MODULE - 3

Planning
• Essentials of Planning and Managing by Objectives
• Types of Plans
• Steps in Planning
• Objectives
• Evolving Concepts in Management by Objectives(MBO)
• Strategies, Policies, and Planning Premises
• The Nature and Purpose of Strategies and Policies
• The Strategic Planning Process
• Decision-Making
Essentials of Planning and Managing by Objectives
• You are now familiar with the basic management theory and have been
introduced to the five essential managerial functions:
• planning,
• organizing,
• staffing,
• leading, and
• controlling

we shall discuss planning

 Introduction
• In designing an environment for the effective performance of individuals
working together in a group, a manager’s most essential task is to see that
everyone understands the group’s mission and objectives and the methods
for attaining them.
• If group effort is to be effective, people must know what they are expected
to accomplish.
• This is the function of planning.
• It is the most basic of all the managerial functions.
• Planning involves selecting missions and objectives and deciding on
the actions to achieve them; it requires decision-making; that is,
choosing a course of action from among alternatives.
 Nature and importance of planning
• Planning bridges the gap from where we
are to where we want to go.
• It is also important to point that planning
and controlling are inseparable—the
Siamese twins of management
• Any attempt to control without plans is
meaningless, since there is no way for
people to tell whether they are going where
they want to go (the result of the task of
control) unless they first know where they
want to go (part of the task of planning).
• Plans thus furnish the standards of control.
Close relationship of planning and controlling
 Nature of Planning
1. Planning is goal-oriented: Every plan must contribute in some
positive way towards the accomplishment of group objectives.
Planning has no meaning without being related to goals.
2. Primacy of Planning: Planning is the first of the managerial functions.
It precedes all other management functions.
3. Pervasiveness of Planning: Planning is found at all levels of
management. Top management looks after strategic planning. Middle
management is in charge of administrative planning. Lower
management has to concentrate on operational planning.
4. Efficiency, Economy and Accuracy: Efficiency of plan is measured
by its contribution to the objectives as economically as possible.
Planning also focuses on accurate forecasts.
5. Co-ordination: Planning co-ordinates the what, who, how, where
and why of planning. Without co-ordination of all activities, we cannot
have united efforts.

6. Limiting Factors: A planner must recognize the limiting factors

(money, manpower etc) and formulate plans in the light of these critical
factors.

7. Flexibility: The process of planning should be adaptable to changing

environmental conditions.

