CHAPTER TWO

THE PLANNING FUNCTION

I. MEANING, NATURE AND IMPORTANCE OF PLANNING

The Meaning of Planning

o Planning – is the dynamic process of making decisions today about future actions; and it
is a selection or choice among alternatives as to: What missions or objectives be
achieved, What actions should be taken, What organizational positions be assigned, How
the end can be achieved, When to achieve it, Who is to do it, Where to do it. It bridges
the gap between where we are now and where we want to be.

o Planning - is 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).

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

Planning involves selecting missions and objectives and the actions to achieve to them; it
requires decision-making, that is, choosing from among alternative future courses of actions.
Managers who develop plans but do not commit themselves to action are simply wasting time.
The outcome of the planning function is a plan, a written document that specifies the courses of
action a firm will take.

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, so for 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.

As shown in the figure below, unit plans are summed up to form sectional plans and these in turn
form departmental plans. Finally, the different divisional plans when summarized at corporate
level, form corporate plan.
Fig. Hierarchy of plans Corporate plans
Departmental/divisional plans

Sectional plans
The Importance of Planning Unit

1. It provides direction and sense of purpose

It is through planning that we can establish our objectives. Plans focus attention on sepicifc
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/ 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 pcoordinated 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.

Limitations of Planning
a.Planning is risky
This is because of uncertainties in the future and absence of accurate and adequate data.

b. It is a difficult and complicated task

Planning involves complex and interdependent decisions. Thus requires patience and
commitment from those who are involved in the planning process. In addition to this, rapid
changes in technology and customers’ tastes and preferences will also make planning difficult
and exceptionally complex.

c. It is expensive and time consuming

Planning requires financial, physical, human, and time resources. The collection of the necessary
data from various sources, the analysis, organizing and interpreting data consume time and
requires a huge amount of financial outlay.

d. It is affected by external factors

External factors can put strain on the success of planning. These factors could be external
impositions, government intervention, natural calamities, import-export policies, taxation and
labor laws that can limit the success of planning.

II. ORGANIZATIONAL OBJECTIVES

 Objectives are the important ends of planning toward which organizing, staffing, leading
and controlling are aimed.
 Objectives are the important ends toward which organizational and individual efforts or
activities are directed.
 Objectives are essential starting points in planning because they provide direction for all
other managerial activities.
  While enterprise objectives are the basic plan of the firm, department may also have its
own objectives. Its objectives naturally contribute to the attainment of enterprise
objectives, but the two sets of objectives may be entirely different.
E.g. Objective of Business – To make a certain profit by producing a given line of home
entertainment equipment.
Objective of manufacturing department - To produce the required number of TV sets of
given design and quality at a given cost.

These two objectives are consistent, but they differ in that the manufacturing department alone
cannot ensure accomplishing the company’s objectives.
Goals and objectives can be used interchangeably.

 Mission/Purpose - denotes the reason for the existence of an organization.

- denotes the organizations fundamental reason for existence.
Purpose and mission can be used interchangeably.

 Target – identifies specific qualitative or quantitative ends (points).

In short Mission/ purposes, objective, goals/ Targets differ in scope.

Purpose/missions  objective  Targets/goals

Nature of Objectives
1. Goals are predetermined or stated in advance.
2. Goals describe future desired results toward which present efforts are directed.
3. Goals should be specific and measurable. If possible, goals should be expressed in
quantitative terms.
4. Goals should have defined time period. They should specify the time period over which
goals will be achieved and measured. However, the long-range objectives should provide the
direction for short-range objectives.
5. Objectives should be continually adjusted in light of environmental changes. However,
too frequent changes and adjustments may cause confusion and disruption of plans,
strategies, policies, budgets, etc.
6. Goals should be challenging but realistic. If a goal is too difficult employees may give up.
If too easy, and routine type they may not feel motivated. Therefore, goals should be set
within the existing resource base and not beyond the department’s time, equipment, labor,
and financial resources. This gives workers job satisfaction and a great desire to work hard.
A difficult job is something beyond the resource capacity of the organization and the
individual employee. It ends up with failure to achieve the stated goals.
7. Objectives have hierarchy
In planning, broader and more comprehensive objective with long time frame will be
formulated at the very top. These top-level objectives must successfully be broken down to
more specific and shortsighted sub-objectives because moving the organization to goal
attainment calls for achieving these sub-objectives which are the means by which objectives
are attained. Each level of objective stand as ends relative to the levels below it and as a
means relative to the level above it.
 In short, like all management activities objectives have hierarchy. It ranges from the broadest
organizational objectives to specific /individual objectives. Organizations typically have three
levels of goals: strategic, tactical, and operational.

