BBA Unit 2 - Planning: Nature and Definition of Planning, Process, Types and Significance, planning vs.

Forecasting, Strategies and Policies, MBO, Decision making: Process & Significance

Notes

Planning is the fundamental management function, which involves deciding beforehand, what is to be done,
when is it to be done, how it is to be done and who is going to do it. It is an intellectual process which lays
down an organisation’s objectives and develops various courses of action, by which the organisation can
achieve those objectives. It chalks out exactly, how to attain a specific goal. Planning is nothing but thinking
before the action takes place. It helps us to take a peep into the future and decide in advance the way to deal
with the situations, which we are going to encounter in future. It involves logical thinking and rational decision
making. According to Koontz and O’Donnel, “Planning is deciding in advance what to do, how to do it, when to
do it and who is to do it. It bridges the gap from where we are to where we want to go.” Planning is the
continuous managerial process of anticipating and forecasting the future. environment of the business
organization, the formulation of the long term and short-term goals. to be achieved and selecting the
strategies for their realization. Planning is also a management process, concerned with defining goals for a
company's future direction and determining the missions and resources to achieve those targets. To meet
objectives, managers may develop plans, such as a business plan or a marketing plan. The planning process
provides the information top management needs to make effective decisions about how to allocate the
resources in a way that will enable the organization to reach its objectives. Productivity is maximized and
resources are not wasted on projects with little chance of success.

Importance of Planning

It helps managers to improve future performance, by establishing objectives and selecting a course of action,
for the benefit of the organisation.

It minimizes risk and uncertainty, by looking ahead into the future.

It facilitates the coordination of activities. Thus, reduces overlapping among activities and eliminates
unproductive work.

It states in advance, what should be done in future, so it provides direction for action.
It uncovers and identifies future opportunities and threats.

It sets out standards for controlling. It compares actual performance with the standard performance and
efforts are made to correct the same.

Planning is present in all types of organisations, households, sectors, economies, etc. We need to plan
because the future is highly uncertain and no one can predict the future with 100% accuracy, as the
conditions can change anytime. Hence, planning is the basic requirement of any organization for the
survival, growth and success.

Feature/ Nature/ Characteristics of Planning

1.Managerial function: Planning is a first and foremost managerial function provides the base for other
functions of the management, i.e., organising, staffing, directing and controlling, as they are performed
within the periphery of the plans made.
1. Goal oriented: It focuses on defining the goals of the organisation, identifying alternative
courses of action and deciding the appropriate action plan, which is to be undertaken for
reaching the goals.
2. Pervasive: It is pervasive in the sense that it is present in all the segments and is required at
all the levels of the organisation. Although the scope of planning varies at different levels and
departments.
3. Continuous Process: Plans are made for a specific term, say for a month, quarter, year and
so on. Once that period is over, new plans are drawn, considering the organisation’s present
and future requirements and conditions. Therefore, it is an ongoing process, as the plans are
framed, executed and followed by another plan.
4. Intellectual Process: It is a mental exercise at it involves the application of mind, to think,
forecast, imagine intelligently and innovate etc.
5. Futuristic: In the process of planning, we take a sneak peek of the future. It encompasses
looking into the future, to analyze and predict it so that the organisation can face future
challenges effectively.
6. Decision making: Decisions are made regarding the choice of alternative courses of
action that can be undertaken to reach the goal. The alternative chosen should be best
among all, with the least number of the negative and highest number of positive outcomes.
Planning is concerned with setting objectives, targets, and formulating plan to accomplish
them. The activity helps managers analyze the present condition to identify the ways of
attaining the desired position in future. It is both, the need of the organisation and the
responsibility of managers.

Components of Planning

There are various components of planning (also known as planning techniques). These include:
a. Forecasting
b. Objectives
c. Programmes
d. Strategies
e. Procedures
f. Policies
g. Schedules
h. Rules, and
i. Budgets

Objectives
The first step in planning is setting objectives. Objectives, therefore, can be said to be the
desired future position that the management would like to reach. Objectives are very basic to
the organisation and they are defined as ends which the management seeks to achieve by its
operations. Therefore, an objective simply stated is what you would like to achieve, i.e., the
end result of activities.
Objectives need to be expressed in specific terms i.e., they should be measurable in
quantitative terms, in the form of a written statement of desired results to be achieved within
a given time period.

