Planning-Step in Management-MBAH 401- Chapter 2.pdf

STEPHEN P. ROBBINS
MARY COULTER
NEHARIKA VOHRA
CHAPTER TWO
PLANNING
1
K Deepak Rao, Associate Professor, A.J
Institute of Management

Introduction
• Planning is the most basic of all management functions.
• Planning logically precedes the execution of all other
managerial functions.
• Killen – “ planning is the process of deciding in advance what is
to be done, who is to do it, how it is to be done and when it is to
be done”.
• Planning is an intellectual process of thinking resorted to decide
a course of action which helps achieve the predetermined
objectives of the organization in future.
2

Objectives of planning
• Reduces uncertainty
• Brings cooperation and coordination
• Economy in operation
• Anticipates unpredictable contingencies
• Achieving the predetermined goals
• Reduce competition
5

Nature of planning
• Planning is an intellectual activity.
• Planning is a rational approach.
• Planning involves selection among alternatives.
• Planning is forward- looking.
• Planning is related to objectives.
• Planning is the most basic of all management functions.
• Planning is a pervasive function of management.
• Planning is a continuous process.
• Planning is flexible.
• Planning adopts an open system approach.
6

Steps in planning process
• Perception of opportunities
• Establishing objectives
• Collection and forecasting of information
• Development of planning premises
• Identifying alternatives
• Evaluation of alternatives
• Selection of best alternative
• Formulation of derivative plans
• Establishing sequence of activities
• Appraisal of plans
15

Steps in planning process
Perception of
opportunities
Appraisal of
plans
Forecasting demand,
competition,
government policy,
etc.
Planning
premises
Identification
of
alternatives
Evaluation of
alternatives
Selection of
best
alternative
Formulation
of derivative
plans
Establishment
of objectives
Establishing
sequence of
activities
16

Objectives
Definitions:
Koontz and O’Donnell – “ In management terminology, objectives are the
end- points of a management programme whether stated in general or specific
terms”.
Dalton E. McFarland – “Objectives are the goals, aims or purposes that
organization wishes to achieve over varying periods of time”.
Characteristics of objectives:
• Objectives are multiple in nature
• Objectives are both long range and short range
• Business objectives are verifiable
• Business objectives may be specific or general
• Objectives may be tangible or intangible
• Objectives have a priority
• Objectives may clash with one another.
17

Management by Objectives ( MBO)
John Humble – “ MBO is a dynamic system which integrates the
company’s need to achieve its goals for profit and growth with
manager’s need to contribute and develop himself.
Koontz and others – “ MBO is a comprehensive managerial system
that integrates many key managerial activities in a systematic manner
consciously directed towards the effective and efficient achievement
of organizational objectives.
The credit for advocating and popularising the approach of MBO
goes to Peter F. Drucker
19

Traditional objective setting v/s MBO
Traditional objective setting is defined as the process of objectives being
set at the top and then broken down into sub - goals for each level in an
organization. The top imposes its standards on everyone below.
Traditional objective setting is conducted at the top level of a corporation
and then objectives are filtered down to each succeeding level. It is a top-
down approach with the top level management imposing its standards on
members below.
MBO, on the other hand, seeks participative goal setting. This is not to
say top management does not have a say in the objectives. It implies that
organizational goals have been set and now each member will set his or
her own goals. As each member reaches his or her goals, the organization
will also meet its goals.
20

Objectives of MBO:
• To relate individual goals to organizational goals.
• To clarify the jobs to be done and the results expected to be
accomplished.
• To evaluate the performance of the subordinates.
• To enhance the communication between the superior and the
subordinates.
• To stimulate the subordinates’ motivation.
• To increase the competence of the subordinates by placing
responsibility on each manager for achieving results for his part
of the work.
• To serve as a device for organizational control.
22

Steps in Managing by Objectives:
• Setting of overall specific organizational/ corporate objectives
• Formulation of Departmental objectives
• Establishing goals or targets for each individual manager/
subordinates.
• Establishing check- points or Key Result Areas
• Follow- up and Periodic review of progress
• Appraisal of performance and counseling
23

