PLANNING

Planning is the first and foremost function of management.

Other functions like organising, staffing, directing and
controlling are all based on planning. In fact all
organisational activities must begin with planning.

MEANING OF PLANNING
A plan is a course of action to be taken in future. It is a
predecided course of action. Planning is the process of
deciding in advance the objectives to be achieved during a
given time period, formulating alternative courses of action
to achieve them and selecting the best course of action.

Planning is a mental exercise that requires imagination,

foresight and sound judgement. It is thinking before doing.
“Planning is the thinking process, the organised foresight,
the vision based on facts and experience that is required
for intelligent action.” - Alfred and Beatty

FEATURE OF PLANNING
1. Planning is Goal-oriented: Planning seeks to achieve
certain objectives and all plans are linked with the goals of
the organisation. Planning identifies the actions that would
lead to the desired results quickly and economically. Thus,
planning is purposeful. In fact planning cannot be thought
without objectives.

2. Planning is Future-oriented: Planning is essentially

looking ahead and preparing for the future. It is based on
the proverb "look before you leap". Planning seeks to
manage future events to the best advantage of the
organisation. Therefore, it is said that planning is thinking
before doing.

3.Planning is an Intellectual Process: Planning is a mental

exercise involving creative thinking and imagination. A
manager can prepare sound plans only when he has sound
judgement, foresight and vision. Planning is not mere
guesswork but involves logical and systematic thinking.

4. Planning is a Primary Function: Planning serves as the

basis for all other functions of management. It precedes
organising, staffing, directing and controlling. All these
functions are performed within the framework of plans. By
specifying the objectives and the ways of achieving them,
planning provides the foundation for managerial actions.
Thus, planning is the most basic function.

5. Planning is Pervasive: Planning is required in all types of

organisations and at all levels of management. Every
department prepares plans. For example, top management
plans for the organisation as a whole. Middle management
prepares departmental plans. At the lowest level,
supervisors formulate day-to-day operational plans.

6. Planning is a Continuous Process: Planning is an

ongoing process. Plans are formulated on the basis of
forecasts. When assumptions about the future do not come
true, the original plan must be revised in the light of
changing conditions.

IMPORTANCE OF PLANNING
1. Focuses Attention on Objectives: Planning makes the
goals clear and specific because the objectives or goals to
be achieved are decided before plans are drawn. The
objectives so decided serve as a guide for deciding what
actions should be taken. Planning saves an organisation
from needless actions.
2. Makes Activities Meaningful: When goals are clearly
defined actions become meaningful. Managers and
employees know how their activities relate to the goals of
the organisation. They understand the importance of their
activities and relationship between different activities.
3. Brings Order in Place of Chaos: Planning helps the
organisation to keep on the right path. Planning ensures
clarity in thought and action. By stating in advance how
work is to be done planning provides directions for
actions. Planning provides systematic and orderly efforts
towards the goals.
4. Reduces Risks of Uncertainty: Business enterprises
operate in an uncertain environment and face several types
of risks. With the help of planning, managers can identify
potential dangers and take steps to overcome them. For
example, forecasting of population growth gives an idea of
future demand.
5. Improves Economy of Operations: Planning involves
selection of the best possible course of action. It helps to
eliminate all types of waste and to achieve optimum
utilisation of available resources. Planning helps to
minimise the cost of operations and improves the
competitive strength of an enterprise.
6.Provides Basis for Control: Planning provides the
standards against which the actual performance can be
measured and evaluated. A comparison of performance
with the planned results helps to identify the deviations
and to take corrective steps to make the events conform to
plans. Planning makes control meaningful and effective.
7. Bridges the Gap Between Present and Future: Planning
bridges the gap between where we are (present position)
and where we want to go (future position).

