Unit Three

Planning Function of Management

By: Yonas Berhanu (Assistant Professor)

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 Introduction
 Management functions as pointed out in unit 1, are classified as
Planning, organizing, staffing, directing and controlling.
 Planning Function of management proceeds others.
 Without setting a goal to be reached and lines of action to be
followed, there is nothing to organize, to direct, or to control in
the organization.
 However this should not lead one to hold the view that planning is
an isolated activity required in the beginning only.
 It is a continuous and unending process to keep the organization
as a going concern and other functions are also performed
simultaneously.
2
 What is Planning?
Planning – means taking the hard decisions before events
force themselves upon you, and anticipating the future
needs of the market before the demand asserts itself.

"Planning is an intellectual process, the conscious

determination of courses of action, the basing of
decisions on purpose, acts and considered estimates".
Koontz and O’Donnell

To achieve effectiveness at any level of responsibility, a

manager must be a good planner.
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What is Planning?

 According to Koontz & O’Donell, “Planning is

deciding in advance what to do, how to do and who
is to do it.

 Planning bridges the gap between where we are to,

where we want to go.

 It makes possible things to occur which would not

otherwise occur”.
 Where it can be done?
What to do?

When to do it?
How to do it?

Who will do it?

What resources required to do it ?
 Characteristics of Planning
1. Planning is goal-oriented.
 Planning is made to achieve desired objective of
business.
 The goals established should general acceptance
otherwise individual efforts & energies will go
misguided and misdirected.
 Planning identifies the action that would lead to
desired goals quickly & economically.
 It provides sense of direction to various activities.
Cont’d
2. Planning is looking ahead.
 Planning is done for future.
 It requires peeping in future, analyzing it and
predicting it.
 Thus planning is based on forecasting.
 A plan is a synthesis of forecast.
 It is a mental predisposition for things to happen in
future.

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 Cont’d
3. Planning is an intellectual process.
 Planning is a mental exercise involving creative
thinking, sound judgment and imagination.
 It is not a mere guesswork but a rotational thinking.
 A manager can prepare sound plans only if he has
sound judgment, foresight and imagination.
 Planning is always based on goals, facts and
considered estimates.

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 cont’d
4. Planning involves choice & decision making.
 Planning essentially involves choice among various
alternatives.
 Therefore, if there is only one possible course of
action, there is no need planning because there is no
choice.
 Thus, decision making is an integral part of planning.
 A manager is surrounded by no. of alternatives.
He/she has to pick the best depending upon
requirements & resources of the enterprises.
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 Cont’d
5. Planning is the primary function of management /
Primacy of Planning.

 Planning lays foundation for other functions of management.

 It serves as a guide for organizing, staffing, directing and
controlling.
 All the functions of management are performed within the
framework of plans laid out.
 Therefore planning is the basic or fundamental function of
management.
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 Cont’d
6. Planning is a Continuous Process.
 Planning is a never ending function due to the dynamic
business environment.

 Plans are also prepared for specific period of time and at the
end of that period, plans are subjected to revaluation and review
in the light of new requirements and changing conditions.

 Planning never comes into end till the enterprise exists issues,
problems may keep cropping up and they have to be tackled by
planning effectively.
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 Cont’d
7. Planning is all Pervasive.
 It is required at all levels of management and in all
departments of enterprise.

 Of course, the scope of planning may differ from one level to

another.

 The top level may be more concerned about planning the

organization as a whole whereas the middle level may be more
specific in departmental plans and the lower level plans
implementation of the same.
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 Cont’d
8. Planning is designed for efficiency.
 Planning leads to accomplishment of objectives at the
minimum possible cost.
 It avoids wastage of resources and ensures adequate and
optimum utilization of resources.
 A plan is worthless or useless if it does not value the cost
incurred on it.
 Therefore planning must lead to saving of time, effort and
money.
 Planning leads to proper utilization of men, money, materials,

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methods and machines. 13
Cont’d
 9. Planning is Flexible.
 Planning is done for the future.
 Since future is unpredictable, planning must provide
enough room to cope with the changes in customer’s
demand, competition, govt. policies etc.
 Under changed circumstances, the original plan of
action must be revised and updated to make it more
practical.

