PLANNING

WHAT IS PLANNING?
Planning
• Involves defining the organization’s goals, establishing
an overall strategy, and developing a comprehensive
set of plans to integrate and coordinate organizational
work.
• Planning is an intellectual process of thinking resorted
to deicide a course of action which helps achieve the
predetermined objectives of the organization future.
• Separate plans are prepared for various departments,
and then the top executives of the organization take
steps to co ordinate the various departmental
plans.
 WHAT IS PLANNING?

• It involves the determination of future course of actions

like why an action, what action, how to take an action and
when to take actions.
• Why of actions reveals the objectives or the end results
which an organisation wants to achieve,
• What of action specifies the activities to be undertaken
and
• How & when are related with various programmes,
policies, procedures and other related aspects.
Prof. Suresh R. Lalwani
HDCS, CA (P.E. II), PGDBM (Finance)
 DEFINITIONS
“Planning is an intellectual process, the conscious
determination of courses of action, the basing of decisions
on purpose, facts and considered estimates.” – Koontz and
O’Donnell
“Planning is deciding the best alternatives among others to
perform different managerial operations in order to achieve
pre-determined goals.” – Henry Fayol

Prof. Suresh R. Lalwani

HDCS, CA (P.E. II), PGDBM (Finance)
FEATURES OF PLANNING /
CHARACTERISTICS OF PLANNING
 Planning is goal oriented:
Plans are made in order to seek certain predetermined
goals.
 Planning is a primary function:
“Planning provides the basic foundation from which all
future management functions arise”.
Especially for newer businesses, it becomes very important
to decide about what is to be done, how it is to be done,
where and when it is to be done and above all they require
very important decision of resource allocation which
needs a very careful planning.
 Planning is a thinking process:
Involves imagination, foresight and sound judgement.
FEATURES OF PLANNING /
CHARACTERISTICS OF PLANNING
 Planning is flexible:
Planning should not be rigid.
Moreover rapid changes in the external environment affect
the organisational functioning so planning function is
subject to change and as and when need arises planning
also can be changed accordingly.
 Planning is all-pervasive
Planning is an on-going activity at all levels of an
organizational hierarchy, right from CEO to first line
managers.
FEATURES OF PLANNING /
CHARACTERISTICS OF PLANNING
 Planning involves choice:
Planning always involves choices among various
alternatives.
If there is only one way of doing something, there is no
need for planning, planning arises only when there are
alternatives available.
 Planning is rational
Planners should be objective and unemotional in their
approach to planning.
Aim would be to achieve efficiency and effectiveness while
optimally deploying resources.
FEATURES OF PLANNING /
CHARACTERISTICS OF PLANNING
 Planning is an integrated process
Plans are structured in a logical way such that every lower
level plan serves as a means to accomplish higher level
plans.
Plans are inter-related, interdependent and mutually
supportive.
 Planning is futuristic
Planning attempts to peep into the future, analyses it and
prepare for it.
IMPORTANCE AND PURPOSE OF
PLANNING
Planning provides direction.
• Planning provides clear sense of direction and
purpose of activities of an organization.
Planning minimizes risk and uncertainty
• In fast changing organizations, planning based on
hard facts and data help managers to reduce risk and
uncertainties.
Planning ensures co-ordination
• Planning helps to establish co-ordinated efforts from
various divisions, departments and people.
IMPORTANCE AND PURPOSE OF
PLANNING
Planning leads to economy.
• Planning helps accomplish an optimal utilization of
physical and human resources, leading towards cost
reduction, higher efficiency and productivity which
lead to better economy.
Planning facilitates decision-making
• Planning helps in providing guidelines and thus
facilitate decision-making.
Planning reduces overlapping and wastage of efforts
• Planning avoids duplication of efforts, and overlapping
of tasks and responsibilities, reducing wastage.
IMPORTANCE AND PURPOSE OF
PLANNING
Planning encourages innovation and creativity.
• Planning helps to remain competitive.
• Innovation and creativity are like ‘trump cards’ in
competitive world.
Planning facilitates control.
• Control is key to success of any organization, and in
order to control there has to be a plan.
Planning improves morale.
• If Employees participate in planning process it boosts
their morale and develops a broad mentality and
thinking of achieving organizational goals.
PROCESS OF PLANNING
Establishing Establishing
Perception of
the Planning
Opportunity
Objectives Premises