Strategy
A strategy provides the broad contours of an organisation’s business. It will also refer to future
decisions defining the organisations direction and scope in the long run. Thus, we can say a
strategy is a comprehensive plan for accomplishing an organisation objectives. This
comprehensive plan will include three dimensions, (i) determining long term objectives, (ii)
adopting a particular course of action, and
(iii) allocating resources necessary to achieve the objective.
Whenever a strategy is formulated, the business environment needs to be taken into
consideration. The changes in the economic, political, social, legal and technological
environment will affect an organisation’s strategy. Strategies usually take the course of
forming the organisation’s identity in the business environment. Major strategic decisions will
include decisions like whether the organisation will continue to be in the same line of business,
or combine new lines of activity with the existing business or seek to acquire a dominant
position in the same market.

Forecasting:
This refers to the prediction of future events and conditions to reduce the uncertainties
surrounding management and decision making in organisations. It not only predicts and assesses
the future but also provides the provisions for it that hold the organisation’s best interest at
heart.

Policy
Policies are general statements that guide thinking or channelize energies towards a particular
direction. Policies provide a basis for interpreting strategy which is usually stated in general
terms. They are guides to managerial action and decisions in the implementation of strategy.
There are policies for all levels and departments in the organisation ranging from major
company policies to minor policies. Major company policies are for all to know i.e., customers,
clients, competitors etc., whereas minor polices are applicable to insiders and contain minute
details of information vital to the employees of an organisation.

Procedure
 Procedures are routine steps on how to carry out activities. They detail the exact manner in
which any work is to be performed. They are specified in a chronological order. Procedures
are specified steps to be followed in particular circumstances. They are generally meant for
insiders to follow. The sequence of steps or actions to be taken are generally to enforce a
policy and to attain pre-determined objectives. Policies and procedures are interlinked with
each other. Procedures are steps to be carried out within a broad policy framework.

Method/ Schedules
Methods provide the prescribed ways or manner in which a task has to be performed
considering the objective. It deals with a task comprising one step of a procedure and specifies
how this step is to be performed. The method may vary from task to task. Selection of proper
method saves time, money and effort and increases efficiency.

Rule
Rules are specific statements that inform what is to be done. They do not allow for any
flexibility or discretion. It reflects a managerial decision that a certain action must or must not
be taken. They are usually the simplest type of plans because there is no compromise or
change unless a policy decision is taken.

Programme
Programmes are detailed statements about a project which outlines the objectives, policies,
procedures, rules, tasks, human and physical resources required and the budget to implement
any course of action. Programmes will include the entire gamut of activities as well as the
organisation’s policy and how it will contribute to the overall business plan.

Budget
A budget is a statement of expected results expressed in numerical terms. It is a plan which
quantifies future facts and figures. Since budget represents all items in numbers, it becomes
easier to compare actual figures with expected figures and take corrective action
subsequently. Thus, a budget is also a control device from which deviations can be taken care
of. But making a budget involves forecasting, therefore, it clearly comes under planning. It is a
fundamental planning instrument in many organisations.

Steps involved in Planning

Planning Process
As planning is an activity, there are certain reasonable measures for every manager to follow:
1. Recognizing Need for Action/Analyzing Opportunities

An important part of the planning process is to be aware of the business opportunities in the firm’s
external environment as well as within the firm. Once such opportunities get recognized the managers
can recognize the actions that need to be taken to realize them. A realistic look must be taken at the
prospect of these new opportunities and SWOT Analysis should be done.

Say for example the government plans on promoting cottage industries in semi-urban areas. A firm can
look to explore this opportunity.