LIMITATIONS OF PLANNING
1. Costly Process: Planning is an expensive process.
Money, time and effort have to be spent in forecasting,
collection of information, evaluation of alternatives, etc.
Services of experts may be necessary to select the best
and most economical course of action for the enterprise.
2. Time-consuming: Considerable time is required for
collection, analysis and interpretation of information for
planning. Therefore, planning is not practicable during
emergencies and crisis when on-the-spot decisions are
necessary. Planning may cause delay in decisions and
actions.
3. Rigidity: Once plans are formulated, people tend to
strictly adhere to them irrespective of changes in the
environment. Employees are unwilling to deviate from
plans due to fear of criticism. It may discourage individual
initiative and creativity.
4. Lack of Accuracy: Planning is based on forecasts which
are estimates about the future. When the forecasts are
inaccurate, plans become misleading. The degree of
inaccuracy increases as the plan period increases. This is
because distant future can be predicted with lesser
accuracy.
5. False Sense of Security: Detailed planning may create a
feeling among employees that everything has been taken
care of. Following a predetermined course of action in a
dynamic environment might be risky and unprofitable.
6. Psychological Barrier: People get accustomed to
attitudes, beliefs and traditions and they resist change in
established practices and behaviour.
7. External Limitations: Changes in business environment
restrict freedom of planning for the management. Changes
in technology, changes in government policies, legislative
enactments, industrial unrest in the country, etc. are
important external limitations on planning. Management
has little or no control over these external events which
greatly hamper managerial planning in an enterprise.
STEPS IN THE PROCESS OF PLANNING
Systematic approach to planning is necessary for
preparing sound plans.
1. Setting Objectives: Plans are prepared to achieve certain
objectives or goals. The basic objective of the enterprise
should be defined in terms of the philosophy or master
strategy, e.g., in what business we are and for what
reasons. Major objectives should be clear and specific and
they should be broken down into departmental, sectional
and individual objectives.
2. Developing the Planning Premises: Establishing the
premises or assumptions about the future. Planning
premises provide the environment or boundaries within
which plans will be executed. These are established with
the help of forecasting future conditions and events which
are likely to influence the pursuit of objectives. These
assumptions serve as the base of plans.
Planning premises may be of the following kinds:
(a) Intangible and tangible Premises : Assumptions which
can be expressed in quantitative terms are called tangible
premises, e.g., units of production,
Intangible premises like employee morale, goodwill of the
enterprise, motivation, etc. cannot be expressed in
quantiative terms.
(b) Internal and External Premises Assumptions about the
internal working of the enterprise are known as internal
premises, e.g., capital, machines, personnel, etc.
On the other hand, factors outside the enterprise are called
external premises, e.g., changes in technology, population
growth, changes in competition, government policies, etc.
(c) Controllable and Uncontrollable Premises Policies and
programmes of the organisation which can be fully
regulated by the management are controllable premises.
Uncontrollable premises are the external factors like trade
cycles, political changes, etc. which are beyond the control
of the management.
3. Identifying Alternative Courses of Action: It becomes
necessary to discover the various courses of action which
may be used to achieve the established objectives. Instead
of trying to discover and analyse each and every
alternative, it is desirable to confine to those alternatives
which are strategic, promising or directly related to the
situation or objectives in hand. This is known as the
principle of limiting factor.
4. Evaluating Alternatives and Choosing the Best
Alternative: The various alternatives are evaluated and
compared in terms of their expected costs and benefits.
The alternative courses of action should be judged in
terms of common factors, such as the risk involved,
expected return, planning premises, goals to be achieved,
etc. After objective and scientific evaluation of different
alternatives, the best alternative is selected.
5. Formulating Derivative Plans: After the basic plan is
decided, the next logical step is to develop detailed plans
for its implementation. These detailed or derivative plans
refer to the policies, procedures, rules, programmes,
schedules, budgets, etc.
6. Securing Cooperation: Successful implementation of
plans requires the understanding and whole-hearted
cooperation of all the members of the organisation.
Employees should be motivated to execute the plans to the
best of their abilities.
7. Follow-up Actions: Existing plans are reviewed at
periodic intervals to ensure their relevance and
effectiveness. Continuous revision of plans enables the
management to draw up subsequent plans on the basis of
experience gained in the process of implementing the
previous plans.

Types of plans
Some plans are used repeatedly in similar situations. Such
plans are known as standing plans or repeat-use plans.
Objectives, policies, procedures and rules are examples of
standing plans. On the other hand, other types of plans are
called single-use plans because after every use these
plans have to be reformulated. Programmes, budgets, etc.
are examples of single-use plans.
Various plans can be arranged in a
hierarchy because a higher level plan
generates lower level plan.

