I.

Planning one of Managerial function Functions

Regardless of the type of firm and the organizational level, all managers perform certain basic functions.
These managerial functions are planning, organizing, staffing, directing/leading and controlling.
 PLANNING is making decisions today about future actions. It involves selecting missions and objectives
and the actions to achieve them; it requires decision making. That is, choosing future courses of action from
among alternatives. No real plan exists until a decision – a commitment of human or material resources –
has been made. Before a decision is made, all we have is a planning study, an analysis or a proposal, but not
a real plan.
 Planning bridges the gap between where we are to where we want to be in a desired future.
 Planning identifies goals and alternatives. It maps out courses of action that will commit individuals,
departments and the entire organization for days, months and years to come.
 Planning is the first managerial function that all managers engaged in because it lays the groundwork for
other managerial functions.
Chapter Three: Planning Function

Planning is the primary function of management. It focuses on the future course of action. It specifies the
objectives to be achieved in future and selects the alternative course of action to reach defined objectives.
It also involves many activities like analyzing and decision making about technical, personnel, financial,
and other elements essential to implement predetermined course of action. Thus, planning is mental and
paper activities which look ahead for drawing the future course of action. In other words, planning is
intellectual process which is concerned with deciding in advance what, when, why, how, and who shall do
the work. Generally, manager defines goals and takes necessary steps to ensure that these goals can be
achieved in efficient manner. Planning reflects vision, foresight and wisdom. Thus, it is the blue print of
action and operation. Following are the important definition of planning:

“Generally speaking, planning is deciding in advance what is to be done” W H Newman

“Planning is the function of manner in which he decides in advance what he will do. It is a decision
making process of a special kind, its essence is futurity.” Hayness and Massie

“Planning is deciding in advance what to do, how to do, when to do and who is to do it. Planning bridges
a gap between from where we are to where we want to go” Harold . Koontz And O’Donnel.
“Planning is the selecting and relating of facts and the making and using of assumption regarding the
future in the visualization and formulation of proposed activities believed necessary to achieve desired
results” George R Terry

Planning is a process of deciding what to do and how to do it before action is required.

Planningis preparing today for tomorrow; it is the activity that allows managers to determine what they
want and how to get it: They set goals and decide how to reach them.
Planning focuses on the future: what is to be accomplished and how. Answers six basic questions in
regard to any intended activity:
 What (the goal or goals).
 When (the time frame in which it will be accomplished)
 Where (the place or places where the plans or planning will reach its conclusion).
 Who (which people will perform the tasks).
 How (the specific steps or methods to reach the goals).
 What resources (resources necessary to reach the goals).
From the above definition, we may come into conclusion that planning is predetermination of objectives
and intellectual course of action to be taken to achieved defined goal effectively and on time. Generally,
planning involves the following elements:

 Establishment of organizational objectives and policies.

 Identification of alternative courses of action and programs
 Selecting the best course of action and programme
Nature of Planning
Discussing the following points can highlight the nature of planning.

1. The contribution of planning to purpose and objectives: Every organization is established (exists)
for the accomplishment of group purpose or objective. So, the purpose of any plan and its derivatives or
supporting plans is to facilitate the accomplishment of organizational objectives.
2. The primacy of planning: All the five managerial functions - planning, organizing, staffing, directing
and controlling- are designed to support the accomplishment of organizational objectives. However,
planning precedes the execution of all other managerial functions, because all other managerial functions
must be planned if they are to be effective. This does not mean that planning is the most important of all
other managerial functions, because to be important or useful all other functions have to accompany it.
Although in practice all the functions mesh as a system of action, planning is unique in that it involves
establishing the objectives necessary for all group effort. The entire gist of initiating, exercising, and
activating the managerial functions of organizing, staffing, directing and controlling is to bring the
objectives formulated during planning into fruition. In fact, the concept of especially control would be
unthinkable without planning because 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 task of planning). Plans thus furnish the standards of
control. Since planning and controlling are so much inseparable, they are treated as the Siamese twins of
management.

3. The pervasiveness /Universality of planning: Planning is a function of all managers, although the
character and breadth of planning varies with each manager’s authority and with the nature of policies and
plans outlined by superiors. That is, all managers-from presidents to first-level supervisors plan. Even for
personal life we plan. “It is difficult to call a person a manager if he or she doesn't plan “Koontz

4. Planning and information: Basically no plan exists without information. To plan managers have to
gather relevant information from around the environment. Information is one of the valuable resources for
planning to exist.

