University of Jaffna, Sri Lanka

Department of Human Resource Management

HRM 1131 Principles of Management

Handout No: 03
Issued on 02/03/2015 Lecturer: Mrs.M.Raveeswaran & Mrs.T.Sivaskaran

Learning Outcomes
 To understand and the nature and process of planning;
 To appreciate, why it is necessary to do planning;
 To understand the merits and demerits of planning;
 To grasp the principles of planning and
 To understand the various kinds and level of plans.

THE CONCEPT OF PLANNING

Planning is the most fundamental function of management. An organization can succeed in
effective utilization of its human financial and material resources only when its management
decides in advance its objectives, and methods of achieving them. Planning involves determination
of objectives of the business, formation of programmes and courses of action for their attainment,
development of schedules and timings of action and assignment of responsibilities for their
implementation. Planning thus precedes all efforts and action, as it is the plans and programmes that
determine the kind of decisions and activities required for the attainment of the desired goals.

Definition of Planning: Planning is the process of deciding in advance what is to be done, who is
to do it, how it is to be done and when it is to be done. It is the process of determining a course of
action, so as to achieve the desired results. It helps to bridge the gap from where we are, to where
we want to go. It makes it possible for things to occur which would not otherwise happen. Planning
is a higher order mental process requiring the use of intellectual faculties, imagination, foresight
and sound judgment.
According to Koontz, O'Donnell and Weihrich, "Planning is an intellectually demanding process;
it requires the conscious determination of courses of action and the basing of decisions on
purpose, knowledge and considered estimates".
Planning is thus deciding in advance the future state of business of an enterprise, and the means of
attaining it. Its elements are:

1. What will be done – what are the objectives of business in the short and in the long run?
2. What resources will be required – This involves estimation of the available and potential
resources, estimation of resources required for the achievement of objectives, and filling the gap
between the two, if any.
3. How it will be done – This involves two things: (i) determination of tasks, activities, projects,
programmes, etc., required for the attainment of objectives, and (ii) formulation of strategies,
policies, procedures, methods, standard and budgets for the above purpose.
4. Who will do it – It involves assignment of responsibilities to various managers relating to
contributions they are expected to make for the attainment of enterprise objectives. This is preceded
by the breaking down of the total enterprise objectives into segmental objectives, resulting into
divisional, departmental, sectional and individual objectives.

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5. When it will be done – It involves determination of the timing and sequence, if any, for the
performance of various activities and execution of various projects and their parts.

MYTHS ABOUT PLANNING

There are certain commonly prevalent myths and fallacies about planning.
An attempt is being made to highlight some of the important concepts of planning by way of its
distinguishing features, so as to clarify the misconceptions:
(i) Planning does no attempt to make future decisions :
(ii) Planning is not just forecasting or making projections
(iii) Planning is not a static process

NATURE AND SCOPE OF PLANNING

The nature of planning can be understood by focusing on its following aspects :
1. Planning is a Continuous Process
2. Planning concerns all Managers
3. Plans are arranged in a Hierarchy
4. Planning Commits an Organization into the Future
5. Planning is Antithesis of States Quo

IMPORTANCE OF PLANNING
While planning does not guarantee success in organizational objectives, there is evidence that
companies that engaged in formal planning consistently performed better than those with none or
limited formal planning and improved their own performance over a period of time. It is very rare
for an organization to succeed solely by luck or circumstances. Some of the reasons as to why
planning is considered a vital managerial function are given below:

1. Planning is essential in modern business

2. Planning affects performance
3. Planning puts focus on objectives
4. Planning anticipates problems and uncertainties
5. Planning is necessary to facilitate control
6. Planning helps in the process of decision making

BASIC PRINCIPLES OF PLANNING

The important principles of planning are as follows:
1. Principle of contribution to objective: The purpose of plans and their components is to develop
and facilitate the realization of organizational aims and objectives. Long-range plans should be
interwoven with medium-range plans which, in turn, should be meshed with short-range ones in
order to accomplish organizational objectives more effectively and economically.
2. Principle of limiting factors: Planning must take the limiting factors (manpower, money,
machines, materials, and management) into account by concentrating on them when developing
alternative plans, strategies, policies, procedures and standards.
3. Principle of pervasiveness of planning: Planning is found at all levels of management.
Strategic planning or long-range planning is related to top management, while intermediate and
short-range planning is the concern of middle and operative management respectively.
4 Principle of navigational change: This principle requires that managers should periodically
check on events and redraw plans to maintain a course towards a desired goal. It is the duty of the
navigator to check constantly, whether his ship is following the right direction in the vast ocean to

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reach the distinction as scheduled. In the same way, a manager should check his plans to ensure that
these are processing as required. He should change the direction of his plans if he faces unexpected
events. It is useful if plans contain an element of flexibility. It is the responsibility of the manager,
to adapt and change the direction of plans, to meet the challenge of constantly changing
environment that could not be foreseen.
5. Principle of flexibility: Flexibility should be built into organizational plans. Possibility of error
in forecasting and decision making and future uncertainties is the two common factors which call
for flexibility in managerial planning. The principal of flexibility states the management should be
able to change an existing plan because of changes in environment, without due cost or delay, so
that activities keep moving towards established goals. Thus, an unexpected slump in demand for a
product will require change in sales plan as well as production plan. Change in these plans can be
introduced, only when these possess the characteristics of flexibility. Adapting plans to suit future
uncertainties or changing environment is easier if flexibility is an important consideration while
planning.