Objectives
Every organisation is established to achieve some
purposes which are called its objectives. Objectives are the
ends or results to be achieved. Objectives indicate the
destination of the organisation. The process of planning
begins with the setting of objectives. Objectives may be
defined as the purposes or aims which an organisation
wants to achieve over different time periods.
Importance of Objectives
1. Legitimacy: Objectives embody the basic mission of the
organisation. Therefore they help to justify its existence
and provide a unique identity to it. Organisational
objectives give purpose and meaning to the organisation.
2. Sense of Direction: Objectives serve as reference points
for the efforts of the organisation. Organisational
objectives are the ends towards which all organisational
action is directed. These objectives define the destination
of the organisation.
3. Unified Planning: Objectives are prerequisites to
determining effective policies, strategies, procedures, rules
and methods. Organisational objectives are the key to
sound planning because all plans are formulated to
achieve the objectives.
4. Source of Motivation: Effective objectives can be good
motivators because they make it easier for a member to
relate the accomplishment of his personal goals to the
work of the organisation. He knows what is expected of
him and is thereby more secure in what he needs to be
successful in the organisation.

Essentials of Objectives
Sound objectives must satisfy the following requirements:
(I) Objectives must be clear and specific.
(ii) Objectives should specify the resuls to be achieved
rather than the activities to be performed.
(iii) Objectives should as far as possible be measurable,
I.e.., started in quantitative terms.
(iv) They must be time-bound.
(v) Objectives in different areas must be supportive to one
another.
(vi) Objectives must be challenging but achievable.

Strategy
Strategy may be defined as a comprehensive and
integrated plan which indicates the desired future of the
organisation. It is a blueprint of an organisation's desired
destination, direction and image. It provides answers to
questions like "where is the organisation now?" "Where
does it want to be in future?" "What it must do to reach the
desired position?"
The main characteristics of corporate strategy are as
follows:
(1) Strategy is generally long-term in nature though it has
short-term implications too.
(ii) It is an integrated and multipronged plan.
(iii) It is action-oriented and is more specific than
objectives. (iv) It is generally formulated at the top level of
management.
(v) It is generally meant to cope with competition and other
environmental pressures.
(vi) It is based on organisational objectives and seeks to
operationalise them.
Policies
A policy is a general statement that guides decision-
making. Policies define the boundaries within which
decisions can be made and they direct decisions towards
the accomplishment of objectives. Ex- McDonald's policy is
not to grant a franchise to an individual who already owns
another fast food restaurant.
Features of policy:
(a) A policy is a standing plan. It is a standing answer to
recurring problems of a similar nature.
(b) Policies provide broad guidelines as to how objectives
of a business are to be achieved. Objectives indicate the
destination and policies provide the routes.
c) Policies are models of thought and principles underlying
the activities of an organisation. They guide the decisions
and behaviour of executives.
(d) Policies are broad guides and provide scope for
executive judgement or discretion.
(e) Policies exist at all levels of the organisation-major
company policies, departmental policies and minor
policies.

Types of Policies
Policies may be classified into the following categories:
1. Originated Policy: It is a policy deliberately formulated
by management to guide decision-making at lower levels.
2. Appealed Policy: This type of policy is formulated on the
appeal or request of subordinates.
3. Imposed Policy: An organisation may be compelled to
adopt a policy due to the outside forces .
4. Written Policy: It is a policy which has been written in the
company's records.
5. Implied Policy: It is unwritten policy inferred from the
decisions of managers.

Importance of policies
1. Operationalise Objectives: Policies provide guideposts
towards the attainment of objectives.
2. Speed Up Decision-Making: Policies avoid the need for
repeated analysis and tend to pre-decide issues. In this
way policies save valuable time and effort.
3. Facilitate Delegation of Authority: Policies help to ensure
that decisions will be made within the prescribed limits.
4. Ensure Coordination: Policies help in making the
thinking of each member of a group more predictable to
others. They give a unified structure to other types of
plans.
5. Aid Training: Policies are useful instructional devices for
the orientation and training of employees.
Procedures
A procedure describes the exact manner in which a certain
activity is to be performed. It is a chronological sequence
of steps to be taken. Procedures are designed to executive
policies and achieve objectives. For example, an airline
adopts passenger safety as one of its objectives. A
procedure for carrying out preventive maintenance is
required.Thus, procedures are guides to action.
A procedure is narrower in scope and less flexible than a
policy.

