Concept of Planning

Planning is the fundamental management function of deciding in advance what to do and how to do it. It is a process of thinking before doing, an intellectual exercise that sets the course for an organisation's future actions. Before undertaking any task, a manager must formulate a clear idea of how to approach it. Therefore, planning is intrinsically linked with creativity and innovation. It essentially seeks to bridge the gap between where an organisation currently is and where it wants to go.

Planning is performed by managers at all levels of an organisation. It involves making choices from alternative courses of action. The process begins with setting objectives, which provide a clear direction for all managerial decisions and actions. Essentially, planning is concerned with both ends (what is to be done) and means (how it is to be done). As seen in the case of Indian Oil Company Limited (IOCL), their plans to invest ₹ 20,000 crore in expansion and overseas acquisitions are a clear example of setting objectives (ends) and allocating resources (means) to achieve them.

Defining Planning

A comprehensive definition of planning would be: setting objectives for a given time period, formulating various courses of action to achieve them, and then selecting the best possible alternative from among the various courses of action available.

A plan must have a specific time frame, as time is a limited resource that must be used judiciously. Furthermore, a plan is futile if it is not acted upon or implemented. The essence of planning lies in its ability to turn dreams and goals into a tangible reality through deliberate, forward-looking thought and action.

Importance of Planning

Formal planning is crucial for the success and efficiency of any organisation. It provides a roadmap for the future and helps navigate the complexities of the business environment. A business cannot achieve its goals by chance; it requires a deliberate process. The major benefits of planning are as follows:

(i) Planning Provides Direction

By stating in advance how work is to be done, planning provides a clear direction for action. When goals and objectives are clearly defined, employees are aware of what the organisation wants to achieve and what they must do to contribute to those goals. This ensures that the efforts of all individuals and departments are coordinated and directed towards a common purpose. If there was no planning, employees would be working in different directions, and the organisation would not be able to achieve its desired goals efficiently.

(ii) Planning Reduces the Risks of Uncertainty

The business environment is full of uncertainties, and the future is unpredictable. Planning is a forward-looking activity that enables a manager to look ahead, anticipate changes, and make provisions for them. By using forecasting techniques, managers can prepare for uncertain future events. While planning cannot eliminate all risks and uncertainties, it can help in anticipating them and developing appropriate managerial responses and contingency plans to deal with them effectively. This makes the organisation proactive rather than merely reactive.

(iii) Planning Reduces Overlapping and Wasteful Activities

Planning serves as the basis for coordinating the activities and efforts of different divisions, departments, and individuals. It helps in avoiding confusion and misunderstanding by clarifying roles and responsibilities. Since planning ensures clarity in thought and action, work is carried on smoothly without interruptions. Useless and redundant activities are minimised or eliminated. This makes it easier to detect inefficiencies and take corrective measures, leading to better utilisation of resources.

(iv) Planning Promotes Innovative Ideas

Since planning is the first and most challenging function of management, it provides an opportunity for new and innovative ideas to take the shape of concrete plans. It is a process of deep thinking that forces managers to be creative and look for better ways of performing tasks and achieving objectives. This forward-thinking approach guides all future actions, leading to the growth and prosperity of the business. It encourages a culture of improvement and innovation within the organisation.

(v) Planning Facilitates Decision Making

Planning involves setting targets and predicting future conditions. This process helps the manager to look into the future and make a rational choice from amongst various alternative courses of action. The manager has to systematically evaluate each alternative, considering its pros and cons, before selecting the most viable proposition. This structured approach to evaluating alternatives provides a logical basis for making thoughtful and rational decisions, rather than relying on guesswork or impulse.

(vi) Planning Establishes Standards for Controlling

Planning provides the goals or standards against which actual performance is measured. The function of controlling involves comparing the actual performance with these standards to identify any deviations and to take corrective action. If there were no pre-determined goals and standards (which are set during the planning stage), the function of controlling would be impossible. Therefore, planning is a prerequisite for controlling. It provides the very basis for measuring performance and ensuring that the organisation stays on track to achieve its goals.

Features of Planning

The planning function of management is a unique and fundamental process with certain special features that highlight its nature and scope within an organisation.

