plan.
 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.
 Planning is the means to an end: Planning is not an end by

itself. It is a means to an end (meeting objectives). Plans are

arranged in a hierarchy: Plans are first set for the entire
organization. Corporate plan, then divisional, then departmental,
and then sectional plan.
 Cont’d

corporate plans

departmental/divisional
plans

sectional plans

unit plans

Figure 3.1 hierarchy of plans

3.2.3 Importance of Planning
Without planning, business decisions would become random,
ad hoc choices.
 The following concrete reasons for the paramount importance

of the planning function:

 It provides direction and sense of purpose: Plans focus

attention on specific targets and direct employees effort

toward important outcomes.
 Reduces uncertainty and anticipates the future: By

providing a more rational, fact-based procedure for making

decisions, planning allows managers and organizations to
minimize risk and uncertainty.
 Provides basis for controlling: These goals and plans then

become standards or benchmarks against which performance

can be measured. Control can be exercised only if there are
plans.
 Cont’d
 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.
 Provides the base for cooperative coordinated efforts:
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.
 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.
 Provides guideline for decision making: Decisions in an
organization will be made in alignment with the plans and in
accordance with desired outcomes.
 3.3 Types of Plans

Plans can be classified on different bases or dimensions. These

are:
 Scope/breadth dimension,
 Use/repetitiveness
 Time dimension, and

3.3.1 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 we can classify plans into: strategic, tactical

and operational
 Strategic plan: it determine the major objectives of an

organization and the policies and strategies designed by top-

level management to govern the acquisition, use and
disposition of resources to achieve organizational objectives.
 Cont’d

The following are distinguishing characteristics of

strategic plans:
i. Strategic plans require looking outside of the
organization (external environment of the
organization: threats and opportunities).
ii. They take longer period of time.
iii. They tend to be top management responsibility
iv. They address issues: how to allocate resources;
what the business is and what it should be.
 Cont’d

Tactical Plans:
 Tactical plans are the means to achieve strategic plans and
their usual span is one year.
 They usually center on translating the broad objectives set by
top-level management into more specific goals.
 It is an intermediate plan that helps to reduce long range
planning in to intermediate one by increasing the amount of
specificity and the actions goal oriented.
 They are specific (narrow scope than strategic plan and
wider than operation plan and less detailed than operational
plan) and more goal oriented than strategic plans.
 Middle level management in consultation with lower level
management develops them.
 Cont’d
Operational Plans:
 Operational plans are concerned with the day-to-day
activities of the organization and are made and/or developed
by lower level managers 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 (Less than
1 year).
 It is the most detailed and narrowest plans compared to the
above two.
 3.3.2 Plans Based on Use Dimensions

 Use-based plans indicate whether we can use the plans

repeatedly for uniformity or for a single period.
 Based on use dimension, plans could be further classified in

to:
 single-use plans and

 standing use plans

1. Single-Use Plans
 These types of plans focus on relatively unique situations

within the organization and are used only once.

 They are plans aimed at achieving specific goals that, once

reached, will most likely not recur in the future and dissolved
when these have been accomplished.
 Cont’d
Single-use plan plans can be subdivided into:
I) Programs:
 Programs are a complex of goals, policies, procedures, rules,

task assignments, steps to be taken, resources to be

employed and other elements necessary to carry out a given
course of action.
 They are ordinarily supported by budgets. Whatever its

scope, it will specify many activities and allocation of

resources within an overall scheme that may include such
other single use plans as project and budgets.
 A program may be repeated with modification but not as it is..
 Cont’d

II) Projects:
 A project is a small and separate portion of a plan. Each project

has limited scope and distinct directives concerning assignments

and time.
 Projects are characterized by the following

i. They are a one-time activity or a unit activity with a well-defined

set of desired end results.
ii. They can be accomplished in order to achieve the project goals.
iii. A project must often be coordinated with other projects being
carried out by the same parent organization.
E.g. building a dam
III) Budget:
Budgeting is the formulation of plans for a given future period in
numerical or financial terms. A budget is a financial plan outlining
how funds will be spent in a given period of time and how these
funds will be obtained.
 Cont’d

ii. Standing-Use Plans

 Standing-Use Plans are plans which remain roughly the

same for a long period of time and are used in organizational

situations that occur repeatedly.
 Standing plans are plans that provide an ongoing guidance

for performing recurring activities.

 They became necessary when the same kinds of actions are

to be taken over and over again.