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 Significance Of Planning
 The importance and usefulness of planning can be understood with
reference to the following benefits.
1. Planning facilitates management by objectives.
 Planning begins with determination of objectives.
 It highlights the purposes for which various activities are to be
undertaken.
 In fact, it makes objectives more clear and specific.
 Planning helps in focusing the attention of employees on the
objectives or goals of enterprise.
 Without planning an organization has no guide.
 Planning compels manager to prepare a Blue-print of the courses of
action to be followed for accomplishment of objectives.
 Therefore, planning brings order and rationality into the
organization.
Cont’d
 2. Planning minimizes uncertainties.
 Business is full of uncertainties.
 There are risks of various types due to uncertainties.
 Planning helps in reducing uncertainties of future as it involves
anticipation of future events.
 Although future cannot be predicted with 100 percent accuracy but
planning helps management to anticipate future and prepare for risks by
necessary provisions to meet unexpected turn of events.
 Therefore with the help of planning, uncertainties can be forecasted which
helps in preparing standbys as a result, uncertainties are minimized to a
great extent.

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Cont’d
3. Planning facilitates co-ordination.
 Planning revolves around organizational goals.
 All activities are directed towards common goals.
 There is an integrated effort throughout the
enterprise in various departments and groups.
 It avoids duplication of efforts. In other words, it
leads to better co-ordination.
 It helps in finding out problems of work
performance and aims at rectifying the same.
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 Cont’d
4. Planning improves employee’s moral.
 Planning creates an atmosphere of order and discipline in
organization.
 Employees know in advance what is expected of them and
therefore conformity can be achieved easily.
 This encourages employees to show their best and also earn
reward for the same.
 Planning creates a healthy attitude towards work environment
which helps in boosting employees moral and efficiency.

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 Cont’d
5. Planning helps in achieving economies.
 Effective planning secures economy since it leads to orderly
allocation of resources to various operations.
 It also facilitates optimum utilization of resources which brings
economy in operations.
 It also avoids wastage of resources by selecting most
appropriate use that will contribute to the objective of
enterprise. For example, raw materials can be purchased in bulk
and transportation cost can be minimized. At the same time it
ensures regular supply for the production department, that is,
overall efficiency.
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Cont’d
6. Planning facilitates controlling.
 Planning facilitates existence of certain planned goals and
standard of performance.
 It provides basis of controlling.
 We cannot think of an effective system of controlling
without existence of well thought out plans.
 Planning provides pre-determined goals against which
actual performance is compared.
 In fact, planning and controlling are the two sides of a
same coin. If planning is root, controlling is the fruit.
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Cont’d
7. Planning provides competitive edge.
 Planning provides competitive edge to the enterprise over the others
which do not have effective planning. This is because of the fact that
planning may involve changing in work methods, quality, quantity
designs, extension of work, redefining of goals, etc.
 With the help of forecasting not only the enterprise secures its future
but at the same time it is able to estimate the future motives of it’s
competitor which helps in facing future challenges.
 Therefore, planning leads to best utilization of possible resources,
improves quality of production and thus the competitive strength of
the enterprise is improved.

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 Cont’d
8. Planning encourages innovations.
 In the process of planning, managers have the
opportunities of suggesting ways and means of
improving performance.

 Planning is basically a decision making function

which involves creative thinking and imagination
that ultimately leads to innovation of methods and
operations for growth and prosperity of the
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enterprise. 22
Limitations Of Planning

 Internal limitations of planning

 External limitations of Planning

Internal limitations of planning
 There are several limitations of planning.

 Some of them are inherit in the process of

planning like rigidity and other arise due to
shortcoming of the techniques of planning and
in the planners themselves.