2. Setting Objectives
 This is the primary step in the process of planning which specifies the objective of an
organisation, i.e. what an organisation wants to achieve.
 The planning process begins with the setting of objectives.
 Objectives are end results which the management wants to achieve by its operations.
 Objectives are specific and are measurable in terms of units.
 Objectives are set for the organisation as a whole for all departments, and then departments
set their own objectives within the framework of organisational objectives.
Example:
A mobile phone company sets the objective to sell 2,00,000 units next year, which is double the
current sales.
3. Developing Planning Premises
 Planning is essentially focused on the future, and there are certain events which are
expected to affect the policy formation.
 Such events are external in nature and affect the planning adversely if ignored.
 Their understanding and fair assessment are necessary for effective planning.
 Such events are the assumptions on the basis of which plans are drawn and are known as
planning premises.
Example:
The mobile phone company has set the objective of 2,00,000 units sale on the basis of forecast done
on the premises of favourable Government policies towards digitisation of transactions.
(4) Identifying Alternative Courses of Action
 Once objectives are set, assumptions are made.
 Then the next step is to act upon them.
 There may be many ways to act and achieve objectives.
 All the alternative courses of action should be identified.
Example:
The mobile company has many alternatives like reducing price, increasing advertising and
promotion, after sale service etc.
(5) Evaluating Alternative Course of Action
 In this step, the positive and negative aspects of each alternative need to be evaluated in the
light of objectives to be achieved.
 Every alternative is evaluated in terms of lower cost, lower risks, and higher returns, within
the planning premises and within the availability of capital.
Example:
The mobile phone company will evaluate all the alternatives and check its pros and cons.
(6) Selecting One Best Alternative
 The best plan, which is the most profitable plan and with minimum negative effects, is
adopted and implemented.
 In such cases, the manager’s experience and judgement play an important role in selecting
the best alternative.
Example:
Mobile phone company selects more T.V advertisements and online marketing with great after sales
service.
(7) Implementing the Plan
 This is the step where other managerial functions come into the picture.
 This step is concerned with “DOING WHAT IS REQUIRED”.
 In this step, managers communicate the plan to the employees clearly to help convert the
plans into action.
 This step involves allocating the resources, organising for labour and purchase of machinery.
Example:
Mobile phone company hires salesmen on a large scale, creates T.V advertisement, starts online
marketing activities and sets up service workshops.
(8) Follow Up Action
 Monitoring the plan constantly and taking feedback at regular intervals is called follow-up.
 Monitoring of plans is very important to ensure that the plans are being implemented
according to the schedule.
 Regular checks and comparisons of the results with set standards are done to ensure that
objectives are achieved.
Example:
A proper feedback mechanism was developed by the mobile phone company throughout its branches
so that the actual customer response, revenue collection, employee response, etc. could be known.

Importance/ Significance of Planning

1. Planning Provides Direction- Planning provides us with direction. How to work in the future
includes planning. By stating in advance, how work has to be done, planning provides
direction for action.
2. Planning Reduces the Risk of Uncertainties- Uncertainty means any events in the future
that change our course of action. Planning helps the manager to face uncertainty. We
cannot remove such uncertainty from our life. However, due to planning, we can work on
 such uncertainty. Just like an unforeseen event is going to come in which we are going in
loss. So, if we are already ready, we have made funds for it, then we will be able to use it to
fight that unforeseen situation.
3. Planning Reduces Overlapping and Wasteful Activity- Overlapping means the working
relationship has not been allocated specifically. If we plan, our time will not be wasted.
4. Planning Promotes Innovative Ideas- If you are planning, then you get feedback from your
senior managers or juniors, from there you can get innovative ideas. Besides, if you make
your employees part of the decision-making, then you can get new creative ideas from there
too.
5. Planning Facilitates Decision- Planning helps in decision-making. The more efficient you
plan, the more right you will be in the decision. With good planning, our decision-making
gets accurate, it becomes feasible and it also gets improved.
6. Planning Establishes a Standard for Controlling- Controlling is incomplete without planning
and planning is incomplete without controlling. If you have done the planning but you do not
know if the thing is happening or not, then the planning is useless. In case, there is no
planned output then the controlling manager will have no base to compare whether the
actual output is adequate or not.
7. Focuses Attention on Objectives of that Company- Through planning, efforts of all the
employees are directed towards the achievement of organizational goals and objectives.