5. Planning is a continuous process: Planning deals with the future and the future is full of uncertainties.
Hence, planning is subject to revision. It needs frequent revision in response to changes in the internal and
external environments of the organization. Therefore as far as the organization is in operation, planning is
in continuous process. The more continuous the planning is, the higher its efficiency is.
6. Planning is a means to an end: Planning is not an end by itself. It is a means to an end (meeting
objectives). Planning is an instrument that pushes people towards the achievement of objectives.

7. Plans are arranged in a hierarchy: Plans are first set for the entire organization. The corporate plan
then provides the framework for the formulation of divisional, departmental, and sectional goals. Each of
these organizational components sets its plans, programs, projects, budgets, resource requirements, etc.
The Importance of Planning
1. It provides direction and sense of purpose
It is through planning that we can establish our objectives. Plans focus attention on specific targets and
direct employees effort toward important outcomes. Once organizations known what they can do and can't
do over the future, they began to set objectives based on their capacity and the order of activities needed to
accomplish their objectives. It provides direction and a common sense of purpose. This shared purpose
enables both employees and managers to coordinate, unite, and guide their actions.

2. It reduces uncertainties and anticipates the future or preparing for change

Planning is based on systematic and careful forecasts of future states of the economy, markets,
technology, etc to reduce uncertainties to the extent they occur according to expectation. Thus, it is while
planning that the manager should consider the potential areas for changes in the future; rather than merely
reacting to it. Managers should cope with changes in their own organizations and functions in their
environment through planning. Anticipating and preparing for possible future changes enables managers
to control their environment. In so doing, planning answers “what-if” questions. In planning, managers
develop several "what if" questions in order to reduce the risk of unpredictable future, so far as we plan for
the future. By asking what if questions managers develop alternatives.

3. It provides basis for controlling

Standards /controlling mechanisms/ are developed during planning. It specifies what is to be accomplished
and provides a standard for measuring progress.

4. It forces managers to see the organization as a system

While planning managers have to consider parts because the plan of one part (department) affects the
operation of the whole organization so far as parts of an organization are interdependent.

5. It promotes efficiency
Planning provides the opportunity for a greater utilization of the available organizational resources -
because in planning we determine how many resources are necessary to reach the goals, and how to use
these resources.
6. It provides the base for cooperative and coordinated efforts: Management exists because the work
of individuals and groups in organizations must be coordinated, and planning is one important technique
for achieving coordinated effort. Planning provides the basis for organized and coordinated effort by
defining the objectives of the organization and the means for their achievement.

7. Developing managers: The act of planning involves high level of intellectual activity. Those who plan
must be able to deal with abstract and uncertain ideas and information. Planners must think systematically
about the present and the future. Through planning, the future state of the organization can be improved if
its managers take an active role in moving the organization toward that future. Planning then implies that
managers should be proactive and make things happen rather than reactive and let things happen. Through
act of planning, managers not only develop their ability to think futuristically but, to the extent that their
plans are effective, their motivation to plan is reinforced. Also, the act of planning sharpens manager's
ability to think as they consider abstract ideas and possibilities for the future. Thus, both the result and the
act of planning benefit both the organization and its managers.

8. It provides guideline for decision making: Decisions in an organization will be made in alignment
with the plans and in accordance with desired outcomes. Managers make decisions on problems of
recurring nature based on strategies and policies of the organization. Through specifying the actions
necessary to accomplish the goals of the organization, planning serves as a framework for decision-
making. It forces managers to make analytical thinking and evaluate alternatives through improved
decisions.

Planning Process/ Steps of Planning

Like other managerial activities, planning has its own processes or series of steps. These steps are
interrelated and there is no rigid boundary between or among these steps, and one is the base for the other.

1. Analyze Opportunities: Generally, this is not a step of planning. It is known as pre-step of planning.
It is essential to make a successful plan. The management has to analyze strengths; weakness,
opportunities and threats (SWOT) of changing environment of the business. Here, strengths and
weaknesses are internal environment of the enterprise like availability of materials, machines, manpower,
organizational structural technology etc. In the similar manner, opportunities and threats are external
environment and affected by many factors like government rules, economic condition, competitors
strategy customers taste, social and cultural believes etc. it is essential to make detail study about the
above factors and should be pointed clearly.

2. Establishing objectives: As objectives provide the direction for all other managerial functions,
especially planning, objective setting is an important first step in the planning process. Objectives specify
the expected results and indicate the end points of what is to be done, where the primary emphasis is t be
placed, and what is to be accomplished by the network of strategies, policies, procedures, rules, budgets,
and programs. They provide the direction necessary for achievement and without them there is little to
keep a manager from simply wandering in all directions. Objectives are then, the ‘guiding light’ for the
entire management process.

