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Unit Two

Planning process & Types of plan

Definition of Planning: Planning has been defined previously as one of the five
major functions of management. However, since planning is a bridge between the present
and the future, it has been called the primary management function. Planning is
particularly important because of scarce resources and uncertain environment with a
fierce competition for these resources.
Planning is a decision making activity requiring the process of ascertaining objectives
and deciding on activities to, attain these objectives. It is also a process of preparing for
change and coping with uncertainty by formulating future courses of action. The basic
purpose of planning is to reduce the risk of uncertainties and to initiate a coordinated
effort within the organization for the purpose of organizational success
Planning is the continuous process of making present entrepreneurial decisions
systematically and with best possible knowledge of their futurity, organizing
systematically the efforts needed to carry out these decisions and measuring the results of
these decisions against the expectation through organized, systematic feedback.
Peter Drucker thus encompasses the element of feedback that would ascertain the quality
of decisions and the accuracy of planning .
The Six P's of Planning
l. Purpose. An effective planning system requires a clear understanding of the
organization's purpose. What are the reasons for the organization's existence? Is it to
increase profit or increase market shares or generate more employment or introduce more
products, etc.? This purpose must be clear and elaborate.

2. Philosophy. Philosophy incorporates the fundamental beliefs as to how the

organization's purpose is to be .achieved. For long-term survival and growth, a
philosophy of ethical conduct must be adopted. For example, General Motor's philosophy
is based upon profitability through quality, service, and ethical behaviour. IBM's
philosophy was to elevate the level of the salesman to an executive, etc.
3. Premise. This involves the strengths and weaknesses of the organization and 'its
knowledge and assumptions about its environment. By forecasting and other methods, the
management can make some conclusions about the environment trends and by knowing

its own strengths and weaknesses it can deal with the changing environment in a more
intelligent way.
4. Policies. Policies are general guidelines or constraints that aid in managerial thinking
and action. In a typical organization, there are production policies financial policies,
accounting policies, marketing policies, personnel policies, etc. These policies are more
specific than philosophy and from a basis for planning and necessary operational actions.
5. Plans: plans represent specific objective and action statements.
6. Priorities: A particular organizational goal must be given a particular priority .limited
resource of time, finance, materials etc.

Planning process
Planning is an intellectual process which the managers carry out for the efficient
management of the organization. The nature of this exercise will differ from one
organization to another and from one managerial level to another. However, the general
stages to be followed in laying down the organizational plans are described below:
1. Establishment of Objectives
The first step in planning is the determination of objectives. Objectives provide direction
to various activities in the enterprise. Planning has no utility if it is not related to certain
objectives. The establishment of objectives can, at times, be more important than the
objectives themselves since their establishment emphasizes how various people and units
fit into the overall organization framework. This process can also be used to motivate
individuals to achieve objectives which they have helped to establish. Objectives clarify
the tasks to be accomplished. Overall objectives define what is to be accomplished in
general terms. The derivative objectives focus on more details; that is, what is to be
accomplished, where action is to take place, who is to perform it, how it is to be
undertaken, and when it is to be accomplished.
2. Assessment of Environment
Sufficient information must be collected in order to make the plans and sub plans.
Necessary information includes the critical assessment of the current status of the
organization together with a forward look at the environment that is anticipated. The
collection and forecasting of information should be done in terms of external and internal
environment. The assessment of external environment should include consideration of
competition now and in the future, government policies, social values, political
conditions, international situation and other externalities that may affect the organization
in the future. The assessment of internal environment may consider the strong and weak
points of the organization.