8. Planning is an intellectual process: The quality of planning will

vary according to the quality of the mind of the manager
Importance of Planning
• Planning increases the organization's ability to adapt to future
eventualities
• Planning helps crystallize objectives.
• Planning ensures a relatedness among decisions
• Planning helps the company to remain more competitive in its
industry
• Adequate planning reduces unnecessary pressures of immediacy
Types of Plans
• Plans can be classified as
(1) missions or purposes,
(2) objectives or goals,
(3) strategies,
(4) policies,
(5) procedures,
(6) rules,
(7) programs, and
(8) budgets.
 Plan (1) Missions or purposes
• The mission, or purpose (the terms are often used interchangeably)
identifies the basic function or tasks of an enterprise or agency or any
part of it.
• Every kind of organized operation has, or at least should have
if it is to be meaningful, a mission or purpose.
• In every social system, enterprises have a basic function or task assigned to
them by society.
• Example,
• The purpose of a business generally is the production and distribution of goods and
services.
• The purpose of a state highway department is designing, building, and operating a
system of state highways.
• The purpose of the courts is the interpretation of laws and their application.
• The purpose of a university is teaching, research, and providing services to the
community.
• In the 1960s, the mission of the National Aeronautics
Space Administration (NASA) was to get a person to
the moon before the Russians.
• It is true that in some businesses and other • What business we are in?
enterprises, the purpose or mission often becomes
fuzzy. • What will our business be?
• For example, many conglomerates(companies) have • Who are our customers?
regarded their mission as synergy, which is
accomplished through the combination of a variety of • What are our values and
companies. beliefs?
• The concept of synergy can be expressed simply as a • What will be due utility to
situation in which 2 plus 2 becomes equal to 5, or in the society?
which the whole is greater than the sum of the parts.
 Google’s Mission
• Google is well known as the world’s leading Internet Search Engine.
• While its success is a function of numerous factors, its clear and focused
mission has created an unambiguous direction for the company that has set in
motion the steps to its global success.
• As listed on its website, “Google’s mission is to organize the world’s
information and make it universally accessible and useful.”
• This simple and clear mission helps inform and contextualize all that Google
does.
• The mission is also helpful in directing employee actions in daily duties, as
each task should be in support of its mission.
• A clear and direct mission inspires and directs and is a necessary condition
for organizational success
 Plan (2) Objectives or goals,
• Objectives, or goals (the terms are used interchangeably in this book), are the ends
toward which activity is aimed.
• They represent not only the end point of planning, but also the end toward which
organizing, staffing, leading, and controlling are aimed.
• The nature of objectives and management by objectives will be discussed in
greater detail later in this chapter
• Objectives were defined earlier as the important ends toward which organizational
and individual activities are directed.
Cont…
• Since writers and practitioners make no clear distinction between the
terms goals and objectives, these are used interchangeably
• It will become clear whether the objectives are long-term or short-
term, broad or specific.
• The emphasis is on verifiable objectives, which means at the end of
the period it should be possible to determine whether or not the
objective has been achieved.
• The goal of every manager is to create a surplus (in business
organizations, this means profit).
• Clear and verifiable objectives facilitate measurement of the surplus as
well as the effectiveness and efficiency of managerial actions.
 Plan (3) Strategies
• For years, the military used the word
strategies to mean grand plans made in
light of what it was believed an adversary
might or might not do.
• While the term still usually has a
competitive implication, managers
increasingly use it to reflect broad areas of
an enterprise’s operation.
• Strategy is defined as the determination of
the basic long-term objectives of an
enterprise and the adoption of courses of
action and allocation of resources
necessary to achieve these goals
Plan (4) Policies
• Policies also are plans in that they are general statements or
understandings that guide or channel thinking in decision-making.
• Not all policies are “statements”; they are often merely implied from
the actions of managers.
• The president of a company, for example, may strictly follow—
perhaps for convenience rather than as policy—the practice of
promoting from within; the practice may then be interpreted as policy
and carefully followed by subordinates.
• In fact, one of the problems of managers is to make sure that
subordinates do not interpret as policy minor managerial decisions that
are not intended to serve as patterns.
• Policies define an area within which a decision is to be made and ensure
that the decision will be consistent with, and contribute to, an objective.
• Policies help decide issues before they become problems, make it
unnecessary to analyze the same situation every time it comes up, and
unify other plans, thus permitting managers to delegate authority and still
maintain control over what their subordinates do.
• There are many types of policies.
• Examples include policies of
• hiring only university-trained engineers,
• encouraging employee suggestions for improved cooperation,
• promoting from within,
• conforming strictly to a high standard of business ethics,
• setting competitive prices, and
• insisting on fixed, rather than cost-plus, pricing.
Bill Ford’s global policy decision
• Ford Motor Company has a long tradition of being guided by a policy
of making low-cost, simple, affordable cars. Up to 2007/8
• After that came the oil crisis that escalated gas prices to a level never
experienced before in America.
• Bill Ford had to make an important policy decision: Think small, think
fuel efficiency, think global.
 Plan (5) procedures
• Procedures are plans that establish a required method of handling
future activities.
• They are chronological sequences of required actions.
• They are guides to action, rather than to thinking, and they detail
the exact manner in which certain activities must be accomplished.
• For example, Case Western University outlines three steps for its
appraisal process:
(1) setting performance objectives,
(2) performing a mid-year review of the objectives, and
(3) conducting a performance discussion at the end of the period
• For example,
• In a manufacturing company, the procedure for handling orders may
involve the
• Sales department (for the original order),
• Finance department (for acknowledgment of receipt of funds and for customer
credit approval),
• Accounting department (for recording the transaction),
• Production department (for the order to produce the goods or the authority to
release them from stock), and
• Shipping department (for determination of shipping means and route)
Plan (6) Rules
• Rules spell out specific required actions or nonactions, allowing no
discretion.
• They are usually the simplest type of plan.
• “No smoking” is a rule that allows no deviation from a stated course of
action.
• The essence of a rule is that it reflects a managerial decision that a
certain action must—or must not—be taken.
• Rules are different from policies.
• While policies are meant to guide decision-making by marking off
areas in which managers can use their discretion, rules allow no
discretion in their application.
 Plan (7) 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.
• They may be as major as an airline’s program to acquire a $400 million
fleet of jets or a five-year program to improve the status and quality of its
thousands of supervisors.
• Or they may be as minor as a program formulated by a single supervisor to
improve the morale of workers in the parts manufacturing department of a
farm machinery company
 Plan (8) budgets
• A budget is a statement of expected results expressed in numerical terms.
• It may be called a “quantified” plan. In fact, the financial operating budget is
often called a profit plan.
• A budget may be expressed in financial terms; in terms of labor-hours, units
of product, or machine-hours; or in any other numerically measurable terms.
• It may deal with operation, as the expense budget does; it may reflect capital
outlays, as the capital expenditure budget does; or it may show cash flow, as
the cash budget does.
• One of the most comprehensive budgets is prepared by the Office of
Management and Budget of the White House.
• The budget proposal is then presented to the Congress by the President of the
United States.
• Budgets are also control devices
• However, making a budget is clearly planning.
• The budget is the fundamental planning instrument in many
companies.
• It forces a company to make in advance—whether for a
week or for five years—a numerical compilation of expected cash
flow, expenses and revenues, capital outlays(expences), or labor- or
machine-hour utilization.
• The budget is necessary for control, but it cannot serve as a sensible
standard of control unless it reflects plans
Planning can be described
• Plans can be described by their
• Breadth,
• Time frame,
• Specificity, and
• Frequency of use
Breadth or scope plans
• On the basis of Breadth or scope plans can be Strategic, tactical or
operational plans
• Strategic plans (long-term plans) are plans that apply to the entire
organization, establish the organization’s overall goals, and seek to position
the organization in terms of its environment.