(i) Planning Focuses on Achieving Objectives

Planning is a purposeful activity. Its entire focus is on achieving the pre-determined goals of the organisation. Organisations are set up with a general purpose, and planning makes these purposes concrete by defining specific goals and laying out the activities required to achieve them. Planning has no meaning unless it contributes directly to the achievement of these desired outcomes. It ensures that the efforts of the organisation are directed towards a specific end result.

(ii) Planning is a Primary Function of Management

Planning is the first and foremost function of management. It lays down the base and framework for all other functions. Managerial functions like organising, staffing, directing, and controlling are performed within the confines of the plans that have been drawn. For example, the organisational structure is designed (organising) and people are recruited (staffing) to implement the plan. This is often referred to as the primacy of planning because it precedes all other functions.

(iii) Planning is Pervasive

Planning is required at all levels of management and in all departments of the organisation. It is not an exclusive function of top management or any particular department. However, the scope and nature of planning differ at different levels:

• Top Management undertakes strategic planning for the organisation as a whole, focusing on long-term objectives and policies.

• Middle Management is responsible for departmental or tactical planning, which aligns with the overall strategic plan.

• Supervisors at the lowest level are involved in day-to-day operational planning, such as scheduling daily tasks for their teams.

(iv) Planning is Continuous

Planning is not a one-time event. Plans are prepared for a specific period of time (e.g., a month, a quarter, or a year). At the end of that period, there is a need for a new plan to be drawn on the basis of new requirements, changed conditions, and future forecasts. Therefore, planning is a continuous, ongoing process, often referred to as the planning cycle, where one plan is framed, implemented, reviewed, and followed by another.

(v) Planning is Futuristic

Planning essentially involves looking ahead and preparing for the future. The purpose of planning is to meet future events effectively and to the best advantage of an organisation. It implies peeping into the future, analysing it, and predicting it. Therefore, planning is a forward-looking function that is based on forecasting. A business firm, for example, prepares its annual plan for production and sales based on a sales forecast for the upcoming year.

(vi) Planning Involves Decision Making

Planning essentially involves making a choice from among various alternative courses of action. The need for planning arises only when alternatives are available. If there is only one possible way to achieve a goal, there is no need for planning because there is no choice to be made. The planning process involves a thorough examination and evaluation of each alternative and choosing the most appropriate one to achieve the set objectives.

(vii) Planning is a Mental Exercise

Planning is primarily an intellectual activity that requires the application of the mind, involving foresight, intelligent imagination, and sound judgment. It is an activity of thinking rather than doing, as it determines the course of action to be taken. This thinking must be logical and systematic, based on the careful analysis of facts and forecasts, rather than on guesswork or wishful thinking. It requires higher-order mental skills to analyse the environment and formulate effective plans.

Limitations of Planning

While planning is an essential management function, it is not a panacea for all organisational problems. It suffers from certain drawbacks and can be a double-edged sword if not used with caution and flexibility. The major limitations of planning are:

(i) Planning Leads to Rigidity

In an organisation, a well-defined plan is drawn up with specific goals to be achieved within a specific time frame. These plans then decide the future course of action, and managers may not be in a position to change them easily. This kind of rigidity in plans can create difficulty, as managers must follow the pre-decided plan even if the circumstances have changed. This can prevent the organisation from responding effectively to unforeseen opportunities or threats that arise, potentially harming the organisation's interests.

(ii) Planning May Not Work in a Dynamic Environment

The business environment is dynamic and constantly changing. It consists of numerous dimensions—economic, political, social, legal, and technological—that are often unpredictable. It becomes very difficult to accurately assess future trends in this turbulent environment. Sudden events like changes in economic policies, political instability, new competitive strategies, or a natural calamity can upset all business plans, making them obsolete. Thus, since planning cannot foresee everything, there are significant obstacles to effective planning.

(iii) Planning Reduces Creativity

In many organisations, planning is a centralised activity done by the top management. The rest of the members of the organisation are typically expected to just implement these plans. As a consequence, middle management and other decision-makers are neither allowed to deviate from the plans nor are they permitted to act on their own initiative. This can stifle the creativity and innovation inherent in them. Employees may stop making suggestions or trying out new ideas, leading to a culture of blind compliance rather than proactive problem-solving.

(iv) Planning Involves Huge Costs

The process of formulating plans can be very costly, both in terms of time and money. Gathering data, checking the accuracy of facts, conducting detailed market research, and holding numerous boardroom meetings all involve significant expenses. Detailed plans often require scientific calculations and consultations with professional experts, which adds to the cost. Sometimes, the heavy costs incurred in the planning process may not be justified by the benefits ultimately derived from the plans.

