INDIAN SCHOOL MUSCAT

SENIOR SECTION
DEPARTMENT OF COMMERCE AND HUMANITIES
CLASS XII – BST HANDOUT - CHAPTER 4
PLANNING

Contents to be covered:
 Concept, importance and limitations of planning
 Steps in the process of planning
 Single use and standing plans (objectives, policies, strategy, procedure,
method, rule, budget and programme)
CONCEPT OF PLANNING
 Planning is deciding in advance what to do and how to do
 planning is closely connected with creativity and innovation
 Planning seeks to bridge the gap between where we are and where we want to go
 Planning is what managers at all levels do. It requires taking decisions since it involves
making a choice from alternative courses of action
FEATURES/CHARACTERSTICS/NATURE OF PLANNING

(i) Planning focuses on achieving objectives: Organisations are set up with a general purpose
in view. Specific goals are set out in the plans along with the activities to be undertaken to
achieve the goals. Thus, planning is purposeful. Planning has no meaning unless it contributes
to the achievement of predetermined organisational goals.

(ii) Planning is a primary function of management: Planning lays down the base for other
functions of management. All other managerial functions are performed within the
framework of the plans drawn. Thus, planning precedes other functions. This is also
referred to as the primacy of planning. The various functions of management are interrelated
and equally important. However, planning provides the basis of all other functions.

(iii) Planning is pervasive: Planning is required at all levels of management as well as in all
departments of the organisation. It is not an exclusive function of top management nor of any
particular department. But the scope of planning differs at different levels and among different
departments. For example, the top management undertakes planning for the organisation as a
whole. Middle management does the departmental planning. At the lowest level, day-to-day
operational planning is done by supervisors.

(iv) Planning is continuous: Plans are prepared for a specific period of time, may be for a
month, a quarter, or a year. At the end of that period there is need for a new plan to be
drawn on the basis of new requirements and future conditions. Hence, planning is a continuous
process. Continuity of planning is related with the planning cycle. It means that a plan is framed,
it is implemented, and is followed by another plan, and so on.

(v) Planning is futuristic: Planning essentially involves looking ahead and preparing for the
future. The purpose of planning is to meet future events effectively to the best advantage

Notes by Deepa Shiby

of an organisation. It implies peeping into the future, analysing it and predicting it. Planning is,
therefore, regarded as a forward looking function based on forecasting. Through forecasting,
future events and conditions are anticipated and plans are drawn accordingly. Thus, for example,
sales forecasting is the basis on which a business firm prepares its annual plan for production
and sales.

(vi) Planning involves decision making: Planning essentially involves choice from among
various alternatives and activities. If there is only one possible goal or a possible course of
action, there is no need for planning because there is no choice. The need for planning arises
only when alternatives are available. In actual practice, planning presupposes the existence of
alternatives. Planning, thus, involves thorough examination and evaluation of each alternative
and choosing the most appropriate one.

(vii) Planning is a mental exercise: Planning requires application of the mind involving
foresight, intelligent imagination and sound judgement. It is basically an intellectual
activity of thinking rather than doing, because planning determines the action to be taken.
However, planning requires logical and systematic thinking rather than guess work or wishful
thinking.
IMPORTANCE OF PLANNING

(i) Planning provides directions: By stating in advance how work is to be done planning
provides direction for action. Planning ensures that the goals or objectives are clearly stated so
that they act as a guide for deciding what action should be taken and in which direction. If goals
are well defined, employees are aware of what the organisation has to do and what they must do
to achieve those goals. Departments and individuals in the organisation are able to work in
coordination. If there was no planning, employees would be working in different directions and
the organisation would not be able to achieve its desired goals.

(ii) Planning reduces the risks of uncertainty: Planning is an activity which enables a manager
to look ahead and anticipate changes. By deciding in advance the tasks to be performed, planning
shows the way to deal with changes and uncertain events. Changes or events cannot be
eliminated but they can be anticipated and managerial responses to them can be developed.