Difficulties in Managing by Objectives:
1. Difficulty in setting quantitative targets
2. It is too pressure- oriented and time consuming
3. Resistance to change
4. Lack of training
5. Lack of follow-up
6. Rigidity
7. Costly process
Guidelines for effective implementation of Managing by Objectives:
1. Top management support
2. Education about MBO
3. Active participation in goal setting
4. Decentralisation of authority
5. Orientation of executives
6. Integration of MBO programme
25

Planning and Performance
The Relationship Between Planning and Performance
Formal planning is associated with:
- Higher profits and returns on assets.
- Positive financial results.
The quality of planning and implementation affects performance
more than the extent of planning.
The external environment can reduce the impact of planning
on performance.
Formal planning must be used for several years before planning
begins to affect performance.
27

Goals and Plans:
Goals (also Objectives)
Are desired outcomes or targets. They guide management
decisions and form the criteria against which work results are
measured. That’s why they are often called the foundation of
planning.
Plans
Are documents that outline how goals are to be met. They
usually include resource allocations, schedules and other
necessary actions to be accomplish the goals.
28

Types of Goals:
Financial Goals
Are related to the expected internal financial performance of the
organization.
Strategic Goals
Are related to the performance of the firm relative to factors in
its external environment (e.g., competitors).
Stated Goals versus Real Goals
Official statements of what an organization says – and what it
wants its stakeholders to believe – its goals are. However, stated
goals – which are found in an organizations charter, annual
report, or public announcements.
Real goals – the goals an organization actually pursues – you
should observe what organizational members are doing.
29

Coverage of activities/
Organisational level:
1. Corporate planning (top)
2. Divisional planning ( middle)
3. Sectional planning ( lower)
4. Functional planning
Focus / Importance of contents:
5. Strategic planning
6. Operational planning
7. Tactical planning
Time period involved:
8. Long- range planning
9. Intermediate planning
10. Short- range planning
Types/ Methods/ Kinds of Planning
Approach adopted:
11. Proactive planning
12. Reactive planning
Degree of formalisation:
13. Formal planning
14. Informal planning
Others:
15. Ad hoc planning
16. Standing planning
17. Physical planning
30

31

Corporate Planning:
• Defined as a systematic and comprehensive process of planning taking
account of the resources and capability of the organization and the
environment within which it has to operate and viewing the organization
as a total corporate unit.
• George Steiner – “ corporate planning is a process of determining
major objectives of the organization and the policies and strategies
that will govern the acquisition, use and disposition of resources to
achieve these objectives”.
• Is strategic in nature and covers the entire spectrum of organizational
activities.
• Lays down the basic objectives, policies and strategies for the
organization as a whole.
• Formulated by the top level managers and they integrate various
divisional and functional plans of the enterprise.
33

Divisional Planning:
* Relates to a particular division or department.
* Sets the objectives, policies and programmes of a particular division
or department in tune with the corporate plans of the enterprise.
Sectional planning:
* Also called as unit planning
* Is highly specific as it is done to achieve the divisional objectives.
* Focus is to lay down detailed plans for a particular unit for the day- to-
day guidance of personnel working there.
Functional planning:
* Is segmental and is undertaken for each major function of the
organization. At the second level, functional planning is undertaken for
sub- functions within each major function.
* It is derived out of corporate planning and therefore, it should
contribute to the latter.
35

Strategic planning:
* Is the process of deciding the objectives of the organization
and determining the manner in which the resources of the
enterprise are to be deployed to realize the objectives in the
uncertain environment.
* Strategic plans are made by the top management of the firm
after taking into account the firm’s strengths and weaknesses in
the light of internal and external environment.
* It enables the management to plan for a desired future and to
ensure survival and growth of the organization.
36

Characteristic features of strategic planning:
• It emphasises the basic mission and goals of the organization.
• It is normally long term in nature.
• It provides for coherence in organisation’s policies, decisions and
activities over time.
• It deals with uncertain environment by forecasting opportunities and
threats in the environment.
• It is a comprehensive and unified plan for the deployment of scarce
organizational resources.
• It sets the direction of organizational activities for the attainment of
organizational objectives.
37

Operational Planning:
* “Operational planning is the process of deciding the most
effective use of the resources already allocated and to develop
a control mechanism to assure effective implementation of the
actions so that organizational objectives are achieved”.
* Thus, it is concerned with the efficient use of the resources
already allocated.
* It provides the details of how the strategic plans will be
accomplished.
* An operational plan is often more specific than a strategic plan.
42