 Standing plans become valuable under relatively stable

situation.
 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.
 Cont’d
The most common kinds of standing plans are:
i) Policies:
 Policies are broad and general guides to action that constrain or direct and

facilitate objective attainment.

 They do not tell organizational members exactly what to do but they do

establish the boundaries within which they must operate and ensure that
decision will be consistent with and contribute to an objective.
 Policy is a general statement or understanding which guides or channels

thinking in decision making.

Requirements for a sound policy:
They should be consistent with strategies and objectives.
They should be renewed frequently and amended as needed.
Policies should be in writing.
Written policies are more precise than unwritten ones.
They can be transmitted quickly to those who must implement them.
Written policies are easier to understand and less time-consuming to communicate to
new managers and management trainees.
Advantages of policies
 Policies help to save time.
 Policies help to prevent managerial mistakes.

 Policies help to improve the consistency of managerial performance.

 Cont’d

ii) Procedures:
 A procedure is a series of related steps or tasks expressed

in chronological order for a specific purpose.

 Procedures are defined in step-by-step fashion through

which policies are achieved. They are guides to action

rather than to thinking and they give the details of the exact
manner in which certain activities must be accomplished.
 The following are some of the requirements for sound

procedures.
Procedures should be simple enough to be understood by those
who implement them.
They should be in writing.
They should be tested prior to full adoption.
They should be well communicated so that they may be thoroughly
understood by those who are required to follow them.
 Cont’d

iii) Rules:
 Rules are statements that a specific action must or

must not be taken in a given situation.

 Rules leave little doubt about what is to be done. They

permit no flexibility and deviation.

 A rule is ongoing, specific plans for controlling human

behavior and conduct at the work.

 Unlike procedures, rules do not have to specify

sequence.
 Procedures and rules are subsets of policies.

Example of a rule: Employees must wear safety clothes

and equipment while operating their machines.
3.3.3 Plans Based on Time Dimension
These plans show how long they stay in operation. Based on
time frame or length of them, we can classify plans into three;
these are:
 Long-term Plans: These plans establish long-term goals

and work out strategies, policies and programs to achieve

the goals. They extend beyond five years.
 Medium-term Plans: These plans are usually made to

support long-term plans. They cover a period of more than

one year, but less than five years. Here the length of time
may vary from one business to another depending on the
nature, risk and other factors.
 Short-term Plans: Generally such types of plans are made

to achieve short-term goals and are instrumental in

implementing long-term plans. These plans are action-
oriented and the responsibility of lower level managers.
 3.4 Planning Process

The formal approach to the planning process depicted hereunder can serve
as a general model which can be applied, with some modification to the
planning process of any organization, whether it is large or small, profit-
making or not for profit.
1. Establishing Clear-cut Objectives: Objective setting is a three steps
process, which involves assessing the present situation, anticipating
future conditions, and then setting the objectives.
2. The Planning Premises and Constraints: Premises are assumptions
about the environment in which the plan is to be carried out.
 Knowledge of the organization’s goals and existing conditions provide a

framework for defining which aspects of the environment will have the
greatest influence on the organization’s ability to achieve its objectives.
 This involves examining the external and internal factors which affects the

performance of the organization (SWOT analysis): the external

environment (for threat and opportunity) through PESTE (Political/legal;
Economy; Social/cultural; Technology and Environment in line with waste
and pollution) analysis and internal environment (for strength and
weaknesses) trough self-audit.
 Cont’d
3. Identifying Alternative Courses of Action:
 Alternatives are course 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

objectives as possible.
 Thus, the planer must usually make a preliminary examination to discover the

most fruitful possibilities.

4. Evaluation of Alternative Courses of Action:
 Having sought out alternative courses and examined their strong and weak points,