(iii) Planning reduces overlapping and wasteful activities: Planning serves as the basis of
coordinating the activities and efforts of different divisions, departments and individuals. It
helps in avoiding confusion and misunderstanding. Since planning ensures clarity in thought
and action, work is carried on smoothly without interruptions. Useless and redundant activities
are minimised or eliminated. It is easier to detect inefficiencies and take corrective measures to
deal with them.

(iv) Planning promotes innovative ideas: Since planning is the first function of management,
new ideas can take the shape of concrete plans. It is the most challenging activity for the
management as it guides all future actions leading to growth and prosperity of the business.

(v) Planning facilitates decision making: Planning helps the manager to look into the future
and make a choice from amongst various alternative courses of action. The manager has to

Notes by Deepa Shiby

evaluate each alternative and select the most viable proposition. Planning involves setting targets
and predicting future conditions, thus helping in taking rational decisions.

(vi) Planning establishes standards for controlling: Planning involves setting of goals. The
entire managerial process is concerned with accomplishing predetermined goals through
planning, organising, staffing, directing and controlling. Planning provides the goals or
standards against which actual performance is measured. By comparing actual performance with
some standard, managers can know whether they have actually been able to attain the goals. If
there is any deviation it can be corrected. Therefore, we can say that planning is a prerequisite
for controlling. If there were no goals and standards, then finding deviations which are a part of
controlling would not be possible. The nature of corrective action required depends upon the
extent of deviations from the standard. Therefore, planning provides the basis of control

LIMITATION OF PLANNING

(i) Planning leads to rigidity: In an organisation, a well-defined plan is drawn up with specific
goals to be achieved within a specific time frame. These plans then decide the future course of
action and managers may not be in a position to change it. This kind of rigidity in plans may
create difficulty. Managers need to be given some flexibility to be able to cope with the changed
circumstances Following a pre-decided plan, when circumstances have changed, may not turn
out to be in the organisations interest.

(ii) Planning may not work in a dynamic environment: The business environment is dynamic,
nothing is constant. The environment consists of a number of dimensions, economic, political,
physical, legal and social dimensions. The organisation has to constantly adapt itself to changes.
It becomes difficult to accurately assess future trends in the environment if economic policies
are modified or political conditions in the country are not stable or there is a natural calamity.
Competition in the market can also upset financial plans, sales targets may have to be revised
and, accordingly, cash budgets also need to be modified since they are based on sales figures.
Planning cannot foresee everything and thus, there may be obstacles to effective planning.

(iii) Planning reduces creativity: Planning is an activity which is done by the top management.
Usually the rest of the members just implements these plans. As a consequence, middle
management and other decision makers are neither allowed to deviate from plans nor are they
permitted to act on their own. Thus, much of the initiative or creativity inherent in them also
gets lost or reduced. Most of the time, employees do not even attempt to formulate plans. They
only carry out orders. Thus, planning in a way reduces creativity since people tend to think along
the same lines as others. There is nothing new or innovative.

(iv) Planning involves huge costs: When plans are drawn up huge costs are involved in their
formulation. These may be in terms of time and money for example, checking accuracy of facts
may involve lot of time. Detailed plans require scientific calculations to ascertain facts and
figures. The costs incurred sometimes may not justify the benefits derived from the plans. There
are a number of incidental costs as well, like expenses on boardroom meetings, discussions with
professional experts and preliminary investigations to find out the viability of the plan.

Notes by Deepa Shiby

(v) Planning is a time-consuming process: Sometimes plans to be drawn up take so much of
time that there is not much time left for their implementation.

(vi) Planning does not guarantee success: The success of an enterprise is possible only when
plans are properly drawn up and implemented. Any plan needs to be translated into action or it
becomes meaningless. Managers have a tendency to rely on previously tried and tested
successful plans. It is not always true that just because a plan has worked before it will work
again. Besides, there are so many other unknown factors to be considered. This kind of
complacency and false sense of security may actually lead to failure instead of success.