(v) Planning is a Time-Consuming Process

The process of developing a comprehensive and sound plan can be very time-consuming. It involves collecting information, analysing it, evaluating alternatives, and seeking approvals. Sometimes, so much time is taken in the process of drawing up the plans that there is not much time left for their implementation. This can lead to missed opportunities, as the business environment may have changed significantly by the time the plan is ready to be executed.

(vi) Planning Does Not Guarantee Success

The success of an enterprise is possible only when plans are properly drawn up and, more importantly, effectively implemented. Any plan needs to be translated into action, or it becomes a meaningless academic exercise. Furthermore, there is often a tendency for managers to rely on previously tried and tested successful plans. However, it is not always true that a plan that has worked in the past will work again in the future. This kind of complacency and false sense of security may actually lead to failure instead of success.

Despite these limitations, planning is not a useless exercise. It is a crucial tool that must be used with caution and flexibility. It provides a valuable base for analysing future courses of action, but it should not be seen as a solution to all problems.

Planning Process

Planning, as a primary function of management, is not an arbitrary activity but a systematic process that involves a series of logical steps. Following this process helps a manager to create a sound, logical, and effective plan that is well-aligned with the organisation's goals.

1. Setting Objectives

The first and foremost step in the planning process is to set clear objectives for the organisation. Objectives are the desired end results that the organisation wants to achieve. They provide the direction for all managerial actions and serve as the standard against which success is measured. Objectives should be:

• Specific and Clear: They should be unambiguous and well-defined.

• Measurable: They should be stated in quantitative terms wherever possible (e.g., 'to increase sales by 20%').

• Time-bound: They should specify a time frame for their achievement (e.g., 'in the next fiscal year').

Objectives are set for the entire organisation and then broken down for each department or unit. This creates a hierarchy of objectives, ensuring that departmental goals contribute to the overall organisational goals.

2. Developing Premises

Planning is concerned with the future, which is inherently uncertain. Therefore, the manager is required to make certain assumptions about the future. These assumptions are called planning premises. They are the base upon which plans are drawn. Premises can be:

• Internal Premises: These relate to factors within the organisation, such as capital investment policy, management philosophy, and organisational structure.

• External Premises: These relate to the external environment, such as economic conditions, government policies, competitor actions, and technological changes.

Developing premises requires forecasting, which is a technique of gathering information and making predictions about the future. Accurate forecasting is essential for creating successful plans.

3. Identifying Alternative Courses of Action

Once objectives are set and premises are developed, the next step is to identify all the possible alternative courses of action to achieve those objectives. For any given goal, there may be many ways to achieve it. For example, to achieve the objective of increasing sales, the alternatives could include:

• Launching an extensive advertising campaign.

• Introducing new products or product variations.

• Expanding into new geographical markets, like Tier-2 and Tier-3 cities.

• Offering discounts and other sales promotion schemes.

• Strengthening the distribution network.

Both routine and innovative alternatives should be considered through brainstorming and creative thinking.

4. Evaluating Alternative Courses

The next step is to evaluate the pros and cons of each identified alternative in light of the objectives to be achieved. Each course of action will have its own set of positive and negative aspects. The evaluation is done based on the feasibility and consequences of each alternative.

For financial plans, this may involve detailed calculations of return on investment (ROI), earnings per share (EPS), and risk analysis. The positive aspects could be higher profitability and market share, while negative aspects could be high costs or negative impact on brand image. This step helps in understanding the potential outcomes of each course of action.

5. Selecting an Alternative

This is the real point of decision-making. After a thorough evaluation, the best plan has to be adopted and implemented. The ideal plan, of course, would be the most feasible, profitable, and with the least negative consequences. While quantitative analysis is important, in many cases, the manager's experience, judgment, and intuition also play a crucial role in selecting the most viable alternative. Sometimes, a combination of different plans may be selected instead of a single best course of action.

6. Implementing the Plan

This is the step where the chosen plan is put into action. This is the 'doing' part of management, where other managerial functions like organising and staffing also come into the picture. The successful implementation of a plan requires the cooperation of all members of the organisation. This involves communicating the plan to all employees, allocating the necessary resources (money, machines, people), and defining the tasks and responsibilities.