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 Cont’d
1. Rigidity
 Planning has tendency to make administration inflexible.
 Planning implies prior determination of policies, procedures
and programmes and a strict adherence to them in all
circumstances.
 There is no scope for individual freedom.
 The development of employees is highly doubted because of
which management might have faced lot of difficulties in
future.
 Planning therefore introduces inelasticity and discourages

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individual initiative and experimentation. 25
 Cont’d
2. Misdirected Planning
 Planning may be used to serve individual interests rather than
the interest of the enterprise.

 Attempts can be made to influence setting of objectives,

formulation of plans and programmes to suit ones own
requirement rather than that of whole organization.

 Machinery of planning can never be freed of bias. Every

planner has his own likes, dislikes, preferences, attitudes and
interests which is reflected in planning.
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Cont’d
3. Time consuming
 Planning is a time consuming process because it
involves collection of information, it’s analysis
and interpretation thereof. This entire process
takes a lot of time specially where there are a
number of alternatives available.
 Therefore planning is not suitable during
emergency or crisis when quick decisions are
required.
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 Cont’d
4. Probability in planning
 Planning is based on forecasts which are mere estimates about
future.
 These estimates may prove to be inexact due to the uncertainty
of future.
 Any change in the anticipated situation may render plans
ineffective.
 Plans do not always reflect real situations inspite of the
sophisticated techniques of forecasting because future is
unpredictable.
 Thus, excessive reliance on plans may prove to be fatal.
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Cont’d
5. False sense of security
 Elaborate planning may create a false sense of security to
the effect that everything is taken for granted.
 Managers assume that as long as they work as per plans, it
is satisfactory.
 Therefore they fail to take up timely actions and an
opportunity is lost.
 Employees are more concerned about fulfillment of plan
performance rather than any kind of change.

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 Cont’d
6. Expensive
 Collection, analysis and evaluation of different
information, facts and alternatives involves a lot of
expense in terms of time, effort and money.

 According to Koontz and O’Donell, ’ Expenses on

planning should never exceed the estimated benefits
from planning. ’

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 External Limitations of Planning
 Political Climate- Change of government from Congress to some
other political party, etc.
 Labour Union- Strikes, lockouts, agitations.
 Technological changes- Modern techniques and equipment's,
computerization.
 Policies of competitors- Eg. Policies of Coca Cola and Pepsi.
 Natural Calamities- Earthquakes and floods.
 Changes in demand and prices- Change in fashion, change in
tastes, change in income level, demand falls, price falls, etc.

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 Types of Planning
 Planning can be categorized on the basis of:
 coverage of organizational activities,
Corporate and functional planning
 Importance of contents in planning process,
→ Strategic and tactical/operational planning
 Time dimension in planning,
Long term and short term planning
 Approach adopted in planning, and
Proactive and reactive planning
 Degree of formalization in planning process.
Formal and informal planning
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Types of Plans
• Strategic Plans
 Apply to the entire organization.
 Establish the organization’s overall goals.
 Seek to position the organization in terms of its
environment.
 Cover extended periods of time.
• Operational Plans
 Specify the details of how the overall goals are to be
achieved.
 Cover a short time period.
Types of Plans

• Long-Term Plans
 Plans with time frames extending beyond five years
• Short-Term Plans
 Plans with time frames of less one year
 Types of plans
• Specific Plans
 Plans that are clearly defined and leave no room for
interpretation
• Directional Plans
 Flexible plans that set out general guidelines and provide
focus, yet allow discretion in implementation

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Types of Plans
• Single-Use Plan
 A one-time plan specifically designed to meet the need of a
unique situation.
E.g., Schedule, Strategy, Budget, and An
objective
 Standing Plans
 Ongoing plans that provide guidance for activities performed
repeatedly.

E’g., Policy, Procedure, Program and Rule

Hierarchy of plans
Mission or
Purpose

Objectives

Strategies

Policies: Major or Minor

Procedures

Rules

Programs: Major or Minor and Supporting

Budgets: Numberizied or Dollarized

1. Mission Or Purpose
 It identifies the basic function or task of an organization or
any part of it.

 Mission can be to produce and distribution of goods and

services or to serve a particular section of the society.

