LECTURE 3: PLANNING

PLANNING
What is planning?
Planning is the establishment of objectives and the formulation, evaluation and selection of policies,
strategies, tactics and action plans to achieve the objectives.

Planning can also be defined as the managerial action that decides what to do, how to do it,
when to do it, and who is to do it.

Planning involves selecting missions and objectives and the action to achieve them. It
requires decision making; that is choosing from among alternative future courses of action.
Planning is the primary function of management. Planning is a process whereby managers select goals, choose
actions (strategies) to attain those goals, allocate responsibility for implementing actions to specific individuals
or units, measure the success of actions by comparing actual results against the goals, and revising plans
accordingly. Consequently planning is;

A process for making important decisions

Provides direction for an organization
Tells everybody what the organization is trying to do
Tells what its priorities are, where it is going and how it is going there.

Types of planning
Plans can be differentiated by;
i.
ii.
iii.
iv.

Levels in the organization to which plans apply

The time horizon of the plans (short-term or long-term)
The number of times plans are used (standing plans or single-use plans)
Contingent nature of plans

LEVELS OF PLANNING
Corporate level strategies
Strategic plan- strategic plan outlines the major goals of the organization and the organization wide strategies
for attaining these goals.
Strategic plans are plans that apply to the entire organization, establish the organizations overall goals, and
seek to position the organization in terms of its environment
For a large diversified organization with multiple business units, the strategic plans are referred to as corporate
levels strategies. Corporate level strategy is a strategy concerned with deciding which industries a firm should
compete in and how the firm should enter or exit industries
Business level strategy is concerned with deciding how the firm should compete in the industries in which
the firm has elected to participate in.
Operating strategy is concerned with the actions that should be taken at the level of individual functions
such as production, sales and R+D to support business level strategy. Operating plans are plans that specify
goals, actions and responsibility for individual functions, work teams or individuals.
Example: - for a large firm like 3M which is organized into 40 different
business level units,
strategic planning takes place at multiple levels. At the corporate level, the CEO and his top managers set overall
goals for the organization, choose corporate level strategies that span the entire organization, and allocate
responsibly for implementing these strategies
At the business level such as 3Ms office supplies division, the business level strategic plan details the specific
actions that will be taken by this division to attain the goals of the business and establish a competitive
advantage. These might include, developing new products, exiting product lines that are not performing well
and taking actions to rationalize its supply claim.
Embedded within business level strategic plans are operating plans which specify the goals for individual
functions, the actions they will take to attain these goals, and who is responsible for these actions.

Planning might not stop at the operational level. Embedded within operational plans, might be unit plans
which are plans for departments within functions, work teams, or even individuals. Within the manufacturing
function in 3Ms office supplies division, for example a quality assurance, departments could draw up its own
unit plan for improving quality in the divisions manufacturing process. Similarly, within the R+D functions of
the same division, several teams of researchers may be focusing on the development of different technologies;
each team will draw its own plan that specifies goals, actions, responsibilities and resource requirements.
Note those unit plans are embedded within operating plans, operating plans are embedded within business
level, strategic plans and business level strategic plans are embedded within corporate level strategic plans.
Embedded mean that higher level plans set the context for lower level plans
PLANNING HORIZONS
The planning horizon refers to how far out a plan is meant to apply. Most strategic plans whether at the
business or corporate level are multi-year plans. They are meant to stay in place for several years, (a three to five
year horizon is typical). Indeed shorter plans would be inappropriate as they would confuse stakeholders, who
might lose confidence in top management.
However, organizations sometimes adopt short-term plans to address specific and transitory opportunities
or threats. Such short term plans are known as tactical plans which are plans for pursuing transitory competitive
tactics. Tactical plans outline the actions managers must adopt over the short term to medium term to cope with
specific opportunity or threat that has emerged
Operating and unit plans tend to have shorter time horizons than strategic plans. Whereas an organization
might function with the same basic strategic plan for years, operating and unit plans might change regularly as
the tasks outlined in them are completed and managers turn their attention to the next task. In sum;
i).

Strategic plans normally have a three to five year time horizon although in theory an organization could
pursue the same strategy much longer

ii).

Tactical terms have a short- term horizon (often less than a year) and are developed to deal with emerging
and transitory opportunities and threats
Operating and unit plans tend to have short to medium time horizons (one to three years) because they
address specific tasks that have a well defined beginning and end
An organization may be forced to change its strategic plans after a year, if it clearly is not working, and an
operating plan may be in place for more than five years if specific tasks take that long.

iii).
iv).