Objective setting is a three steps process, which involves assessing the present situation, anticipating
future conditions, and then setting the objectives. It is only after the managers have at least the
rudimentary knowledge about their capabilities and available opportunities that objective setting does
make sense.

Organizations do not have one set of objectives, which each manager attempts to achieve. Rather, setting
objectives involves establishing objectives for the entire organization, each subordinate work unit, and the
long range as well as the short range. The hierarchy of objectives starts at the top of the organization with
overall organizational objectives and proceeds downwards with narrower and more specific objectives for
each level managers, derived from the objectives at the level

Objectives developed by organizational levels and peer managers should be compatible with one another.
Top-level management should set the stage for goal setting by lower level management, thereby ensuring
maximum use of resources. Enterprise objectives give direction to the major plans which define the
objective of every major department. Major department objectives, in turn, control the objectives of
subordinate departments and so down the line.

3. Developing Premises: Planning premises are assumptions about the environment within which the
plan is to be carried out. Once objectives are established managers have to investigate the company's
environment to know factors that facilitate or block the attainment of these objectives. This involves
examining the external and internal factors which affect the performance of the organization: the external
environment (for Treats and Opportunities) through PEST analysis and internal environment (for
Strengths and Weaknesses) through Self-Audit.

 Strengths are internal competencies possessed by the organization in comparison with the competitors.
These include structure and policies of the organization, location, financial soundness, knowledge of
personnel, qualities of facilities, and so on.
 Weaknesses are attributes of the organization which tend to decrease its competence in comparison to
its competitors.
 Threat is reasonably probable events which if it were to occur, would produce significant damage to the
organization.
 Opportunity is a combination of circumstances, time, and place which if accompanied by a certain
course of action on the part of the organization, is likely to produce significant benefits.

The key element of planning at this stage is forecasting. It is based on the forecasts made in different areas
that premises are made.

Because the future is so complex, it would not be profitable or realistic to make assumptions about every
detail of the future environment of a plan. Therefore, premises are, as a practical matter, limited to
assumptions that are critical, or strategic, to a plan, that is, those that most influence its operation.

4. Determining alternative courses of actions: Alternatives are courses of actions that are available to a
manager to reach a goal. In developing alternatives, a manager should try to create as many roads to the
objective as possible. Usually the most common problem is not finding alternatives but reducing number
of alternatives so that the most promising may be analyzed.

5. Evaluating alternative courses of action: Having sought out alternative courses, managers evaluate
the benefits, costs and effects of alternative courses in light of their weight to goals and premises. Because
there are so many alternative courses in most situations and there are numerous variables and limitations
to be considered, evaluation can be exceedingly difficult. This is a step in planning process that operations
research and mathematical as well as computing techniques have their primary application to the field of
management.

6. Selecting a course of action: This is the point at which the plan to be adopted is chosen or selected. It
is the real point of decision-making. The analysis of each alternative’s disadvantages, benefits, costs and
effects should result in determining one course of action that appears better than the others. If no one
alternative emerges as clearly the best, consideration should be given to combining parts or the entire
content of two or more alternatives. Whatever the course chosen, it should be one that gives you the most
advantages and the fewest serious disadvantages.

7. Formulating derivative/action plans: At step 5 planning is ended. Formulating derivative plans

means formulating other plans based on one major plan.

8. Numberzing plans by budgeting: Numberzing plans are converting them into budgets. Plans will
have meaning when they are changed into numbers. Budgeting is the means of adding various plans
together and set important standards against which planning process can be measured.

9. Implementing the plan: After the optimum alternative has been selected, the manager needs to
develop an action plan to implement it. This is a step where by the entire organization will be in motion or
real operation. All the planning in the world will not help an organization realize objectives if plans cannot
be implemented. Implementation involves determining who will be involved, what resources will be
assigned, how the plan will be evaluated, and the reporting procedure.
10. Controlling and evaluating the results: Once the plan is implemented, the manager must
monitor the progress that is being made, evaluate the reported results, and make any modifications
necessary. The environment that a plan is constructed in is constantly changing, so the plans may have to
be modified. Or modification may be needed because a plan was not quite “perfect” when it was
implemented. Hence, managers need to make certain that the plan is going according to expectations and
making necessary adjustments.
Types of Plans
Plans can be classified on different bases or dimensions. These are: Scope/breadth dimension, Time
dimension, and Use/repetitiveness.