 E.g., Mission of the oil company can be “To search for oil
and to produce, refine and market. petroleum and its
related variety of products , from diesel fuel to chemicals.
2. Objective Or Goal

 They are the ends toward which activity is

aimed i.e. they are the results to be achieved.
 3. STRATEGIES
 Strategies are single use plans as they change frequently
in accordance with the market conditions.
 They are the plans made in the light of the plans of the
competitors.

E.g., If the management sees the price cut by the

competitor, it may decide upon a strategy of launching and
advertisement campaign to educate the customer and to
convince them of the better quality of their product.
 4. POLICY

 A policy may be defined as, “a guideline that helps in

attaining the objectives of the organization.”

 Policies are derived from objectives. They are designed

to operationalize objectives and hence policies are
known as operational objectives.

 A policy tells the members of the organization how to

deal with a particular situation.

 It lays down the limits within which decisions have to

be made for accomplishing organizational goals.
Cont…
 Examples of policy are as follows:
a. An enterprise may adopt a policy of employing only local people.
b. It may have a policy not to employ any person over sixty years of age.

 Policy exists – On all levels of the organization, ranging from major

company policies their major dep’t policies to minor policies
applicable to the smallest segment of the organization.

E.g., If the management has adopted the policy seniority based

promotion, the dept. manager need not to seek guidance from the top
management again and again with respect to promotion decisions.
 Characteristics of a Good Policy
 The following are the features of a good policy:
1. It should help in accomplishing organizational objectives.
2. It should reflect the internal and external business
environment.
3. It should be simple, definite, clear and flexible.
4. It should reflect sound judgment.
5. It should be in writing and compiled in a manual form.
6. It should ensure sequence, uniformity arid continuity.
7. It should prove an effective control device.
8. It should ensure elimination of friction and –disagreement
between different sections and personnel of the organization.
6. Procedures

 It is a chronological sequence of steps to be

undertaken to enforce a policy and to attain a
specific manner in which a particular activity is to
be performed.

 It is a planned sequence of open for performing

repetitive activities uniformly and consistently.
7. Rules
 Rules are rigid and defined plan that specify
what is to be done or not done in given
situation.
 A rule provides no scope for judgment.
 No deviation is expected from the rule.
 They are the simplest and the most specific
type of standing plans.
 The breach of rules generally carries a penalty.
8. Program
 A program specifies the steps to be taken
resources to be used, time limit for each step and
assignment of task.

 It is a sequence of action steps arranged in the

priority necessary to implement a policy and
achieve an objective.

 It defines the contents and scope of activities.

9. Budget
 It is a statement of expected results expressed in numerical terms
for a definite period of time in the future.
 Budget serves as a mean of co-ordination and control.

 It serve as standard of measuring actual performance.

 Budgets may be prepaid for various group of activities like

production , sales, personal, advertising etc.

 Budget may be prepared in term of money, time & / or resources.

 Principles of Planning
1. Plan for the right length of time.
2. Planning should be coordinated
3. Building flexibility into plans
4. Reviewing plans regularly
5. Principle of contribution to objectives.
6. Planning involves an open system approach.
7. Principle of facts and planning
8. Plans should always incorporate standard to facilitate control
9. Principle of communication
10. Principle of feasibility and planning
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 Steps in planning
Step -1
Identifying opportunities and defining the real
problem
In light of :
 The market

 Competition

 Customer needs wants & demand

 Company strength and weakness

Step -2
Establishment of objectives

What is to be done?
Where the primary emphasis is to be
placed?
What is to be accomplished by the network
of strategies, policies, procedures, rules,
budgets and programs.
Step -3
Determining limitation or Premises
 Planning premises are assumption relating to the
future condition and events which are likely to
have an effect on the achieving of goals.