7. Follow-up Action

Planning is a continuous process. Therefore, it is essential to monitor the plans to see whether they are being implemented correctly and whether the activities are being performed according to the schedule. This follow-up action is a part of the controlling function, and it is crucial to ensure that the objectives are being achieved. Monitoring the plans provides valuable feedback, which can be used to make necessary adjustments to the current plan or to improve the planning process in the future.

Types of Plans

Plans can be classified into several types based on their use (frequency) and what they seek to achieve. Understanding these different types of plans helps managers to choose the appropriate one for a given situation.

Single-Use and Standing Plans

Based on the frequency of use, plans can be categorised into two main types: single-use plans and standing plans.

Single-Use Plan

A single-use plan is a one-time plan specifically designed to achieve the objectives of a unique situation or project. Such a course of action is not likely to be repeated in the future as it is designed for non-recurring situations. The duration of this plan can vary from a single day to several years, depending on the project. Once the project is over, the plan is discarded. Single-use plans include budgets, programmes, and projects.

Standing Plan

A standing plan is a long-term plan used for activities that occur regularly over a period of time. It provides a consistent guide for handling recurring situations. Standing plans ensure the smooth and consistent running of the internal operations of an organisation and enhance efficiency in routine decision-making. They are usually developed once but are modified from time to time to meet changing business needs. Standing plans include policies, procedures, methods, and rules.

Classification of Plans based on what they seek to achieve

1. Objectives

Objectives are the desired future position that the management would like to reach. They are the ends which the management seeks to achieve by its operations. They are usually set by top management and serve as the ultimate guide for all planning. Objectives should be SMART (Specific, Measurable, Achievable, Relevant, and Time-bound). For example, "to increase sales by 10% in the next quarter." They are the foundation upon which all other plans are built.

2. Strategy

A strategy is a comprehensive, high-level plan for accomplishing an organisation's objectives. It provides the broad contours of an organisation’s business and defines its direction and scope in the long run, considering the business environment and competition. A strategy involves (i) determining long-term objectives, (ii) adopting a particular course of action, and (iii) allocating the resources necessary to achieve the objectives. For example, a company's strategy might be to be a low-cost provider or to focus on product differentiation.

3. Policy (Standing Plan)

Policies are general statements or understandings that guide thinking and channelise energies towards a particular direction. They provide a basis for interpreting strategy and serve as guides for managerial action and decisions. Policies define the broad parameters within which a manager may function, allowing for some discretion. For example, a company may have a policy of "recruiting only from engineering colleges" or a "no credit sales" policy.

4. Procedure (Standing Plan)

Procedures are routine steps on how to carry out activities. They detail the exact manner and sequence in which any work is to be performed. They are specified in a chronological order and are generally meant for insiders to follow. Procedures are the steps to be carried out within a broad policy framework. For example, the procedure for selecting employees might include steps like screening applications, conducting a written test, holding an interview, and checking references.

5. Method (Standing Plan)

Methods provide the prescribed ways or manner in which a particular task, comprising one step of a procedure, has to be performed, considering the objective. A method is more detailed and specific than a procedure. The selection of the proper method saves time, money, and effort and increases efficiency. For example, within the recruitment procedure, there could be different methods for conducting the interview (e.g., a panel interview, a one-on-one interview).

6. Rule (Standing Plan)

Rules are specific statements that inform what is to be done in a given situation. They are the simplest type of plan and do not allow for any flexibility or discretion. A rule reflects a managerial decision that a certain action must or must not be taken, and its violation usually leads to a penalty. For example, "Report for work at 9:00 AM sharp" or "No smoking in the factory premises" are rules.

7. Programme (Single-Use Plan)

Programmes are detailed statements about a project which outline the objectives, policies, procedures, rules, tasks, human and physical resources required, and the budget to implement a specific course of action. They are comprehensive plans that include the entire gamut of activities required to achieve a major goal. For example, a programme for launching a new product would detail everything from market research and product development to the advertising campaign and sales strategy.

8. Budget (Single-Use Plan)

A budget is a statement of expected results expressed in numerical terms for a specific period of time. It is a plan which quantifies future facts and figures. Budgets can be prepared for sales, production, cash, or capital expenditure. For example, a sales budget forecasts the expected sales of different products in each area for a particular month. A budget is also a powerful control device, as actual figures can be compared with the budgeted figures to identify deviations and take corrective action.

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