 Scope/Breadth Dimension: Scope refers to the comprehensiveness of the plan, or it refers to the level
of management where plans are formulated. This dimension creates hierarchy of plans. Based on
scope/breadth we can classify plans into: Strategic, Tactical and Operational.
a) Strategic Plan: is organization wide plan that is formulated or developed by top-level management in
consultation with the board of directors and middle level management.
It applies to the entire organization. Strategic plan:
 Looks ahead over the next two, three, five or more years.
 Develops the direction for the entire organization.
 Is primarily concerned with solving long-term problems associated with external environmental
influences.
 Establishes overall objectives and positions for an organization in terms of its environment.

The following are distinguishing characteristics of strategic plan.

1. It requires looking outside the organization for threats and opportunities.
2. It requires looking inside the organization for strengths and weaknesses
3. It takes a longer view, i.e. it covers a relatively long time horizon > 5 years.
4. It tends to be top management responsibility, but it reflects a mentality useful at all levels.
5. It is expressed in relatively general non-specific terms.

Strategic plans address such questions as:

-What business are we in?
-What business should we be in?
-Where will we be in ten years if we continue doing what we are now doing?
The success or failure of an organization depends up on the success or failure of strategic plans. It makes
premises for tactical plans.
b) Tactical Plan: refers to the implementation of activities and the allocation of resources necessary for
the achievement of the organization’s objectives. It is an intermediate plan that helps to reduce long range
planning into intermediate one by increasing the amount of specificity and making the actions goal
oriented. Tactical plans are specific and more goals oriented than strategic plans. Middle level
management in consultation with lower level management develops them. Tactical plans are the means
charted to support the implementation of the strategic plans and achievement of tactical goals. They are
concerned with shorter time frames and cover a narrower scope (narrower range of activities). It structures
a firm’s resources to achieve maximum performance. Tactical plan concerned with what the lower level
units within each division must do, how they must do it, and who will have the responsibilities for doing
it. Tactical plans make premises for operational plans. Tactical plans is narrower in scope than strategic
plan and wider than operation plan; but more detailed than strategic plan and less detailed than operational
plan.
E.g. what is the best pricing policy? Which city or town is suitable for marketing our products?

c) Operational Plan: is concerned with the day to day activities of the organization and is made at the
lower level management in consultation with middle level management. Operational plans spell out
specifically what must be accomplished to achieve specific/operational goals. It is concerned with the
efficient, day-to-day use of resources allocated to a department manager’s area of responsibility.
Operational plans have relatively short time frame (< 1 yr). It is the most detailed (more specific) and
narrowest plan compared to the above two; because it is to be implemented day-to-day.
E.g. –What production technique is best? What materials are needed for operation?
Unless operational goals are achieved in organizations, tactical and strategic plans will not be successful
and goals at those levels will not be achieved.

 Time Dimension
Time dimension refers to the time periods for which the planning is intended. Based on the length of time
a plan covers, we do have three types of plans: Long-range (five years or more), medium-range (between
one and five years) and short-range plans (one year or less). Time dimension and scope dimension are the
same except the former is about the length of time that the plan covers and the later about the level of
management where the plan is formulated.
All strategic plans are long-range plans.
All tactical plans are medium-range plans.
All operational plans are short-range plans.
 Use Dimension
Use dimension refers to the extentto which plans will be used on a recurring basis, i.e. based on how
repeatedly/frequently a given plan is used. Based on this dimension we do have two types of plans:
standing plans and single use plans.

1. Standing Plans: are plans that provide an ongoing guidance for performing recurring activities. They
are plans which are formulated to be used again and again for the day-to-day operation of the
organization. That is, repetitive situations or actions require the development of such plans. They become
necessary when the same kinds of actions are to be taken over and over again. Standing plans become
valuable under relatively stable situations. Once established, standing plans allow managers to conserve
time used for planning and decision-making because similar situations are handled in a predetermined,
consistent manner.
E.g. A bank can more easily approve or reject loan requests if criteria are established in advance to
evaluate credit ratings, collateral assets, and related applicant information.
The major types of standing plans are policies, rules and procedures.
a. Policies: is a general guide that specifies the broad parameters within which organization members are
expected to operate in pursuit of organizational goals.
- Policies are general statements or understandings which guide or channel thinking and actions in
decision-making to achieve organizational objectives.
Not all policies are “statements”, they are often merely implied from the actions of managers.