Strategic Planning v/s Operational Planning
Basis Strategic Planning Operational Planning
Time span It covers a long period of
time depending upon the
nature of business and its
environment
It covers a short- term perspective
upto one year
Level of
management
It is done by the top level
managers
It is done by the middle level and
lower- level managers
Scope It covers the whole
enterprise
It may cover specific departments
or functional areas of business
Primacy Strategic plans are based on
organizational objectives
and they precede
operational plans
Operational plans are based on
strategic plans and they succeed
strategic plans
Details Strategic plans contain
relatively less details and so
are less specific
Operational plans contain greater
details and so are more specific
43

Resources Strategic plans are
concerned with the
acquisition and allocation of
new resources
Operational plans are made to
utilise the given resources
effectively
Environment Strategic plans are made in
the light of external
environment. They are
generally based on long-
term forecasts of
technological changes,
economic changes, socio-
political changes, etc.
Operational plans are focused on
the internal environment of the
firm so as to make effective use of
firm’s resources
44

Tactical Planning:
* Tactical plans are made for short- term moves and necessary for
supporting the strategic plans and achieving firm’s objectives.
* They are required to meet the challenges of sudden changes in the
environmental forces.
* The nature of a tactical plan is dictated by the threats posed by the
environment.
Long-range Planning:
* Is the process of establishing long- term goals, working out strategies,
policies and programmes to achieve these goals.
* Long- range planning sets long- term goals and formulates strategic
plans for attaining these goals.
* Is of strategic nature. Generally covers a period ranging from 5
years to 20 years or more.
* Long- range planning is associated with a great deal of uncertainty.
Its success will be determined by the ability of the organization to
predict and deal with the environment.
45

Intermediate or Medium- range planning:
* These are made to support the long- term plans.
* Usually covers a period of more than one year but less than five
years.
* The length of period may vary form one business to another
depending on the nature of the business, risks and uncertainties,
government control, changes in technology, nature of market, etc.
Short-range Planning:
* Relates to a period of upto one year. Such plans are made to
achieve short- term goals.
* Is concerned more with the current or near- future operations
of the enterprise.
* Short- range planning is generally action- oriented and is the
responsibility of lower level managers.
46

Long-range, Medium- range and Short-range Planning
Basis Long – range
planning
Medium – range
planning
Short – range planning
Time span Generally more
than five years
More than one year, but
less than five years
Restricted upto one year
Focus Focused on the
external
environment of
the business
Focused on the long-
range plans and
internal environment
of the business
Main focus is on
internal environment
of business. Linkage
between various
elements of business is
greatly emphasized
Uncertainty Is very high Is moderate Is low
Specificity The actions are
less specified
The actions are
specified, but details are
lacking
The actions are highly
specified and detailed
Means Strategies and
long- term policies
are formulated
Policies, procedures,
programmes and
projects are quite often
used
Methods, rules, budgets,
schedules, etc., are
employed 47

This classification is based on the organization's response to
environmental dynamics.
Proactive Planning:
* It involves designing suitable courses of action in anticipation of
likely changes in the relevant environment.
* Organizations that use proactive planning use broad planning
approaches, broad environmental scanning, decentralized control, and
reserve some resources to be utilized for their future use.
* These organizations do not wait for the environment to change but
take actions in advance of environmental change.
Reactive Planning:
* Here, organizations' responses come after the environmental changes
have taken place.
* These organizations start planning after the changes take place.
* In such a situation, the organizations lose opportunities to those
organizations which adopt proactive approach.
49

Formal Planning:
* Is in the form of well- structured process.
* Generally, large organizations undertake planning in formal
way in which they create separate corporate planning cell placed
at sufficiently high level in the organization.
* These cells monitor the external environment on continuous
basis. The planning process adopted is rational, systematic,
well documented and regular.
Informal Planning:
* Is generally undertaken by smaller organizations.
* The planning process is based on managers’ memory of
events, intuitions and gut- feelings.
* Smaller organizations do reasonably well with informal
planning process since their environment is not complex.
50