the planner must next evaluate them by weighting them in the light of premises
and goals. Then see if the cost, time and quality requirements are satisfied and if
mechanization expedites the work or the achievement of the desired end in terms
of each possible course of action.
5. Choosing the Proposed Plan: Selecting the course of action is the point at
which the plan is adopted-the real point of decision-making.
6. Arranging Detailed Sequence and Timing for the Proposed Plan:
7. Numberizing Plans by Making Budgets: After decisions are made and plans
are set, the final step is to give them meaning by numberizing plans, i.e. budgeting
to establish verifiable targets of achievement to facilitate controls.
8. Implementing the Plan into Action:
9. Monitoring and Evaluating the Implementation:
 organizational goals rather than personal objectives.
 3.5 Characteristics
Futurity: since a plan is a forecast ofofGood Planning
some future actions, it must have
the quality of futurity; otherwise, it has little values as a basis for future
action. If a plan is to be effective, it must foresee with reasonable
accuracy the nature future events affecting the industry and the firm.
 Flexibility: because no can foresee thy must adjust smoothly and quickly
to changing condition without seriously losing their effectiveness.
 Stability: stability is related to flexibility. A stable plan will not have to be
abandoned because of long-term change in the company situations. It
may be affected by long rang developments, 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
inhabits 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 implementing
difficult.
 3.6 Limitations of Plans
 Most of the limitations are related to the uncertainties of the
future. Planning should be based on reliable information
about the future.
 If reliable information is not available, planning loses its
importance.
 Major planning limitations are classified into two categories.
 Internal Inflexibilities: Major internal inflexibilities that may limit
planning are related to human psychology, policies and procedures
and capital investment.
 External or Imposed Inflexibilities: These inflexibilities usually
emerge from sources outside of the organization. Some of the
major external inflexibilities include: political climate, labour union,
technological change, sociological and cultural factor and
educational variables (literacy level and attitude towards education,
type of education, scope of education and educational much with
the skill requirement of the industry and manpower utilization, etc. )
 3.7 Organizational Objectives

Objectives specify future conditions that a manager hopes to achieve.

The following are the characteristics of sound objectives.
 Priority of objectives: This implies that at a given time, accomplishing

one objective is more important than accomplishing others. Priority of

objectives also reflects the relative importance of certain objectives
regardless of time.
 Hierarchy of objectives: Objectives are arranged in hierarchy from

overall companywide objectives to individual objectives.

 Organizational objectives should be stated in writing: Objectives

should be specific and communicated clearly to all so that all members

of the organization are aware of what is expected from them. This
eliminates ambiguity and confusion.
 Objectives should be specific and measurable: General objectives

are difficult to interpret and measure.

 Objectives should be realistic and attainable: Over optimistic but

unrealistic objectives serve as moral deflators and hence are ineffective.

 SMART
 Cont’d
There are two objective setting approaches.
a) A Cascade Approach from Top to Lower Organizational Units.
i. The objective setting processes begin at the top with a clear and concise statement of
central purpose of the organization.
ii. Long-range organizational goals are formulated for this statement.
iii. The long-range goals lead to the establishment of more short-range performance
objectives for the organization.
iv. Derivative objectives are then developed for each major division or department.
v. Objectives are then established for the various sub units in each major division.
vi. The process continues down through the organizational hierarchy.
a) Management by Objectives (MBO)
It is a system of management whereby managers work in conjunction with subordinates to
identify goals and make plans for achieving them. MBO involves the following four steps.
i. The manager explains the rationale and methodology of MBO to subordinates.
ii. The superior and subordinate meet to set objectives for the coming plan period.
iii. One or more intermediate review of performance are conducted to determine if the
individual is making satisfactory progress towards attaining the established goals.
iv. At the conclusion of the time period set for the achievement of the objectives, a final
review is conducted. In the review the manager should attempt to determine “What
went wrong?” “What went right?”
 3.8 Unit Summary

 Planning has been defined previously as one of the major functions of

management. However, since planning is a bridge between the present and
future, it has been called the primary management function. Planning is a future
oriented and determines on organizations direction. It is a rational and systematic
way of making decision today that will affect the future of the company. It involves
the predicting of the future as well as attempting to control the event. It also
involves the ability to foresee the effects of current action in the long future.
 An effective planning program incorporates the effect of both external as well as

internal factors. The external factors are shortages of resource, capital and
material, dynamic technological advancement, government regulation etc. The
internal factors that affect planning are limited growth opportunities due to
saturation, changing pattern of work force, more complex organizational
structure, decentralization etc,
 The issue of why planning (importance of planning), nature, characteristics, types

of planning and organizational objectives are briefly presented in the lesson.

Even though planning and plans are so important to organizational success, a
recent study revealed that most managers are very reluctant to actively
participate in the planning process. Sometimes, even top managers show
likewise support for the process thus serving as poor role models for lower
management. Planning should be an integral part of the organizational routine
and not as a special activity that would severely test a manager’s skill and ability.
Discussion
 Discuss some of the reasons why planning is
important.
 Planning is a function of all managers at any level
and in all business. Do you agree? Why or why
not?
 Share your experience on Planning to you
colleagues
END