Policies have the following characteristics:

1. 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.
2. Policies help to decide issues before they become problems; make it unnecessary to analyze the same
situation every time it comes up and unify other plans.
3. Policies tell us what to do in a general sort of way.
4. Policies provide discretion within limits since they are guides to decision-making. Policy is a means of
encouraging discretion and initiative, but within limits. The amount of freedom will naturally depend
up on the policy and in turn will reflect position and authority in the organization.
5. Policies must be flexible.

 Policies are usually established formally and deliberately by top managers of the organization. They
can also emerge informally and at lower levels in the organization from a seemingly consistent set of
decisions on the same subject made over a period of time.

Policies are established at the top because:

a. They feel it will improve the effectiveness of an organization.
b. They want some aspect of the organization to reflect their personal values (E.g. Dress codes)
c. They need to clear up some conflict or confusion that has occurred at a lower level in the organization.
Examples of policy:
1. Except for token gifts of purely nominal or advertising value, no employee shall accept any gift
from any supplier at any time.
2. Hiring university trained engineers
3. To promote from within
4. We accept returned merchandise

b. Rules: spell out specific required action or non-actions, i.e., actions that must be or must not be taken,
allowing no discretion, in a given situation. E.g. No smoking, cheating is prohibited.
 A rule is an ongoing, specific plan for controlling human behavior and conduct at work.
 The purpose of policies is to guide decision-making by marking off areas in which managers can use
their discretion. Although rules also serve as guides, they allow no discretion in their application.
 Rules are the most explicit of standing plans and are not guides for thinking or decision-making.
Rather, they are substitutes for them. The only choice a rule leaves is whether or not to apply it to a
particular set of circumstances.
 c. Procedures: are statements that detail the exact manner in which certain activities must be
accomplished. They put the precise order of activities to be carried out to do a task and thus, procedures
are chronological sequences of required actions. They provide detailed step-by-step instructions as to what
should be done. Procedures prescribe exactly what actions are to be taken in a specific situation and
specify the chronological sequence of activities. For example, material procurement, university admission,
bidding, etc.
When we compare the above three, policies, procedures and rules, we can understand that all are alike in
the sense that they are directives to guide people’s behavior to the desired ends and they are plans which
are to be followed in the future. Conversely, procedures and rules are different from policies in that the
formers are guides to actions while the latter are guides to thinking. So, procedures and rules render no
freedom and hence should be used when we want to discourage initiative or repress thinking. But, policies
must permit freedom within limits and hence are used when people’s involvement, participation or
initiative is desired.

Though both rules and procedures repress thinking, they are different. Unlike procedures, rules (1) guide
actions without specifying a time sequence (2) spell out that a certain action must or must not be taken.
Procedures, however, specify a time sequence. In fact a procedure may be looked upon as a sequence of
rules. A rule, however, may or may not be part of a procedure.

2. Single use plans: are plans aimed at achieving a specific goal that, once reached, will most likely not
recur in the future and dissolved when these have been accomplished.
- Are designed to accomplish a specific objective usually in a relatively shorter period of time and it is non
repetitive.
- They are detailed courses of action that probably will not be repeated in the same form in the future.

The major types of single use plans are programs, projects, and budgets.
E.g. A firm planning to build a new warehouse-location, construction costs, labor availability, zoning
restrictions.
a. Programs: is a comprehensive plan that coordinates a complex set of activities related to a major non-
recurring goal.
- 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
- Single use plans may use standing plans and other single use plans to be effective.

Single use plan = Standing plans + Single use plans

A program may be as large in scope as placing a person on the moon or as comparatively small as
improving the reading level of fourth grade students in a school district. Whatever its scope, it will specify
many activities and allocations of resources within an overall scheme that may include such other single
use plans as projects and budgets.
* A program may be repeated with modification but not as it is.

b. Projects: is a plan that coordinates a set of limited scope activities that do not need to be divided into
several major projects in order to reach a major non-recurring goal.
- Projects are the smaller and separate portions of programs. Each project has limited scope and distinct
directives concerning assignments and time. Each project will become the responsibility of designated
personnel who will be given specific resources and deadlines.
E.g. Building a warehouse can be taken as a program. In the warehouse example, typical projects
might include the preparation of layout drawings, a report on labor availability, and recommendations
for transferring stock from existing facilities to the new installation.

c. Budgets: are statements of expected results expressed in numerical terms.

- Are statements of financial resources set aside for specific activities in a given period of time. -
Budget is a single use plan that commits resources to an activity over a given period. It may be expressed
in Birr, labor hours, units of product, machine hrs, or any other numerically measurable term.
- It may be referred to as a “numberize” program.
Budgets are also control devices. However, making a budget is clearly planning.