Types of Plans

There are main 4 types of plans:

1.Hierarchical Plans:
These plans are drawn at three major hierarchical levels, namely, the institutional, the managerial
and the technical core. The plans for these three levels are;
o Strategic plan.
o Administrative or Intermediate plan.
o Operational plans can also be categorized according to frequency or repetitiveness
of use. They are broadly classified as;
2.Standing Plans:
Standing plans are drawn to cover issues that managers face repeatedly. Such a standing plan may
be called a standard operating procedure (SOP). Generally, five types of standing plans are used;
 Mission or purpose
 Strategy
 Policies
 Rules
 Procedures
3.Single-use Plans:
Single-use plans are prepared for single or unique situations or problems and are normally discarded
or replaced after one use. Generally, four types of single-use plans are used. These are;
o Objectives or Goals
o Programs
o Projects
o Budgets
4.Contingency Plans:
Contingency plans are made to deal with situations that might crop up if these assumptions turn out
to be wrong. Thus, contingency planning is the development of alternative courses of action to be
taken if events disrupt a planned course of action.
An organisation has to prepare a plan before making any decision related to business
operation, or undertaking any project. Plans can be classified into several types depending on
the use and the length of the planning period. Certain plans have a short-term horizon and
help to achieve operational goals. These plans can be classified into single-use plans and
standing plans.

A strategy, for example, 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. 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. Based on what the plans seek to achieve, plans can be classified as
Objectives, Strategy, Policy, Procedure, Method, Rule, Programme, Budget.

Forecasting: Forecasting, is basically a prediction or projection about a future event, depending on

the past and present performance and trend. Conversely, planning, as the name signifies, is the
process of drafting plans for what should be done in future, and that too is based on the present
performance plus expectations.

Planning and forecasting are two important managerial functions that are relevant for other
functions. Basically, forecasting talks about what could practically happen, depending on the
company’s performance in the past and at present. On the contrary, planning implies thinking before
acting, i.e., deciding today, what is to be done tomorrow. This article makes an attempt to clear the
differences between forecasting and planning.
Content: Forecasting Vs Planning
1. Comparison Chart
2. Definition
3. Key Differences
4. Example
5. Conclusion
Comparison Chart
BASIS FOR
FORECASTING PLANNING
COMPARISON

Meaning Forecasting alludes to estimating future Planning is a process of looking ahead and
performance of an entity, considering projecting the future course of action for
past and current performance and the firm and also for various other units,
facts. within it.

Based on Postulations and assumption, that Relevant information, forecasts and

involves a certain degree of guess. objectives.
 BASIS FOR
FORECASTING PLANNING
COMPARISON

Concerned with Estimating future event or trend. Assessing the future and providing for it.

Stresses on Facts Facts and expectations

Responsibility Different levels of managers or Top level managers

sometimes experts are employed by
the management.

Management by Objectives (MBO)?

Management by Objectives (MBO) is a strategic approach to enhance the performance of an
organization. It is a process where the goals of the organization are defined and conveyed by the
management to the members of the organization with the intention to achieve each objective.
An important step in the MBO approach is the monitoring and evaluation of the performance and
progress of each employee against the established objectives. Ideally, if the employees themselves
are involved in setting goals and deciding their course of action, they are more likely to fulfill their
obligations.
Management by objectives (MBO) is a process in which a manager and an employee agree
on specific performance goals and then develop a plan to reach them.
Steps in Management by Objectives Process
1. Define organization goals
Setting objectives is not only critical to the success of any company, but it also serves a variety of
purposes. It needs to include several different types of managers in setting goals. The objectives set
by the supervisors are provisional, based on an interpretation and evaluation of what the company
can and should achieve within a specified time.
2. Define employee objectives
Once the employees are briefed about the general objectives, plan, and the strategies to follow, the
managers can start working with their subordinates on establishing their personal objectives. This
will be a one-on-one discussion where the subordinates will let the managers know about their
targets and which goals they can accomplish within a specific time and with what resources. They
can then share some tentative thoughts about which goals the organization or department can find
feasible.
3. Continuous monitoring performance and progress
Though the management by objectives approach is necessary for increasing the effectiveness of
managers, it is equally essential for monitoring the performance and progress of each employee in
the organization.
4. Performance evaluation
Within the MBO framework, the performance review is achieved by the participation of the
managers concerned.
5. Providing feedback
In the management by objectives approach, the most essential step is the continuous feedback on
the results and objectives, as it enables the employees to track and make corrections to their
actions. The ongoing feedback is complemented by frequent formal evaluation meetings in which
superiors and subordinates may discuss progress towards objectives, leading to more feedback.
6. Performance appraisal
Performance reviews are a routine review of the success of employees within MBO organizations.