Identification
Selection of Evaluation of
of
Alternatives Alternatives
Alternatives

Creating the Preparing the

Sequence of Secondary
Activities Plans
 PROCESS OF PLANNING
Step 1: Perception of Opportunities:
• Its not the the first step but the awareness of the opportunity is
much necessary for the formulation of the objectives of
planning by providing clues (hints) whether opportunities
exist or not.
• From this point of view the perception of opportunity is
considered as the starting point of the planning process.
• On the basis of those opportunities, a manager can set the
objectives. Preliminary look at the opportunities will include the
following.
• Knowledge of where organisation stands as compared to
its strengths and weaknesses.
• An understanding of why an organisation wants to achieve
some particular objectives only.
 PROCESS OF PLANNING
Step 2: Establishing the Objectives:
• At this stage major Organisational & Unit (Departmental)
objectives are set.
• Objectives
• The end results expected about what is to be done?
• Where the primary emphasis is to be placed?
• And what is to be accomplished by the various types of
plans.
• These objectives decide where to put more emphasis and
serve as the basis of planning.
 PROCESS OF PLANNING
Step 2: Establishing the Objectives:
• These objectives should be specified in terms of KRA (Key
Results Areas).
• Key Result Areas are those areas which are responsible for
the success of the organisation.
• For Example, in some organisation Marketing is KRA, in some
Human Resource is KRA, in some Brand Image is KRA, and
in some production is KRA etc.
• And these KRA can be achieved with the help of policies,
strategies, programmes, etc.
• Further integrated efforts of human and physical efforts are
channelized towards the desired objectives.
TRADITIONAL OBJECTIVE
SETTING
Top
“We need to improve
Management’s
the company’s performance”
Objective

Division “I want to see a

Manager’s significant improvement
Objective in this division’s profits”

Department
“Increase profits, regardless
Manager’s
of the means”
Objective

Individual “Don’t worry about

Employee’s quality: just work fast”
Objective
STATED OBJECTIVES FROM LARGE
COMPANIES

7-17
 PROCESS OF PLANNING
Step 3: Setting Planning Premises
• Premises mean the planning assumptions or future setting
within which the planning will take place.
• In this stage some assumptions are made regarding the
future happenings.
• Premises as such are viewed as the environment of plans in
operation.
• These generally include the economic conditions, growth
rate, rate of inflation, fiscal, and monitory policies etc.
• These may be internal or external, controllable and
uncontrollable and tangible or intangible.
PROCESS OF PLANNING
Step 4: Determining the Alternative Courses of
Action:
• On the bases of objectives and premises, various alternatives
are to be identified.
• One objective can be solved through two or more than two
alternatives, because there is hardly any problem which has
only one solution or no solution.
• E.g. If a company’s objective is of Growth then possible
alternatives would be Expansion, Diversification, Merger,
Acquisitions, Retrenchment etc.
PROCESS OF PLANNING
Step 5: Evaluation of Alternatives:
• Each and every alternative which was developed in the
previous stage is now properly evaluated.
• For this certain mathematical & statistical methods are used.
• The strong and weak point of every alternative is properly
studied.
• Planners properly evaluate these alternatives by giving
weightage to the various factors involved.
• Each alternative is put to the close test to determine its
suitability.
 PROCESS OF PLANNING

Step 6: Selecting a Course of Action:

• The sixth step is selecting the course of action from among
alternatives.
• If more than one alternative is equally good, then more than
one alternative are selected for future if any contingency
arises.
• After the evaluation of alternative, the fit alternative will be
selected.
 PROCESS OF PLANNING

Step 7: Formulating Supportive Plans:

• To make any planning process complete, the final step is to
formulate the derivative plan to give effect to and support the
basic plan.
• E.g. purchasing raw-materials, selecting manpower, bringing
equipments, purchasing machineries etc.
 PROCESS OF PLANNING

Step 8: Numbering / Sequencing Plans by

Budgeting:
• After the plans are made and set, the next step is to give them
meaning by allotting them the sequence / numbering for the
implementation
 PLANNING PREMISES
• Premise’ refers to an assumption or pre-condition at the
beginning of the work or on the basis of which plan are
formulated.
• There will be various assumptions on the basis of which plans
are formulated.
• E.g. when a company introduces new product in the
market, it makes assumptions that the product will succeed
by taking into account the some factors, and it will fail
taking into account some factors.
• “Planning premises are the anticipated environment in which plans
are expected to operate. They include assumptions or forecasts of
the future and known conditions that will affect the operations of
plans.” – Harold Koontz and Weihrich
TYPES OF PLANNING
PREMISES

External Planning Premises and

Internal Planning Premises

Tangible Planning Premises and

Intangible Premises

Controllable, Semi-Controllable and

Non-Controllable Planning Premises
 EXTERNAL PLANNING PREMISES
• It affect an organization from outside and cannot be controlled
by organization's own efforts.
• Various external factors are grouped into 6 categories:
• Social, Technological, Economical, Political, International
and Natural.
• Analysis of external environment presents two things, either
Opportunity or Threat.
• An opportunity is a favorable situation for an organization
which enables it to strengthen its position.
• A threat is an unfavorable condition in the organization's
environment which causes risk or damage to an
organization.
EXTERNAL PLANNING PREMISES

Some External Planning Premises

Economic Factors Technological Factors
Fiscal Policy Sources of technology
Infrastructure Technology adoption
Raw material prices Change in technology
Political Factors International Factors
Political Interference in business New product development
Social Factors Comparative cost advantage
Taste & Preferences of
Consumers Attitudes of exporting nations
Subsidies / Incentives by government
 INTERNAL PLANNING PREMISES
• These are related to the events occurring within an
organization and they can be controlled by organizations
own efforts.
• Such internal factors lie in various functions of an organization
such as production / operations, marketing, finance and
human resources.
• These factors may be either strength of an organization or
they may be weakness for an organization.
• Strengths and weaknesses of the organizations can be
identified through internal analysis of an organization.
 TANGIBLE & INTANGIBLE PLANNING PREMISES

• Tangible premises are those which can be expressed in

quantitative terms like monetary unit, unit of product, labour
hour, machine hour, and profits and so on.
• Intangible premises are of qualitative nature and cannot be
translated into quantity.
• E.g. Image of the company, customers’ loyalty etc.
CONTROLLABLE, SEMI-CONTROLLABLE AND NON-
CONTROLLABLE PLANNING PREMISES
• Controllable premises are those which can be controlled by
an organisation’s actions.
• These premises are mainly internal.
• E.g. Organisational Policies, structure, systems, procedures
etc.
• Uncontrollable planning premises are those which cannot
be controlled by organisation’s actions.
• These are mainly external.
• E.g. rate of economic growth, population growth, government’s
policy etc.
CONTROLLABLE, SEMI-CONTROLLABLE AND NON-
CONTROLLABLE PLANNING PREMISES

• Semi-controllable premises are those which can be

controlled up to certain limit but they cannot be controlled fully.
• E.g. Market share of the company, Brand Image of the
company, labour efficiency, product price etc.
TYPES OF PLANNING
ON THE BASES OF
ON THE BASES OF ON THE BASES OF
SCOPE /
TIME FUNCTIONS
HIERARCHY