3. Premising and Forecasting.

This step involves making assumptions concerning the behaviour of internal and external
factors mentioned in the second step. It is essential to identify the assumptions on which
the plans will be based. Assumptions denote the expected environment in the future and
are known as 'planning premises'. Again, forecasting is important in premising. It helps in
making realistic assumptions about sales, costs, prices, products, technological
developments, etc. in the future. The assumptions along with the future forecasts provide
a basis for the plans. Since future environments are so complex and uncertain, it would
not be realistic to make assumptions in great details about every environment factor. It is
advisable to limit premising to those factors which are critical or strategic to the planning
4. Review of Key Factors
There is always the possibility of existence of certain limitations that could affect the
ability of the work-group to reach its objectives. An intelligent manager must make plans
anticipating the conditions or limitations that might restrict the smooth operation of the
plans. Key areas for anticipation are power, machinery, inventories of materials and parts,
finance and labour availability. These are some of the important areas which must be
given due weightage while making plans. A good planner must consider combinations of
all possible limitations and make provision for them.
5. Development of Alternative Plans
Determining the alternative courses of action is an important step in the planning process.
There is hardly any plan for which alternatives do not exist. Without resorting to a search
for alternatives, a planner is likely to be guided by his limited imagination. Generally,
there are several alternatives for any problem. A manager should try to screen out the
most viable alternative so that he has a small number of alternatives for final selection.
This will help in the thorough analysis of the alternatives so developed.
6. Evaluation of Alternative Plans
After selectmg the few viable alternatives, they should be evaluated with the help of a
number of parameters which are related to planning premises and objectives. Each of the
alternatives is to be examined in relation to the following two tests:
(I) To what extent is it in conformity with the basic or corporate objective of the
(ii) To what extent each of these plans satisfies the cost, speed, quality and rate of return
on investment requirements? "
The evaluation of various alternatives will help in knowing which of them offers the
greatest choice of success in reaching the desired objective. Sometimes, it may not be
possible to analyses the alternatives properly due to a number of complexities. The
planner should take the help of various quantitative techniques of Operations Research
like probability theory, game theory, linear programming, etc.

7. Selection of Suitable Plan

The purpose of evaluatmg the alternative courses of action is to select the most suitable
course of action which will achieve organizational objectives. Techniques of decision
making are applied to choose a particular course of action. This may lead to the
conclusion that no one course of action is optimum. So the management may decide to
select two or more alternatives and combine them to have the most feasible plan. While
selectmg the plan, the following factors should be taken into account:
(I) The plan should be logical and practical.
(II) The plan should be flexible and capable of being modified.
(III) The plan should be specific rather than general.
(IV) The plan should be acceptable to the operating personnel.
(V) The resources required for the implementation of the plan should be made available.
8. Laying Down of Derivative Plans
Basic organizational plans cannot be executed effectively unless they are supported by
the derivative or sub-plans. The derivative plans are developed within the framework of
the overall planning. For instance, if an airline decides to acquire a fleet of new planes, it
will be followed by the development of a host of derivative plans dealing with the
employment and training of various types of personnel, the acquisition of spare parts, and
the installation of maintenance facilities, scheduling, advertising, financing and
insurance. The important derivative plans used in business include policies, procedures,
programmes, projects, methods, budgets, rules, etc. They help in achieving the overall
organizational goals.
Requirements of an Effective Plan
An effective plan should possess the following characteristic features:
(1) A plan should be specific. The more specific a plan is, the less chance there is for it
to be misinterpreted. Objectives should be clearly defined. The means for carrying out the
plan should also be indicated in unambiguous terms.
(2) A plan should be complete and integrated. A plan is said to be complete when it is
comprehensive enough to cover all actions expected from the individuals and sections of
the undertaking as a whole. It is said to be an integrated one when various administrative
plans are so welded into one another that the whole undertaking operates at the peak of its
(3) A plan should be logical. The more facts it is based on, the better it is. H facts are not
available, reasonable assumptions may be made about the future.
(4) A plan should be flexible. No plan is infallible nor can it cover all possible
contingencies. Conditions under which a plan will be most effective change as do the

variables and factors on which the plan is formulated. Therefore, it is essential to

introduce some flexibility in every plan.
(5) A plan should be capable of being controlled. Effective planning of business
activities depends upon the ability to foresee with utmost accuracy the nature and
requirements of future events relating to industry in general and the business undertaking
in particular. Therefore, the plan must distinguish between controllable and
uncontrollable future environment for better administrative control.