STEPS IN THE PROCESS OF PLANNING

(i) Setting Objectives: The first and foremost step is setting objectives. Every organization must
have certain objectives. Objectives may be set for the entire organisation and each department
or unit within the organisation. Objectives or goals specify what the organisation wants to
achieve. It could mean an increase in sales by 20% which could be objective of the entire
organisation.

(ii) Developing Premises: Planning is concerned with the future which is uncertain and every
planner is using conjecture about what might happen in future Therefore, the manager is required
to make certain assumptions about the future. These assumptions are called premises.
Assumptions are the base material upon which plans are to be drawn. The base material may be
in the form of forecasts, existing plans or any past information about policies. The premises or
assumptions must be the same for all and there should be total agreement on them.

(iii) Identifying alternative courses of action: Once objectives are set, assumptions are made.
Then the next step would be to act upon them. There may be many ways to act and achieve
objectives. All the alternative courses of action should be identified. The course of action which
may be taken could be either routine or innovative. An innovative course may be adopted by
involving more people and sharing their ideas. If the project is important, then more alternatives
should be generated and thoroughly discussed amongst the members of the organization.

(iv) Evaluating alternative courses: The next step is to weigh the pros and cons of each
alternative. Each course will have many variables which have to be weighed against each other.
The positive and negative aspects of each proposal need to be evaluated in the light of the
objective to be achieved. In financial plans, for example, the risk-return trade-off is very
common. The more risky the investment, the higher the returns it is likely to give. To evaluate
such proposals detailed calculations of earnings, earnings per share, interest, taxes, dividends
are made and decisions taken.

(v) Selecting an alternative: This is the real point of decision making. The best plan has to be
adopted and implemented. The ideal plan, of course, would be the most feasible, profitable and
with least negative consequences. Most plans may not always be subjected to a mathematical
analysis. In such cases, subjectivity and the manager’s experience, judgement and at times,
intuition play an important part in selecting the most viable alternative. Sometimes, a

Notes by Deepa Shiby

combination of plans may be selected instead of one best course. The manager will have to apply
permutations and combinations and select the best possible course of action.

(vi) Implementing the plan: This is the step where other managerial functions also come into
the picture. The step is concerned with putting the plan into action, i.e., doing what is required.
For example, if there is a plan to increase production then more labour, more machinery will be
required. This step would also involve organising for labour and purchase of machinery.

(vii) Follow-up action: To see whether plans are being implemented and activities are
performed according to schedule is also part of the planning process. Monitoring the plans is
equally important to ensure that objectives are achieved.

SINGLE USE PLAN STANDING PLAN

A single-use plan is developed for a one-time A standing plan is used for activities that
event or project. Such a course of action is not
occur regularly over a period of time. It is
likely to be repeated in future, i.e., they are
designed to ensure that internal operations of
for non-recurring situations. The duration of an organisation run smoothly. Such a plan
this plan may depend upon the type of the greatly enhances efficiency in routine
project. It may span a week or a month. decision-making. It is usually developed once
but is modified from time to time to meet
Eg: budgets, programmes and projects. business needs as required.
Eg policies, procedures, methods and rules
a programme may consist of identifying Policies are general forms of standing plans
steps, procedures required for opening a new that specifies the organisations response to a
department to deal with other minor work. certain situation like the admission policy of
an educational institution.
Projects are similar to programmes but differ
in scope and complexity. Procedures describe steps to be followed in
particular circumstances like the procedure
A budget is a statement of expenses, revenue for reporting progress in production.
and income for a specified period
Methods provide the manner in which a task
has to be performed.

Rules are very clearly stated(Sspecific) as to

exactly what has to be done like reporting for
work at a particular time
GENERAL PLAN

A strategy is part of strategic planning or management. It is a general plan prepared by top

management outlining resource allocation, priorities and takes into consideration the business
environment and competition. It will also refer to future decisions defining the organisations
direction and scope in the long run

Notes by Deepa Shiby

Objectives are usually set by the top management and serve as a guide for overall planning.
Each unit then formulates their own objectives keeping in view the overall organisational
goals.

Notes by Deepa Shiby