Production
Corporate
Planning
Planning Long Term
Planning
Marketing
Planning
Functional
Planning Human
Resource
Short Term Planning
Operational Planning
Financial
Planning
Planning
CORPORATE PLANNING
• It is also known as Strategic Planning or Long Range
Planning.
• The basic objective of corporate planning is to make long
term objectives and then create plans to achieve these long
term objectives keeping in mind probable environmental
changes.
• In short corporate planning determines total organisational
activities.
FUNCTIONAL PLANNING
• Functional planning is undertaken for each and every major
function of an organization like production, marketing, human
resource etc.
• It is also known as departmental planning.
• Functional planning is derived (prepared) from the corporate
planning and it is done to help corporate planning.
• Plans are prepared for each major function (say marketing)
and its sub-function (say advertising, research, sales etc.)
OPERATIONAL PLANNING
• It is also known as tactical or short-term planning.
• Operational planning is mainly concerned with making most
effective use of the current organisational resources and
to develop a mechanism to assure effective
implementation of the same.
• It is mainly done for the production related aspects of
management and mainly implemented by the bottom level of
management.
ON THE BASES OF TIME
1. Long term Planning
• Long range planning is basically strategic in nature and
involves more than one year and can go up to 20 years or so.
• Generally it ranges between 3 to 5 years.
• Long term plans involve analysis of environmental factors and
it relates the organisation with external environmental factors.
• E.g. Development of new product and market, product
diversification etc. is the examples of long range plans.
ON THE BASES OF TIME
2. Short term planning
• It is also known as operational or tactical planning.
• It is mainly of one year or less than that.
• Main aim of short term plans is to sustain the organisation in
its production and distribution of current products or services
to the existing markets.
ON THE BASES OF FUNCTIONS
1. Production Planning:
• Production planning involves planning of forecasting of
sales, quantity of units to be produced, method of
production, time scheduling of activities, man power planning,
estimates of plant and machineries, determining standard time
and wages etc.
• Production planning is mainly concerned with efficient
production with least cost.
ON THE BASES OF FUNCTIONS
2. Financial Planning:
• In the absence of financial planning, a firm will constantly face
the shortage of finance or surplus of funds.
• Financial planning includes estimating requirements of the
funds, determining sources of raising the finances, when and
for what the funds be raised, determining in advance the
financial policies and procedures of sources and utilisation of
funds.
ON THE BASES OF FUNCTIONS
3. Human Resources Planning:
• Adequacy of manpower is the prime requirement of human
resource manager.
• Human resource planning includes planning for manpower,
determining the remuneration of those personnel, determining
duties and responsibilities for the persons recruited etc.
ON THE BASES OF FUNCTIONS
4. Marketing Planning
• Marketing planning involves determining optimum product mix,
determining prices for the products, setting up the distribution
channels, planning for new products, maintaining relationships
with consumers, estimating the sales etc.
 LIMITATIONS OF PLANNING

Criticisms of Planning
1. Planning may create rigidity:
• Unwise to force a course of action when the environment
is unfavorable
2. Plans can’t be developed for a dynamic environment
• Flexibility required in a dynamic environment
• Can’t be tied to a formal plan
 LIMITATIONS OF PLANNING
4. Planning focuses managers’ attention on today’s
competition, not on tomorrow’s survival
• Plans concentrate on capitalizing on existing business
opportunities
• Hinders managers who consider creating or reinventing an
industry
5. Formal planning reinforces success, which may lead
to failure
• Success may breed failure in an uncertain environment
 DECISION MAKING
• A decision is a choice made between two or more available
alternatives. Decision making is the process of choosing
the best alternative for reaching objectives.
(Samuel C. Certo, 2003)
• Decision making can be defined as a process of choosing
between alternatives to achieve a goal. It is the process by
which an individual chooses one alternative from several to
achieve a desired objective.
(Manmohan Prasad, 2003)
PROCESS OF DECISION MAKING
 PROCESS OF DECISION MAKING
1. SPECIFIC OBJECTIVES:
• Every action of human being is goal directed.
• Decision making is also an action and need for decision
making arises in order to achieve certain specific
objectives.
• Objective will decide whether there is need to make
decision or not. Objective is the result of earlier
decision.
 PROCESS OF DECISION MAKING
STEP 2: PROBLEM IDENTIFICATION:
• Problem is a gap between present state and desired state
on the subject matter of the decision.
• Identification of a problem is like diagnosis of a patient by
the doctor.
• If there is no solution to the problem, it will not be treated
as a problem.
• To identify the problem much clearly, a manager should go
through diagnosis and analysis of the problem:
 PROCESS OF DECISION MAKING
STEP 2: PROBLEM IDENTIFICATION:
a. Diagnosis