Types of plans
Plans can be classified as (1) purposes or missions, (2) objectives or goals, (3) strategies,
(4) policies, (5) procedures, (6) rules, (7) programs, and (8) budgets.
1. Purposes or Missions
The mission, or purpose (the terms are often used interchangeably), identifies the basic
function or task of an enterprise or agency or any part of it. Every kind of organized
operation has, or at least should have if it is to be meaningful, a purpose or a mission. In
every social system, enterprises have a basic function or task assigned to them by society.
For example, the purpose of a business generally is the production and distribution of
goods and services. The purpose of a state highway department is the design, building,
and operation of a system of state highways. The purpose of the courts is the
interpretation of laws and their application. The purpose of a university is teaching,
research, and providing services to the community. Although we do not do so, some
writers distinguish between purposes and missions. While a business, for example, may
have a social purpose of producing and distributing goods and services, it can accomplish
this by fulfilling a mission of producing certain lines of products. The missions of an oil
company, like Exxon, are to search for oil and to produce, refine, and market petroleum
and many petroleum products, from diesel fuel to chemicals. The mission of the Du Pont
Company has been expressed as "better things through chemistry," and Kimberly-Clark
(noted for its Kleenex trademark) regards its business mission as the production and sale
of paper and paper products. In the 1960s, the mission of NASA was to get a person to
the moon before the Russians. Hallmark, which has expanded its business beyond
greeting cards, defines its mission as "the social expression business." It is true that in
some businesses and other enterprises, the purpose or mission often becomes fuzzy. For
example, many conglomerates have regarded their mission as synergy,* which is
accomplished through the combination of a variety of companies.
2. Objectives or Goals
Objectives, or goals, (the terms are used interchangeably in this book), are the ends
toward which activity is aimed. They represent not only the end point of planning but
also the end toward which organizing, staffing, leading, and controlling are aimed.

3. Strategies

For years the military used the word "strategies" to mean grand plans made-light of what
it was believed an adversary might or might not do. While the term "strategy" still usually
has a competitive implication, managers increasingly use it to reflect broad areas of an
enterprise operation. In this book, strategy is defined as the determination of the basic
long-term objectives of an enterprise and the adoption of courses of action and allocation
of resources necessary to achieve these goals.
4. Policies
Policies also are plans in that they are general statements or understandings that guide or
channel thinking in decision making. 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. Policies help decide Issues before they become problems, make it unnecessary
to analyze the same situation every time it comes up, and unify other plans, thus
permitting managers to delegate authority and still maintain control over what their
subordinates do
5. Procedures
Procedures are plans that establish a required metl10d of handling future activities. They
are chronological sequences of required actions. They are guides to action, ratl1er than to
thinking, and they detail the exact manner in which certain activities must be
accomplished. Procedures often cut across department lines.
For example, in a manufacturing company, the procedure for handling orders will almost
certainly involve the sales department (for the original order), tl1e finance department
(for acknowledgment of receipt of funds and for customer credit approval), the
accounting department (for recording the transaction), and production department (for the
order to. produce goods or authority to release them from stock), and traffic department
(for determination of shipping means and route).
A few examples illustrate the relationship between procedures and policies. The company
policy may grant employees vacations; procedures established to implement this policy
will provide for scheduling vacations to avoid disruption of work, setting methods and
rates of vacation pay, maintaining records to assure each employee of a vacation, and
spelling out the means for applying for a vacation.
6. Rules
Rules spell out specific required actions or nonactions allowing no discretion. They are
usually the simplest type of plan. "No smoking" is a rule that allows no deviation from a
stated course of action. The essence of a rule is that is reflects a managerial decision that
some certain action must-or must not-be taken. Be sure you can distinguish rules from
policies. The purpose of policies is to guide decision making by marking off areas in
which managers can use their discretion. Rules allow no discretion in their application.
7. Programs
Programs 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; they are ordinarily supported by budgets. They may be as major as an
airline's program to acquire a $400 million fleet of jets or the 5-year program to improve
the status and quality of its thousands of supervisors, or they may be as minor as a
program formulated by a single supervisor to improve the morale of workers in the partsmanufacturing department of a farm machinery company.
8. Budget
A budget is a statement of expected results expressed in numerical terms. It may be called
a "numberized" program. In fact, the financial operating budget is often called a profit
plan. Budget may be expressed in term financial terms of labor-hours unit of product, or
machine hours etc.
The limitations of planning are as under:
1. Lack of Accurate Information. The reliability of a plan depends upon facts and
information on which it is based. If reliable information and dependable data are not
available, planning is sure to lose much of its relevance.
2. Lack of Accurate Forecasts. Planning concerns future activity and its quality will be
determined by the quality of forecast of future events. As no manager can predict
completely and accurately the events of future, the plans may pose problems in operation.
This problem is further increased by problems in formulating accurate premises. Many
times, managers may not be aware about the various conditions within which they have
to formulate their plans.
3. Complex Process. Planning is a complex and expensive process. It demands serious
thinking, tremendous hard work and time. Some managers do not like to undergo such a
complicated process as they prefer short-cuts. Such planning may not yield the desired
4. Rigidities. Planning may result in internal inflexibilities and procedural rigidities. By
limiting individual freedom, planning may stifle initiative and personal development.
Rigidities appear from managers' negligence to revise the plan, particularly policies and
5. Lack of Specific Goals. Qualitative objectives like social responsibility, management
development, quality of work life, etc. are often expressed in vague generalizations which
defy proper evaluation. Once these objectives conflict with quantifiable ones, managers
tend to ignore them totally. Planning cannot be effective unless goals are specific, clear
and actionable.
6. Lack of Planning Skills. A plan can be no better than the competence of the planner
who does the planning. Planning is an art and takes a special type of person to plan. Not