Strategic goals - are broadly defined targets or future end results set by top-level management.
Such goals typically address issues relating to the organization as a whole rather than specific
divisions or departments and may sometimes be stated in fairly general terms. Strategic goals
are sometimes called official goals because they are formally stated by top management.

Tactical goals - are targets or future end results usually set by middle management for specific
departments or units. Goals at this level spell out what must be done by various departments
to achieve the results outlined in the strategic goals. Tactical goals tend to be stated in more
measurable terms than is sometimes true of strategic goals.

Operational goals - are targets or future end results set by lower management that address
specific, measurable outcomes required from lower levels.

The three levels of goals can be thought of as forming a hierarchy of goals. With a hierarchy,
goals at each level need to be synchronized so that efforts at the various levels are channeled
ultimately toward achieving the major goals of the organization. In this way, the various
levels of goals form a means-end chain, in which the goals at the operational level (means)
must be achieved in order to reach the goals at the tactical level (end). Likewise, the goals at
the tactical level (means) must be reached in order to achieve the goals at the strategic level
(end).
8. Multiplicity of objectives
Even though there is only one broad and overall organizational objective, there are other
multiple (many) objectives that are under the umbrella of the overall plan which are directed
to attain the overall plan. It would have been relatively easy to achieve an objective and its
sub-objective had an organization had only a single basic objective. But in reality
organizations do have a multitude of objectives and any attempt to disregard this fact can
invite failure to organizations.

E.g. Organizational (Broad) objective: profit maximization

Satisfaction of customers
Other objectives Research & development
Employee development

9. Integrating character
In order to achieve the broad organizational objective there should be harmony or integration
among objectives.
Multiple  Integration  Network of
Objectives objectives

10. Network of objectives

Objectives of an organization form network, that is, objectives are interrelated and
interdependent. The union of the individual objectives to form an overall objective makes
 network of objectives. If there were no network of objectives, it would be very difficult to
achieve organizational objectives because people with their individual objective will pursue their
activity as right and coordination can never be possible.
11. Primacy of objectives
Objectives are primary to organization because they are the very reason for the existence of an
organization.

Benefits of Objective
i. Objectives provide basis for the performance of all managerial
functions. They serve as a benchmark for the formulation of plan, policies, strategies, rules,
budgets, procedures, etc. Organizing exists when there are objectives and courses of action
required for implementing plans, organizing signifies the need for staffing by creating jobs and
positions and coordinating all organizational efforts to desired results.

ii. Objectives provide guidelines for action. They help clarify

expectations. When goals are set, organization members are more likely to have a clear idea of
the major outcomes that they are expected to achieve. Without goals, organization members can
all be working very hard but may collectively accomplish very little as if they were rowers
independently rowing the same boat in different directions and together making very little
progress. Goals direct and channel employees’ efforts by describing future desired results. They
provide focus and direction for employees by prescribing what ‘should be’ done. And, they also
help to allocate resources and tell employee how and where to direct their strongest efforts.
Goals are basic for cooperative and organized effort.

iii. Objectives can limit employee activities. They serve to prescribe

what ‘should be done’ and ‘what should not be done’ by the employees.

iv. Objectives provide a unique identity for organizations. Organizations

have unique characteristics. They have their own values and identities that help one to
differentiate them from others in the industry.

v. An organization’s goal can serve as a source of employee

motivation. It helps to uplift their morale. By presenting a challenge, goals tell what
characterizes success and how to achieve it. Accomplishment of organizational goals provides
employees a sense of achievement and satisfaction. The added motivation develops from
meeting goals, feeling a sense of accomplishment, and receiving recognition and other rewards
for reaching targeted outcomes. On the other hand, managing employees based on the
accomplishment of objectives rather than on the tasks and activities of every worker
(management by objectives-MBO) can serve as an incentive to employees.

vi. Objectives provide performance standards and bases for control.

Control is the function of measuring, comparing and evaluating performance against
predetermined standards. Thus, control will be meaningless in the absence of standards provided
by objectives.
How Goals Facilitate Performance
In order to make use of goals, managers need to understand just how goals can facilitate
performance. Goals facilitate performance if they have the following components: goal content,
goal commitment, work behavior, and feedback.

Goal Content: Goals that are effective in channeling effort toward achievement at the
strategic, tactical, and operational levels have a content that reflects five major characteristics.
Goals should be challenging, attainable, specific and measurable, time limited, and relevant.