• Tactical plans are detailed programmes designed to implement the strategic

goals and plans formulated by the top management.

• Operational plans (short-term plans) are plans that specify the details of how
the overall goals are to be achieved.
 Time frame plans
On the basis of Time frame plans can be Short-term, medium term or long-term
plans.
Short-term plans are plans that cover one year or less. These are formulated when
the organizations want to accomplish their goals within a short span of time. These plans
normally become tools for management of day-to-day activities in departments, divisions etc.
They are the steps that lead to the fulfillment of long-term objectives. Operational plans are
forms of short term plans.
Medium term plans define the organizational activities that are essential for the
execution of long term plans and goals. These plans are useful for middle-level managers as
they offer directions to them. They normally cover a time horizon of 1-2 years. Tactical plans
are forms of medium term plans.
Long-term plans are plans with a time frame beyond three years. They are prepared
when organizations require long periods of time to reach their goals. These plans provide a big
picture of an organization and also indicate its future direction. Top management is involved
in formulating these plans. Strategic plans are long term plans.
 Specificity plans
On the basis of Specificity plans can be Specific or directional plans.
Specific plans are plans that are clearly defined and leave no room for
interpretation. These are apt for organizations which enjoy a stable external
and internal environment.
Eg a plan that aims at cutting production cost by 3 % in one year.
Directional plans are flexible plans that set out general guidelines. They
provide a general direction in which the organization proposes to move
forward but there are no specific plan deadlines. These plans are best suited for
uncertain and volatile organizations.
Eg a plan that aims at increasing corporate profit between 4 % and 6 %.
Frequency of use plans
• On the basis of Frequency of use plans can be Single-use or standing
plans.
• A single-use plan is a one-time plan specifically designed to meet
the needs of a unique situation.
• Eg Programmes and budgets.