ADVANTAGES AND LIMITATIONS OF PLANNING

The importance of formal planning has already been discussed. A vigorous and detailed planning
programme helps managers to be future oriented. It gives the mangers some purpose and direction.
A sound blue print for plans with specific objective and action statements has numerous advantages
for the organization which are as follows:

1. Focuses Attention on Objectives: Since all planning is directed towards achieving enterprise
objectives, the very act of planning focuses attention on these objectives. Laying down the
objectives is the first step in planning. If the objectives are clearly laid down, the execution of plans
will also be directed towards these objectives.
2. Ensures Economical Operation: Planning involves a lot of mental exercise which is directed
towards achieving efficient operation in the enterprise. It substitutes joint directed effort for
uncoordinated piecemeal activity, even flow of work for uneven flow, and deliberate decisions for
snap judgement costs. This helps in better utilization of resources and thus minimizing costs.
3. Reduces Uncertainty: Planning helps in reducing uncertainties of future because it involves
anticipation of future events. Effective planning is the result of deliberate thinking based on facts
and figures. It involves forecasting also. Planning gives an opportunity to a business manager to
foresee various uncertainties which may be caused by changes in technology, taste and fashion of
the people, etc. Sufficient provision is made in the plans to offset these uncertainties.
4. Facilitates Control: Planning helps the managers in performing their function of control.
Planning and control are inseparable in the sense that unplanned action cannot be controlled
because control involves keeping activities on the predetermined course by rectifying deviations
from plans. Planning helps control by furnishing standards of control. It lays down objectives and
standards of performance which are essential for the performance of control function.
5. Encourages Innovation and Creativity: Planning is basically the deciding function of
management. It helps innovative and creative thinking among the managers because many new
ideas come to the mind of a manager when he is planning. It creates a forward looking attitude
among the managers.
6. Improves Motivation: A good planning system ensures participation of all managers which
improves their motivation. It improves the motivation of workers also because they know clearly
what is expected of them. Moreover, planning serves as a good training device for future managers.
7. Improves Competitive Strength: Effective planning gives a competitive edge to the enterprise
over other enterprises that do not have planning or have ineffective planning. This is because

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planning may involve expansion of capacity, changes in work methods, changes in quality,
anticipation tastes and fashion of people and technological changes, etc.
8. Achieves Better Coordination: Planning secures unity of direction towards the organizational
objectives. All the activities are directed towards the common goals. There is an integrated effort
throughout the enterprise. It will also help in avoiding duplication of efforts. Thus, there will be
better coordination in the organization.

LIMITATIONS OF PLANNING
Sometimes, planning fails to achieve the expected results. There are many causes of failure of
planning in practice. These are discussed below:

1. Lack of reliable data: There may be lack of reliable facts and figures over which plans may be
based. Planning loses its value if reliable information is not available or if the planner fails to utilize
the reliable information. In order to make planning successful, the planner must determine the
reliability of facts and figures and must base his plans on reliable information only.
2. Lack of initiative: Planning is a forward looking process. If a manager has a tendency to follow
rather than lead, he will not be able to make good plans. Therefore, the planner must take the
required initiative. He should be an active planner and should take adequate follow up measure to
see that plans are understood and implemented properly.
3. Costly process: Planning is time consuming and expensive process. This may delay action in
certain cases. But it is also true that if sufficient time is not given to the planning process, the plans
so produced may prove to be unrealistic. Similarly, planning involves costs of gathering and
analyzing information and evaluation of various alternatives. If the management is not willing to
spend on planning, the results may not be good.
4. Rigidity in organizational working: Internal inflexibility in the organization may compel the
planners to make rigid plans. This may deter the managers from taking initiative and doing
innovative thinking. So the planners must have sufficient discretion and flexibility in the enterprise.
They should not always be required to follow the procedures rigidly.
5. Non-acceptability of change: Resistance to change is another factor which puts limits on
planning. It is a commonly experienced phenomenon in the business world. Sometimes, planners
themselves do not like change and on other occasions they do not think it desirable to bring change
as it makes the planning process ineffective.
6. External limitations: The effectiveness of planning is sometimes limited because of external
factors which are beyond the control of the planners. External strategies are very difficult to predict.
Sudden break-out of war, government control, natural havocs and many other factors are beyond
the control of management. This makes the execution of plans very difficult.
7. Psychological barriers: Psychological factors also limit the scope of planning. Some people
consider present more important than future because present is certain. Such persons are
psychologically opposed to planning. But it should not be forgotten that dynamic mangers always
look ahead. Long-range wellbeing of the enterprise cannot be achieved unless proper planning is
done for future.