 What kind of markets will be there?

 What volume of sales?
 What prices?
 What products?
 What technical developments?
 What cost? Etc
Step -4
Identifying alternative course of
action
 What are the most promising alternatives
to accomplish our objectives ?

 Such as :
 • By expanding the existing capacity
 • By taking over some other enterprise
 • By producing new products
Step -5
Evaluating alternative courses
 Identifying the positive and negative
aspects of each alternative or proposal
are evaluated

 Which alternative will give us the best

chance of meeting our goals at the lowest
cost and highest profit?
Step -6
choosing alternative course of action
 After identifying and evaluating alternative
the manager has to decide one best
alternative or several alternative courses
of action.

 This is the point at which the plan is adopted.

Step -7
Formulating derivative plans

 When a decision is made next step is to

formulate a supporting plan, such as to
buy equipment, materials, hire and train
workers and develop a new product.
Step 8
NUBERISING PLANS BY MAKING BUDGETS

 Numberising plans by making budgets

develops such budgets as;
 volume and price of sales.
 Operating expenses expenditures for
capital
 equipment.
Step -9
Implementing plans
 Plan is put into action.

 Plan is communicated by managers to all the

employees very clearly to motivate them.
Step -10
Follow up and action

 To ensure the plans are proceeding along

the right lines, the actual performance is
compared with the planned performance.

 In this way, any short coming can be noted

and suitable remedial action can be taken.
Measures for Making Planning
Effective
1. Establishing climate for planning
 Remove obstacles to planning and present
facilities for planning such as:
 Setting goals
 Establishing and publishing planning premises
 Involving all managers in planning process
 Reviewing subordinates plans and their
performances and
 Ensuring that managers have appropriate staff
assistance and information
2. Initiative at the top level
 It is the top level management which is
responsible for the success or failure of any
organizational process, and planning is not
exception.
3. Participation in the planning process
 Effective planning can take up by the
participation of subordinate managers
4. Communication of Planning Elements
 Many planning efforts fail because
managers do not really understand their
goals and other planning premises which
affect their planning efforts. Hence,
communication is very essential.
5. Integrating long term and short term plans
6. An open system approach
Skills required in planning

 The two fundamental skills required in planning

process are forecasting and decision making.
Definition of forecasting

 Barnes says “Business forecasting is the calculation of

reasonable probabilities about the future, based on toe
analysis of all the latest relevant information by tested
and logically sound statistical and econometric
techniques, as interpreted, modified and applied in terms
of an executive’s personal judgment and social
knowledge of his own business and his own industry or
trade.”
TYPES/TECHNIQUES OF FORECASTING

 Computers
 Time series analysis
 Quantitative Techniques
 Lead and Lag indicators
 2. Decision Making
Decision making is defined as the selection, based
on some criteria, of one best alternative from two or
more possible alternatives; or

 Management without decisions is like a man

without backbone.
 Decision Making process
 The decision making process consist of following steps:
1. Ascertain the need for a decision
2. Establish decision criteria
3. Allocate Weights to Criteria
4. Develop Alternatives
5. Evaluate Alternative
6. Select the best alternative
7. Putting decision into action
8. Follow-up decisions
Types of decisions

 Individual Vs Group decision making

 Programmed Vs Non programmed decision
making
Decision making under different
conditions
1. Decision Making Under Certainty

 When manager are reasonably sure that what

will happens, when they make a decision is
called decision making under certainty.

 In such cases the information is available is

considered to be reliable.
 Decision making under uncertainty
 In such cases the manager do not know whether the data
available to him is reliable or not and he is not very much sure
whether the situation changes or remains the same.

 Moreover they cannot evaluate the interaction of different

variable.

 In many management decision the probability of the

occurrence of event can be assumed to be known even when a
particular outcome is unpredictable.
Decisions under risk
 Decisions under risk:- those decisions in
which probabilities can be assigned to the
expected outcomes of each alternative.

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 Thank you!!!

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