Benefits of Management by Objectives

 Management by objectives helps employees appreciate their on-the-job roles and
responsibilities.
 The Key Result Areas (KRAs) planned are specific to each employee, depending on their
interest, educational qualification, and specialization.
 The MBO approach usually results in better teamwork and communication.
 It provides the employees with a clear understanding of what is expected of them. The
supervisors set goals for every member of the team, and every employee is provided with a
list of unique tasks.
 Every employee is assigned unique goals. Hence, each employee feels indispensable to the
organization and eventually develops a sense of loyalty to the organization.
 Managers help ensure that subordinates’ goals are related to the objectives of the
organization.
Limitations of Management by Objectives
 Management by objectives often ignores the organization’s existing ethos and working
conditions.
  More emphasis is given on goals and targets. The managers put constant pressure on the
employees to accomplish their goals and forget about the use of MBO for involvement,
willingness to contribute, and growth of management.
 The managers sometimes over-emphasize the target setting, as compared to operational
issues, as a generator of success.
 The MBO approach does not emphasize the significance of the context wherein the goals are
set. The context encompasses everything from resource availability and efficiency to relative
buy-in from the leadership and stakeholders.
 Finally, there is a tendency for many managers to see management by objectives as a total
system that can handle all management issues once installed. The overdependence may
impose problems on the MBO system that it is not prepared to tackle, and that frustrates
any potentially positive effects on the issues it is supposed to deal with.
Key Takeaways
 Management by Objectives (MBO) is an approach adopted by managers to control their
employees by implementing a series of concrete goals that both the employee and the
organization aim to accomplish in the immediate future and work accordingly to achieve.
 The MBO approach is implemented to ensure that the employees get a clear understanding
of their roles and responsibilities, along with expectations, so that they can understand the
relation of their activities to the overall success of the organization.
 If the management by objectives strategy is not adequately set, decided upon, and
controlled by organizations, self-centred workers can be likely to misinterpret results,
wrongly portraying the achievement of short-term, narrow-minded goals.
Decision making: Process & Significance

Decision-making is defined as the process by which different possible solutions or alternatives are
identified and the most feasible solution or course of action is finalized. It is an integral part of
planning. Decision-making results in selecting the right action among different available options.

It is also one of the important management functions and effective decision-making leads to fulfilling
expected goals by sorting out different problems related to such decisions. Decision-making is also a
time-bound process and eliminates confusions to reach a conclusion. It has a minimum of two or
more alternatives or solutions to a problem so that the best can be decided. If only one alternative is
available, then there is no requirement of decision-making.

Relation Between Planning and Decision-Making

Both planning and decision-making are connected to each other. These are the most important
aspects of management functions. Planning requires a series of decisions to be incorporated in
advance. The foundation of planning is decision-making. The role of a planner demands good
decision-making abilities also as the planner has to take a lot of decisions simultaneously. So,
decision-making is an important task in planning. Simultaneous and a number of decisions make a
plan. In the absence of decision-making, it’s not possible to answer what, how, when, and who is
planning. To execute planned activities, decision-making is compulsory.

So, planning has an important role to play in decision-making.

Characteristics of Decision-Making
Different characteristics of decision-making are mentioned below:
1. Process-oriented
Decision-making consists of a process to choose the best solution to a problem among available
alternatives. The process includes identifying and analyzing problems, collecting different facts and
figures, finding different solutions, and, finally, narrowing down and implementing the best one to
meet organizational goals.

2. Demands creativity and Intellectual mind

Decision-making process requires creativity and logical thinking. It demands a lot of mental exercise
and other components, i.e. education, experience level, intelligence, etc.