Difference between Procedure and Method

Method outlines the specific way in which a particular step
in the procedure is to be performed. For example, a method
for interviewing candidates is a part of the selection
procedure. Method is narrower but more detailed than a
procedure. Procedures often cut across departmental
lines.
Importance of Procedures
(a) A procedure relieves the manager of much of the detail
in directing subordinates by specifying the steps to be
taken and the time and order of performance.
(b) It routinises recurring jobs so that employees need not
invent original solutions to solve repetitive problems. It
saves time and effort.
(c) It helps to improve efficiency by providing the standard
and the best manner of doing work.
(d) It helps to ensure consistency and uniformity of action
by avoiding chaos and random activity.

Limitations of Procedure
(a) Procedures bring about rigidity in the working of an
organisation.
(b) A procedure discourages initiative and thinking and
employees may not think of new and better ways.
(c) Procedures become outdated unless they are reviewed
and revised frequently.

Methods
Methods are formalised and standardised ways of
accomplishing repetitive and routine jobs. For example,
there are various methods of charging depreciation on
fixed assets such as straight line method, diminishing
balance method, etc.
Rules
Rules are specific statements of what should or should not
be done in specific situations. 'No smoking in the factory'
is an example of a rule. Rules are standing plans. They are
meant to be enforced rigidly with few exceptions.
Rules are helpful in maintaining discipline.

Budgets
A budget is a plan which states expected results of a given
future period in numerical terms. It is a plan of action or
blueprint designed to achieve a specific goal. It may be
expressed in time, money or physical units.
Budgets may be prepared for production, sales, materials,
cash, capital expenditure, etc. A budget is an instrument of
both planning and control. As goals are expressed in
numerical terms the plan becomes clear. Budgets serve as
standards for evaluating performance. A budget is
generally prepared for one year.
Types of budgets:
1. Master Budget: It is the summary budget incorporating
all functional budgets. It gives a comprehensive picture of
the proposed activities and anticipated results for the
entire organisation. It is finally approved by the top
management.
2. Functional Budgets: A functional or an operating budget
describes the responsibility of one particular department of
the enterprise. Some of the important functional budgets
are as follows:
(a) Sales budget : It gives a forecast of total volume of
sales and its breakup product-wise and area-wise. It shows
what products will be sold, in what quantities and at what
prices.

(b) Production budget: It is an estimate of the quantity of

output product-wise, department-wise and time-wise. It is
prepared on the basis of the sales budget, plant capacity,
inventory policy, and availability of materials, labour,
power, etc.
(c) Materials budget: It lays down the quantity of materials
to be purchased during the budget period. It is helpful in
scheduling the purchase of materials.
(d) Labour budget: It indicates the estimates of direct
labour requirements to achieve the budgeted output. It is
helpful in manpower planning, recruitment and selection of
workers.
(e) Cash budget: It gives the cash requirements of
business during the budget period. It indicates estimated
cash receipts and cash disbursements and the cash
position arising therefrom. Its purpose is to ensure that
there is no shortage or surplus of cash and the available
cash is used in the best possible manner.
(f)Production overheads budget: It gives estimates of the
overhead expenses to be incurred on budgeted output. It
shows fixed, variable and semi-variable overheads of the
factory.
(g) Distribution overheads budget: It contains the
estimates of expenses on selling and distribution of goods.
These include sales office rent, advertising, commission,
bad debts, travelling expenses, etc.
(h) Administrative overheads budget: It includes the
estimates of administrative expenses like office rent,
salaries of office staff, postage and stationery, etc.
3. Capital and Revenue Budgets: Capital expenditure
budget gives estimated expenditure on fixed assets like
buildings, plant and machinery, furniture, etc. On the other
hand, revenue budget shows estimates of income and
expenses on routine operations.

Programme
A programme is a comprehensive plan designed to
implement the policies and accomplish the objectives. It is
a combination of goals, policies, task assignments,
resources, etc. It is a concrete or well-defined scheme
designed to accomplish a specific objective. It spells out
clearly the steps to be taken, resources to be used and the
time period within which the task is to be completed. It also
indicates who should do what and how. In business
programmes are used in various areas, e.g., developing a
new product, training programme, advertising programme,
expansion programme, etc.

Features of Programmes
(a) A programme is a single-use but comprehensive
plan.
(b ) It is based on the objectives and policies of the
organisation.
(c) It is an action plan indicating the activities to be
performed and time for each activity.
(d) It is designed to ensure smooth and efficient
functioning of the organisation.