Ad hoc planning:
* Ad hoc planning committees may be constituted for certain
specific matters.
Standing Planning:
* Standing plans are designed to be used over and over again.
* They include organizational structure, standard procedures,
standard methods, etc.
Physical planning:
* Is concerned with the physical location and arrangement of
building and equipment.
* Examples are city planning and regional planning.
51

Types of Plans:
52
Standing plans & Single- use plans
Standing/ Repeated – use plans
a) Objectives b) Policies
c) Procedures d) Methods
e) Rules f) Strategies
Single – use plans/ Ad hoc plans
a) Programmes b) Schedules
c) Projects d) Budgets
Financial plans & Non- financial
plans
Financial plans /Cash plans
Non- financial / Non-cash plans
Formal plans & Informal plans
1. Formal plans
2. Informal plans
Specific plans & Routine plans
Specific plans
Routine plans
Administrative plans & Operative plans Short- range plans & Long- range
plans
Strategic plans & Tactical plans

Setting Goals and Developing Plans
• Traditional Goal Setting
– Broad goals are set at the top of the organization.
– Goals are then broken into sub-goals for each organizational
level.
– Assumes that top management knows best because they can see
the “big picture.”
– Goals are intended to direct, guide, and oblige from above.
– Goals lose clarity and focus as lower-level managers attempt to
interpret and define the goals for their areas of responsibility.
Instead of using traditional goal setting, many organizations use
Management by objectives MBO programs have four elements:
Goal specificity, Participative decision making, an explicit time
period, and performance feedback.
Approaches to Setting Goals:
62

Exhibit 7–2 The Downside of Traditional Goal Setting
64

Steps in Goal Setting
1. Review the organization’s mission or purpose
Do goals reflect the mission?
2. Evaluate available resources
Are resources sufficient to accomplish the mission?
3. Determine goals individually or with input from others
Are goals specific, measurable, and timely?
4. Write down the goals and communicate them to all who
need to know
Is everybody on the same page?
5. Review results and whether goals are being met
What changes are needed in mission, resources, or goals?
65

Exhibit 7–4 Well-Written Goals
• Written in terms of outcomes,
not actions
➢ Focuses on the ends, not the
means.
• Measurable and quantifiable
➢ Specifically defines how the
outcome is to be measured and
how much is expected.
• Clear as to time frame
➢ How long before measuring
accomplishment.
• Challenging yet attainable
➢ Low goals do not motivate.
➢ High goals motivate if they
can be achieved.
• Written down
➢ Focuses, defines, and makes
goals visible.
• Communicated to all
necessary organizational
members
➢ Puts everybody “on the same
page.”
67

Developing Plans:
The process of developing plans is influenced by three
contingency factors and by the planning approach followed.
Contingency:
I. Manager’s level in the organization
- Strategic plans at higher levels
- Operational plans at lower levels
II. Degree of environmental uncertainty
- Stable environment: specific plans
- Dynamic environment: When uncertainty is high, plans should
be specific but flexible.
III. Length of future commitments:
The last contingency factor is related to time frame of the plan.
Plan should be compatible with those commitments made today.
68

Exhibit 7–5 Planning in the Hierarchy of
Organizations
69

Approach or Techniques of Planning:
Traditional Approach- Planning is done entirely by top-level
management who often are assisted by a formal planning
department(a group of planning specialist whose sole responsibility
is to help write the various organizational plan).
Planning is a function of management; it should never become the
sole responsibility of planners.
Involving more organizational members in the planning process-
In this approach, plans aren’t handed down from one level to the
next but instead are developed by organizational members at the
various levels and in the various work units to meet their specific
needs.
In addition, work teams set their own daily schedules and track
their progress against their schedules. If a team falls behind, team
members develop recovery plan to try to get back on schedule.
70

Contemporary Issues in Planning
Criticisms of Planning
• Planning may create rigidity
• Plans cannot be developed for dynamic environments
• Formal plans cannot replace intuition and creativity
• Formal planning reinforces today’s success, which may lead to
tomorrow’s failure
Effective Planning in Dynamic Environments
• Develop plans that are specific but flexible
• Understand that planning is an ongoing process
• Change plans when conditions warrant
• Persistence in planning eventually pays off (yield good result)
• Flatten the organizational hierarchy to foster the development of
planning skills at all organizational levels
72

75

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