3. Demonstrates commitment
Decision-making process ensures better results based on the decisions made. So, it indicates the
commitment of desired results. It requires joint efforts of the team.

4. Ensures the best solution

Decision-making also provides the best solution to any problem as the best solution is decided after
evaluating different available alternatives.

5. Impacts of decision-making
Decision-making can be either positive or negative. A positive or right decision can bring positive
results and negative or wrong decisions can bring negative results.

6. Decision-making is a final process

After disbursing different activities and tasks, decision-making takes place to get the results of the
work done. It is the end result of discussions, comparisons, etc.

7. An ongoing and changing process

Organizations take decisions on a regular basis; so, decision-making is a continuous process. Every
decision consists of separate situations that make decision-making a changing process.

Decision-Making Process
The decision-making process in 7 steps
The decision-making process is spreads out in three stages: identifying phase (opportunities,
problem, and crises are recognized and relevant information is collected and problems are more
clearly identified), development phase (alternative solutions to problems are generated and
modified) and selection phase (alternative solutions to problems are generated and modified)
and seven steps. The seven steps followed by the author (Litherland, N., 2013) are: defining the
problem, identifying and limiting the factors, development of potential solutions, analysis of the
alternatives, selecting the best alternative, implementing the decision and establishing a control
and evaluation system.
1.Identify the problem
The first step in the decision-making process is identifying the problem. To make a decision, you
must first identify the problem you need to solve. The manager should consider critical or
strategic factors in defining the problem. These factors are, in fact, obstacles in the way of
finding proper solution. These are also known as limiting factors. This process must, as a
minimum, identify root causes, limiting assumptions, system and organizational boundaries and
interfaces. First of all, managers must identify the problem. The problem has to be found and
defined. Symptoms are identified and problems should be judged, symptoms are not problems.
They are warning signs of problems. So, managers should search for symptoms for identification
of problems. The first step needed in taking a decision is to have detected a difference between
the current situation and the desired situation. This discrepancy, or problem, exerts pressure on
the managing director, forcing him/her to take action, whether it is in such fields as company
policy, deadlines, financial recession, or concerning future job evaluations, among other
possibilities.
2.Collect relevant information
Once you have identified your decision, it‘s time to gather the information relevant to that
choice. After defining and analyzing the problem, the next step is to develop alternative solutions.
The main aim of developing alternative solutions is to have the best possible decision out of
the available alternative
courses of action. In developing alternative solutions the manager comes across creative or
original solutions to the problems.
3.Identify the alternatives
With relevant information now at your fingertips, identify possible solutions to your problem.
There is usually more than one option to consider when trying meeting a goal—for example, if
your company is trying to gain more engagement on social media, your alternatives could
include paid social advertisements, a change in your organic social media strategy, or a
combination of the two.
4.Developing alternative solutions
After defining and analyzing the problem, the next step is to develop alternative solutions. The
main aim of developing alternative solutions is to have the best possible decision out of the
available alternative courses of action. In developing alternative solutions the manager comes
across creative or original solutions to the problems. In modern times, the techniques of
operations research and computer applications are immensely helpful in the development of
alternative courses of action. Once you have identified multiple alternatives, weigh the
evidence for or against said alternatives. See what companies have done in the past to
succeed in these areas, and take a good hard look at your own organization‘s wins and losses.
Identify potential pitfalls for each of your alternatives, and weigh those against the possible
rewards.
5.Implementation of the decision
To gathered all relevant information, and developed and considered the potential paths to
take. You are perfectly prepared to choose. After you‘ve ranked your options, you must
choose the one that you think has the strongest chance of achieving your goal. In some
instances, you can combine several options, but in most cases, there will be a clear-cut
direction you want to take.
6.Take action
Once you‘ve made your decision, act on it! Develop a plan to make your decision tangible and
achievable. Use Lucid chart diagrams to plan the projects related to your decision, and then set
the team loose on their tasks once the plan is in place.
7.Review decision
Last and important step in the decision-making process is evaluating your decision for
effectiveness. Follow- up enables to identify the shortcoming or negatives consequences of the
decision. It provides valuable feed- back on which the decision may be reviewed or
reconsidered.