• Standing plans are ongoing plans that provide guidance for

activities performed repeatedly.
• Eg Policy, procedure, rules
Steps in
Planning
Levels of planning
• In management theory, it is usual to consider that there are three basic
levels of planning, though in practice there may be more than three
levels of management and to an extent, there will be some overlapping
of planning operations.
• The three levels of planning are discussed below:
• Top level planning(strategic planning)
• Middle level planning (tactical planning)
• Lower level planning (operational planning)
Top level planning
• Top level planning: also known as overall or strategic planning, top
level planning is done by the top management,
• i.e., board of directors or governing body.
• It encompasses the long-range objectives and policies or organisation
and is concerned with corporate results rather than sectional objectives.
• Top level planning is entirely long-range and inextricably linked with
long-term objectives.
• It might be called the ‘what’ of planning.
Middle level planning
• Middle level planning: also known as tactical planning, it is done by
middle level managers or departmental heads.
• It is concerned with ‘how’ of planning.
• It deals with development of resources to the best advantage.
• It is concerned mainly, not exclusively, with long-range planning, but
its nature is such that the time spans are usually shorter than those of
strategic planning.
• This is because its attentions are usually devoted to the step-by step
attainment of the organisation’s main objective.
• It is, in fact, oriented to functions and departments rather than to the
organisation as a whole.
Lower level planning
• Lower level planning: also known as operational planning, it is the
concern of departmental managers and supervisors.
• It is confined to putting into effect the tactical or departmental plans.
• It is usually for a short-term and may be revised quite often to be in
tune with the tactical planning.
Comparison of strategic, tactical and operational
planning
The Planning Process
• Being aware of opportunities
• Setting objectives
• Developing premises
• Determining alternative courses
• Evaluating alternative courses
• Selecting an alternative
• Implement the plan
• Follow-up action
Being aware of opportunities
• All managers should take a preliminary look at
• possible future opportunities and see them clearly and completely,
• know where their company stands in light of its strengths and
weaknesses,
• understand what problems it has to solve and why and know what
it can expect to gain.
• Awareness of opportunities should be made in light of the market,
competition, what customers want, our strengths and our
weaknesses.
Setting objectives
• Objectives may be set for the entire organisation and each department
or unit within the organisation.
• Objectives specify the end results and indicate
• the end points of what is to to be done,
• where primary emphasis is to be placed, and
• what is to be accomplished by network of strategies, policies,
procedures, rules, budgets and programs.
Developing properties
• Premises means the assumptions about the environment in which the plan
is to be carried out.
• It is important for all managers involved in the planning process to agree
on the premises.
• The more thoroughly individuals charged with planning understand and
agree to utilise consistent planning premises, the more coordinated the
enterprise planning will be.
• Determining alternative courses:
• Search for and examine alternative courses of action.
• Evaluating alternative courses:
• The next step is to weigh the pros and cons of each alternative.
• Selecting an alternative:
• This is the real point of decision making. The best plan has to be adopted and
implemented.
• Implement the plan:
• This is concerned with putting the plan into action.
• Follow-up action:
• Monitoring the plans are equally important to ensure that objectives are
achieved.
 Principles of Planning
• Principle of contribution to objectives – The purpose of planning is the
effective and efficient achievement of objectives.
• Principle of primacy of planning – Planning precedes all other function of
management
• Principle of efficiency of plans – The efficiency of plans is measured on the
basis of optimum costs to achieve the objectives successfully
• Principle of planning premises – Every plan is based on carefully considered
assumptions
• Principle of limiting factor – While choosing an appropriate course of action
amongst different alternatives, the limiting factor such as money, materials,
machines, manpower etc should be considered
• Principle of flexibility – There should be flexibility in the plans
Essentials of effective planning
• Simple – A good plan must be simple and comprehensive. All employees
should understand the significance and it can be easily put into operation
• Clear and well defined objectives – A good plan must not contain
anything indefinite or ambiguous. It should be well defined
• Well balanced and flexible –It should be broad enough to meet future
challenges and uncertainties
• Time bound – The time period for achieving the objectives should be
reasonable.
• Participation by subordinates – Planning should not be the exclusive
responsibility of top management. It should involve participation of
subordinates.
• Practical – Plans should be implemented easily
 Barriers to effective planning
• Uncertain future – Future is full of uncertainty.
• Resistance to change – Members of an organisation may resist changes due to
implementation of plans
• Inadequate resources – The success of planning depends critically on
resources available. In the event of non-availability of adequate resources,
managers will have to limit plan related activities
• Lack of effective communication – When plans are not adequately
communicated to the participants, managers will fail to get their commitment
and cooperation
• Improper contribution to planning activities at different levels – Since
most of the planning is done by top management, the middle and lower level
management which are closer to the operations may not understand all aspects
of planning and therefore may not be able to contribute some necessary key
factors as input.
 Approaches to planning
• Top-down approach – In most family owned businesses, the authority and
responsibility for planning is centralised at the top. The top management
defines the mission, lays down strategies and specifies action plans to achieve
the stated goals. The plan is then passed to people working at lower level who
have little to contribute to the process of planning
• Bottom – up approach – Lower level management are drawn into the
preparation and implementation of plans, their loyalty and commitment
would go up.
• Composite approach – A middle path is chosen to facilitate the smooth
implementation of plans. Top level offers guidelines, sets boundaries and
encourages the middle and lower level executives to come out with tentative
plans. Then they discuss and debate. Once approved, such plans gain
acceptance readily since everyone has been drawn into the exercise.
Forecasting
• A technique managers can use to assess the environment is forecasting.
• Forecasting is an important part of planning and managers need forecasts that
will allow them to predict future events effectively and in a timely manner.
• Environmental scanning establishes the basis for forecasts, which are
predictions of outcomes.