every one is capable of planning and solving organizational problems. A planner must
possess not only skill, but also intelligence and breadth of vision, and, for long-range
planning, must have the ability to forecast.
7. Resistance to Change. Resistance to change is another factor, which puts limits on
planning. It is a commonly experienced phenomenon in the business world. Sometimes,
planners themselves do not like change and, on other occasions, they do not think it
desirable to bring change as it will create resistance on the part of the workers. This
attitude makes the planning process ineffective.
8. Lack of Participation. People who are not involved in the formulation of plans may
tend to resist the plans at their implementation stage. Plans imposed from above often
lead to resentment and resistance among those forced to implement them.
9. Psychological Factors. Psychological factors also limit the effectiveness of planning.
Some people consider present more important than future because present is certain. Such
persons are psychologically opposed to planning. But it should not be forgotten that
dynamic managers always look ahead. LpJ)g-range well-being of the enterprise cannot be
achieve~ unless proper planning is done.
10. External Factors. The planners are often confronted with external forces.
The following advantages can be achieved by an efficient system of planning:
(I) Reduction of Uncertainty. Future is always full of uncertainties. A business
organization has to function in these uncertainties. It can operate successfully if it is able
to predict the uncertainties. Some of the uncertainties can be predicted by undertaking
systematic forecasting. Thus, planning helps in foreseeing uncertainties which may be
caused by changes in technology, fashion. and taste of people, Government rules and
regulations, etc.
(II) Concentration on Objectives. It is a basic characteristic of planning that it is related
to the organizational objectives. All the operations are planned to achieve the
organizational objectives. Planning facilitates the achievement of objectives by focusing
attention on them. It requires the clear definition of objectives so that the most
appropriate alternative courses of action are chosen.
(III) Coordination. Good plans unify the inter-departmental activity and clearly lay
down the area of freedom in the development of various sub-plans. Various departments
work in accordance with the overall plans of the organization. Thus, there is harmony in
the organization, and duplication of efforts and conflict of jurisdiction are avoided.

(IV) Economy in Operation. Planning ensures economical operations because of

emphasis on efficiency. Since planning involves the selection of the best possible courses
of action, it is implied that best results would be achieved at the least possible cost.
(V) Facilitation of Control. Planning and control are inseparable in the sense that
unplanned action cannot be controlled because control involves keeping activities on the
predetermined course by rectifying deviations from plans. Planning helps control by
furnishing standards of performance.
(VI) Encouragement to Innovation. Planning helps innovative and creative thinking
among the managers because many new ideas come to the mind of a manager when he is
planning. It creates a forward-looking attitude among the managers.
(VIII) Increase in Competitive Strength. Effective planning gives a competitive edge to
the enterprise over other enterprises that do not have planning or have ineffective
planning. This is because planning may involve expansion of capacity, changes in work
methods, changes in quality, anticipation of tastes and fashion of people and
technological changes, etc.