CATEGORIES AND LEVELS OF PLANNING

Planning can be classified on different bases which are discussed below:
1. Strategic and Functional Planning : In strategic or corporate planning, the top management
determines the general objectives of the enterprise and the steps necessary to accomplish them in
the light of resources currently available and likely to be available in the future. Functional

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planning, on the other hand, is planning that covers functional areas like production, marketing,
finance and purchasing.
2. Long-range and short-range planning: Long-range planning sets long-term goals of the
enterprise and then proceeds to formulate specific plans for attaining these goals. It involves an
attempt to anticipate, analyze and make decisions about basic problems and issues which have
significance reaching well beyond the present operating horizon of the enterprise. Short-range
planning, on the other hand, is concerned with the determination of short-term activities to
accomplish long-term with the determination of short term activities to accomplish long-term
objectives. Short range planning relates to a relatively short period and has to be consistent with the
long-range plans. Operational plans are generally related to short periods.
3. Adhoc and Standing Planning: Adhoc planning committees may be constituted for certain
specific matters, as for instance, for project planning. But standing plans are designed to be used
over and over again. They include organizational structure, standard procedures, standard methods
etc.
4. Administrative and Operational Planning: Administrative planning is done by the middle
level management which provides the foundation for operative plans. Operative planning, on the
other hand, is done by the lower level mangers to put the administrative plans into action.
5. Physical Planning: It is concerned with the physical location and arrangement of building and
equipment.
6. Formal and Informal Planning: Various types of planning discussed above are of formal
nature. They are carried on systematically by the management. They specify in black and white the
specific goals and the steps to achieve them. They also facilitate the installation of internal control
systems. Informal planning, on the other hand, is mere thinking by some individuals which may
become the basis of formal planning in future.

LEVELS OF PLANNING
In management theory it is usual to consider that there are three basic level 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 level of planning are as under:
1. 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 of organization and is concerned with corporate results rather than sectional
objective. Top level planning is entirely long-range and is inextricably linked with long-term
objectives. It might be called the 'what' of planning.
2. Second Level Planning: Also known as tactical planning, it is done by middle level mangers or
department heads. It is concerned with 'how' of planning. It deals with deployment of resources to
the best advantage. It is concerned mainly, but 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 organization’s main
objectives. It is, in fact, oriented to functions and departments rather than to the organization as a
whole.
3. Third Level Planning: Also known as operational or activity planning, it is the concern of
department managers and supervisors. It is confined to putting into effect the tactical or
departmental plans. It is usually for short-term and may be revised quite often to be in tune with the
tactical planning.

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ESSENTIAL STEPS IN PLANNING
Planning is a process which embraces a number of steps to be taken. The planning process, valid for
one organization and for one plan, may not be valid for all other organizations or all types of plans,
because various factors that go into planning process may differ from organization to organization
or plan to plan. The steps generally involved in planning are as follows:

1. Establishing Verifiable Goals or Set of Goals to be achieved:

The first step in planning is to determine the enterprise objectives. These are most often set by
upper level or top managers, usually after a number of possible objectives have been carefully
considered. The type of goal selected will depend on number of factors: the basic mission of the
organization, the values its managers hold, and the actual and potential ability of the organization.
2. Establishing Planning Premises: The second step in planning is to establish planning premises,
i.e. certain assumptions about the future on the basis of which the plan will be intimately
formulated. Planning premises are vital to the success of planning as they supply economic
conditions, production costs and prices, probable competitive behaviour, capital and material
availability, governmental control and so on.
3. Deciding the planning period: Once upper-level managers have selected the basic long-term
goals and the planning premises, the next task is to decide the period of the plan. Business varies
considerably in their planning periods. In some instances plans are made for a year only while in
others they span decades. In each case, however, there is always some logic in selecting a particular
time range for planning. Companies generally base their period on a future that can reasonably be
anticipated.
4. Findings Alternative Courses of Action: The fourth step is planning is to search for and
examining alternative courses of action. For instance, technical know-how may be secured by
engaging a foreign technician or by training staff abroad. Similarly, products may be sold directly
to the consumer by the company's salesmen or through exclusive agencies. There is seldom a plan
for which reasonable alternatives do not exit, and quite often an alternative that is not obvious
proves to be the best.
5. Evaluating and Selecting a Course of Action: Having sought alternative courses, the fifth step
is to evaluate them in the light of the premises and goals and to select the best course or courses of
action. This is done with the help of quantitative techniques and operations research.
6. Developing Derivative plans: Once the plan has been formulated, its broad goals must be
translated into day-to-day operations of the organization. Middle and lower-level managers must
draw up the appropriate plans, programmes and budgets for their sub-units. These are described as
derivative plans. In developing these derivative plans, lower-level managers take steps similar to
those taken by upper-level managers – selecting realistic goals, assessing their sub-units particular
strength and weaknesses and analyzing those parts of the environment that can affect them.
7. Measuring and Controlling the Progress: Obviously, it is foolish to let a plan run its course
without monitoring its progress. Hence the process of controlling is a critical part of any plan.
Managers need to check the progress of their plans so that they can (a) take whatever remedial
action is necessary to make the plan work, or (b) change the original plan if it is unrealistic.

References:
1. Kootnz & O'Donnell, Principles of Management.
2. Peter F. Drucker, Practice of Management