Goal commitment: A critical element in using goals effectively is getting individuals

and/or work groups to be committed to the goals they must carry out. Goal commitment is one's
attachment to, or determination to reach, a goal. Without commitment, setting specific,
challenging goals will have little impact on performance. Research indicates that five major
factors positively influence goal commitment: supervisory authority, peer and group pressure,
public display of commitment, expectations of success, and incentives and rewards.

Work Behavior: Given goals and commitment, how does the goal-setting process
ultimately influence behavior? Research so far suggests that goal content and goal commitment
affect an individual's actual work behavior by influencing four work behavior factors: direction,
effort, persistence and planning.
Direction: Goals provide direction by channeling attention and action toward activities related to
those goals, rather than to other activities. Thus goals to which we are committed can help us
make better choices about the activities that we will undertake.
Effort: In addition to channeling activities, goals to which we are committed boost effort by
mobilizing energy. As indicated by the research on goal setting, individuals are likely to put forth
more effort when goals are difficult than when they are easy.
Persistence: Persistence involves maintaining direction and effort on behalf of a goal until it is
reached, a requirement that may involve an extended period of time. Commitment to goals
makes it more likely that we will persist in attempting to reach them.
Planning: In addition to the relatively direct efforts on direction, effort and persistence, goals
also have an important indirect effect on work behavior by influencing planning. Goal setting
affects planning because individuals who have committed themselves to achieving difficult goals
are likely to develop plans or methods that can be used to attain those goals. With easy goals,
however, little planning may be necessary.

Feedback: feedback to employees as to their performance will let them know if they have
worker as to the expectation. By comparing their performance with the set goals, managers
should give feedback on employees’ performance that will help them evaluate themselves and
direct their effort towards achievement.
III. The Planning Process

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. 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.

2. 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.

3. 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.

4. 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.

5. 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.

6. Formulating derivative plans

At step 5 planning is ended. Formulating derivative plans means formulating other plans based
on one major plan.

7. Numberizing plans by budgeting

Numberizing plans is 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.

8. 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.
9. 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.

IV. Types of Plans

Plans can be classified on different bases or dimensions. These are:
- Scope/breadth dimension,
- Time dimension, and
- Use/repetitiveness

i. 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.

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.
- 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 difference between a firm would like to be (where we want to be) and where it will be if it
does nothing is called the Planning gap. Strategic planning is primarily concerned with closing
that gap.
 The success or failure of an organization depends up on the success or failure of strategic
plans. It makes premises for tactical plans.
Tactical Plan: refers to the implementation of activities and the allocation of resources
necessary for the achievement of the organization’s objectives.
- 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 goal 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).
- Structures a firm’s resources to achieve maximum performance.
- 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.
- 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?

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.

ii. 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.
 iii. Use Dimension
Use dimension refers to the extent to 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.

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.

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 carryout 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.

Characteristics of a Good Plan

Every sound business plan must have these characteristics:
 Objectivity
Planning should, first all, be based on objective thinking. It should be factual, logical and
realistic. It should be directed to achieving organizational goals rather than personal
objectives.

 Futurity
Since a plan is a forecast of some future action, it must have the quality of futurity;
otherwise, it has little value as a basis for future action. If a plan is to be effective, it must
foresee with reasonable accuracy the nature of future events affecting the industry and the
firm. The inability to foresee future events, a human limitation that we cannot overcome, is
the weak link in planning process.
 Flexibility
Because no one can foresee the future, plans must have flexibility. They must adjust
smoothly and quickly to changing conditions without seriously losing their effectiveness. The
more difficult it is to predict the future, the more flexible the plans must be.

 Stability
Stability is related to flexibility. A stable plan will not have to be abandoned because of long-
term changes in the company’s situation. It may be affected by long-range developments, but
it should not be changed materially from day to day.

 Comprehensive
A plan must be comprehensive enough to provide adequate guidance, but not so detailed as
to be unduly restrictive. It should cover everything required of people, but not in such detail
that it inhibits initiative.
 Simplicity and clarity
Although a good plan must be comprehensive, it should also be simple. A simple plan seeks
to attain its objective with the fewest components, forces, effects and relationships. A plan
should not be ambiguous. Lack of clarity makes understanding and implementation difficult.

 Contingency planning is the development of alternative plans for use in the event that
environmental conditions evolve differently than anticipated, rendering original plans
unwise or unfeasible.

 Planning staff- is a small group of individuals who assist top-level managers in

developing the various components of the planning process.