Forecasting Methods
1. Qualitative methods or Opinion and judgmental methods
2. Quantitative methods
 Qualitative methods or Opinion and
judgmental methods
• Deals with
- What do people say
- What do they do. Useful in forecasting for new product or new market for
which no past data available
Consumer’s Opinion Survey
• Buyers are asked about their future buying intentions of products, their
brand preferences and quantity of purchase.
• Possible response to increase in price, probable change in product's feature
and competitive product
Sales force Opinion
• Salespersons are asked about their estimated sales target in their respective
sales territories in a given period of time.
• Sum total of such estimates form the basis of forecasted demand.
• Jury of expert opinion
The views of experts from sales, production, finance, purchasing and
administration are averaged to generate a forecast about future sales as
they are well informed about the company’s market position,
capabilities, competition and market trend

• Delphi Technique
It is similar to jury of experts. In this a panel of experts is asked to
respond to a series of questionnaires. The responses are tabulated and
opinions of the entire group are made known to each other panel
members so that they may revise their previous forecast response. The
process continues until some degree of consensus is achieved
 Quantitative methods
• It relies on numerical data and mathematical models to predict future
conditions. It is used when historical data is available.
The different methods of quantitative analysis are :
1. Time series analysis- Fits a trend line to a mathematical equation and
projects into the future by means of this equation. Predicting next
quarter’s sales on the basis of 4 years of previous sales data
2. Regression models - Predicts one variable on the basis of known or
assumed other variables. Seeking factors that will predict a certain level
of sales (e.g., price, advertising expenditures)
3. Econometric models - Uses a set of regression equations to simulate
segments of the economy. Predicting change in car sales as a result of
changes in tax laws
SWOT Analysis
• Strengths, Weaknesses, Opportunities and Threats (SWOT)
analysis is a technique suitable for early stages of strategic planning
process.
• A scan of the internal and external environment is an important part of
the strategic planning process.
• Internal environment factors are strengths and weaknesses while
external environment factors are opportunities and threats.
• SWOT analysis provides information that is helpful in matching the
firm’s resources and capabilities to the competitive environment in
which it operates
• Strengths: factors that give an edge for the company over its
competitors. Eg Employee strengths, skills, location etc
• Weaknesses: factors that can be harmful if used against the
firm by its competitors. Eg employee turnover, employee
absenteeism
• Opportunities: favorable situations which can bring a
competitive advantage. Eg change in government policies
• Threats: unfavorable situations which can negatively affect
the business. Eg change in legal policies, political instability
Management by Objectives (MBO)