• In Medical science, it is used to identify problem by its symptoms.

• A patient has some symptoms and on the bases of that his disease
can be identified. As a same way, in business also a problem can be
identified from its symptoms.
• E.g. if a sales of a company is decreasing, then it may be a
symptom and that may further cause a problem in the form of
decrease in profit.
b. Analysis

• The analysis of the problem requires finding out who would take
decision, when the decision will be made, what information will be
needed and from where the information will be available.
 PROCESS OF DECISION MAKING
STEP 3: SEARCH FOR THE ALTERNATIVES
• A problem can be solved in many ways but all the ways are not
equally satisfying.
• There is always more than one way to solve a problem.
• If a problem has only one solution, no need for decision making
arises.
• A decision maker will build some limiting factors around him and
those alternatives which fulfil the limiting factors will be taken for
further evaluation and those which does not meet, will be dropped
out.
• A decision maker uses following sources for identifying alternatives.
• Past Experience. Practices followed by others.
• Use of creative techniques
 PROCESS OF DECISION MAKING
STEP 4: EVALUATION OF ALTERNATIVES
• Two approaches are generally used for evaluation in decision
making process.
• a. Limitations of alternatives
• b. Grouping of alternatives of similar nature
• In the first approach, decision maker will make a list of various
limiting factors. The alternative which will meet that limiting factor
will be selected and others will be dropped down.
• In the second approach, groups are prepared for similar alternatives
and out of them that group will be selected which suits the most for
our decision problem.
 PROCESS OF DECISION MAKING
STEP 5: CHOICE OF ALTERNATIVES
• Once all the alternatives are evaluated, one comparison is made
among them and likely result is analyzed in advance and the best
one will be selected.
• In selecting the alternative, three approaches are mainly used:
• Experience
• Experimentation
• Research and Analysis
 PROCESS OF DECISION MAKING

STEP 7: RESULTS
• If the decision is correctly taken & implemented effectively, it
will bring goods results otherwise it will not achieve our
objectives.
INDIVIDUAL VS. GROUP DECISION
MAKING
1. Nature of Problem
• If problem is of very complex nature and complicated kind,
group decision making will be suitable.
• And if all the policy guidelines are given regarding decisions
then individual decision making will be preferred.
2. Time availability
• If enough time is available, group decision making is
preferable but if there is shortage of time or emergency
situation has arisen then individual decision making is suitable.
INDIVIDUAL VS. GROUP DECISION
MAKING
3. Quality of Decisions:
• If high quality decisions are to be made, group decision is
preferred over individual decision making.
• If the decision is correctly taken & implemented effectively, it
will bring goods results otherwise it will not achieve our
objectives.
4. Climate of Decision Making
• If there is supportive climate in an organisation, group decision
making is preferred and if there is competitive climate, then
individual decision making is suitable.
INDIVIDUAL VS. GROUP DECISION
MAKING
5. Legal Requirement
• If there is some legal compulsion regarding decision making
then group decision making is necessary.
• E.g. In the meeting of Board of Meeting, the decisions are
taken in the group