Neither the term management nor the term objectives is new. What is new about these
terms is a distinct philosophy of management built around these terms; and popularized
as management by objectives (or MBO). The credit for developing this philosophy of
MBO could be bestowed upon Peter F. Drucker' However, some authorities object to it;
as according to them, nobody could be the originator of a philosophy of management
which utilizes terms like management and objectives'. In fact, formation of groups for
attainment of objectives through the agency of management is an ages old phenomenon.
MBO might be defined as follows:
MBO is a distinct philosophy of managing any business enterprise in which (under a
short-term management-programme) objectives for subordinates are worked out through
a process of mutual consultation between subordinates and concerned superiors, in
verifiable terms; and such objectives subsequently becoming standards of control for
measuring performance of individuals against these.

MBO Process

Counseling of



Target for

of checkpoints

Fig: The Process of MBO

(I) Preliminary setting of objectives at the top management level Top management
usually gives a start to launching of scheme of MBO; by identifying the fundamental
objectives of the enterprise as a guide to superiors and subordinates throughout the
organization for setting their own objectives.
(II) Clarification of organizational roles As a background step to MBO, each role in
the organization is clarified; so that each organizational role is somebody's clear
(III) Setting individual objectives
Superiors and subordinates throughout the enterprise determine their individual
objectives through a process of mutual consultation. Such setting of individual objectives
is the core aspects of MBO.
(IV) Matching goals with resources
To D1ake MBO scheme realistic, goals of individuals are compared to the resources
available for their implementation. At this stage, objectives might be revised suitably, in
view of limitations of resources.
(V) Recycling objectives
Recycling or reshuffling objectives under MBO is done to take care of the
interconnection among related objectives. i.e. objectives of individuals in one department
may not be inconsistent with related objectives of subordinates, in other departments.
(VI) Performance appraisal
As a final step of MBO, performance of people is judged against objectives (which now
become standards of control) determined for them, initially.

Advantages of MBO
(I) Overall improvement in organizational performance provided, a scheme of MBO
is appropriately designed in a 'tailor-made' system; it is likely to lead to an overall
improvement in the organizational performance.
(II) Specific Planning Because of numerical expression of objectives under MBO,
planning becomes more specific Subordinates better appreciate as to what exactly is
expected of them.
(III) Elicits commitment perhaps the biggest advance of MBO is that it is a great
motivational device. It elicits commitment to objectives on the part of subordinates; as
subordinates feel achieving those targets which they have determined for themselves.
(IV) Better controlling MBO leads to better controlling in two senses
(a) Controlling is immediate; as standards of controlling are the objectives themselves.
(b) There is least or no resistance to controlling; because objectives (i.e. standards of
controlling) are determined by subordinates themselves in consultation with superiors.

Limitations of MBO
(I) Failure of teach philosophy of MBO
It is rather different for management to teach the philosophy of MBO to rank and file
organization; because of the technical processes involved in making a scheme of MBO.
One must expect success of a scheme; basics of which are not fully comprehended by
(II) Tug-.of-war phenomenon
Setting of objectives under MBO creates a sort of 'tug-of-war' situation among superiors
and subordinates. Subordinates prefer objectives to be set on a lower side; superiors
would like mO~1 work to be assigned to subordinates. In fact, the dominating partywhether the superior or the subordinate-will have a major impact on the determination of
objectives. As such, realistic goal setting under MBO may be a rarity.
(III) Over-emphasis on short-run goals
Under MBO, there is an over emphasis on short-run goals to the exclusion of long-run
goal which might be critical for the survival and growth of the enterprise.
(IV) Over-quantification of management
Because of the need to quantify objectives under MBO, qualitative aspects of managing
may completely overlooked.
(v) Wastage of time
MBO involves wastage of a lot of valuable time of managers in joint consultations; and
they left with little time for efficiently discharging their jobs.