The Number of Times Plans Are Used

Some plans that managers develop are ongoing while others are only used once.
Single use plans- address unique events that do not recur. They are designed to meet the needs of a unique
situation. They are plans for attaining a onetime goal. For example, when Wall-Mart decided to drastically
expand the number of stores in China, top level executives formulated a single use plan as a guide.
Standing plans on the other hand are designed to handle events that occur frequently. Standing plans are
on-going plans that provide guidance for activities performed repeatedly. The idea of standing plans is to save
managers time by giving them a play book to which they can refer when a certain type of event occurs. Standing
plans relieve managers from having to reinvent wheels. One reason why Starbucks has been able to grow from
17 to almost 9000 stores by 2005 is that managers developed a standing plan that outlines the steps required to
find the best store location, ensures that the stores have the same look and feel as other Starbucks stores, and
open stores quickly. But standing plans are too rigid and intelligent managers review their standing plans from
time to time.
Plans thus provide a rational approach to achieve prescribed objectives. Planning also implies managerial
innovation. Planning bridges the gap from where we are to where we want to go.
Planning and control are inseparable, the Siamese twins of management. Any attempt to control without plans
is meaningless since there is no way for people to tell whether they are going the way they want to go unless they
first know they want to go.
There are two approaches to looking at the planning function.

As a plan or the static mode . This approach considers a plan as

A document containing objectives, programs to achieve the goals, an evaluation mechanism. In the 1970s
and 1980s managers looked at the planning function from other perspectives.

Evolutionary mode
This approach looks at a plan as a process of continuously setting goals and objective, identifying projects and
programs to achieve the goals. The approach recognizes the impact of and the continuous change of the
environment and of course this mode is more rational and modern. Looking at planning from this approach,
planning is defined as the setting of organizational goals and the formulation, evaluation and selection of
policies, strategies, tactics and action plans to achieve the objectives.
Importance of the Planning function
i).

Planning facilitates the accomplishment of enterprise purposes and objectives. Plans focus action on
objectives; they identify actions and programs which tend toward the enterprise objective. Planning seeks to
achieve consistent, coordinated structure of operations focused on desired ends. Without plans, actions
become merely random.

ii).

Primacy of planning planning precedes other managerial functions. Planning establishes goals and
objectives necessary for all groups effort. All other actions are designed to achieve enterprise goals and
without establishment of goals other functions would be meaningless.

iii).

Pervasiveness of planning planning is a function of all managers. Although the character and breadth of
planning will vary with their authority and with the nature of policies and plans outlined by their superiors.

iv).

Planning seeks to achieve consistent, coordinated structure of operations focused on desired ends without
planning actions become merely random.

v).

Planning minimizes costs because of the emphasis on efficient operation and consistency ie it substitutes
joint coordinated effort for uncoordinated piece meal activity which leads to efficient operations of activities
and programs

vi).

Planning facilities control managers; cannot check on their subordinates without having goals and
programs against which to measure.

vii).

Planning forces managers to look ahead rather than being obsessed with day to day problems. This is
important to the enterprise because the manager deals with what is important in the future.

viii).

Planning enables managers to identify strengths and weaknesses of the enterprise.

Other issues that make planning important include
i).

Plans provide a focus and sense of direction

ii).

Planning coordinates activities

iii).

Establishing priorities

iv).

Motivates employees

v).

Establishes criteria by which performance is judged

vi).

Facilitates delegation

vii).

Encourages team work

viii).

Identifies inefficiencies and unnecessary duplication of effort.

Steps in the Planning Process

At general level, planning takes the following steps
Step 1: Being aware of opportunities in the external environment as well as within the organization. This is the
starting point for planning. Managers should understand the possible future opportunities and see them clearly

and completely, know where they stand in light of their weaknesses and strengths, understand what problems
they wish to solve and why, and know what they expect to gain.
Step 2: Establishing objectives
Setting the mission
The mission answers the question; what is a reason for being?
Determining the mission is the responsibility of top management. The HR is involved in this
Setting the vision
What do we want to become?
A vision is the long term goal deserting what an organization wants to become.
Objectives should be established for the entire enterprise and then for each subordinate work unit. This is to be
done for the long term as well as for the short range. Objectives specify the expected results and indicate the end
points of what is to be done, where the primary emphasis is to be placed, and what is to be accomplished by the
network of strategies, policies procedures, rates, budgets and programs.
Enterprise objectives give direction to the major plans which by reflection these objectives define the objective
of every major department. Major department objectives in turn control the objectives of subordinates
departments.
Step 3: Developing premises
The third logical step in the planning process is to establish circulate and obtain agreement to utilize critical
planning premises such as forecasts, applicable basic policies and existing company plans. They are assumption
about the environment in which the plan is to be carried out.
The basic principle of planning premises is that the more thoroughly individuals charged with planning
understand and agree to utilize consistent planning premises , the more coordinated enterprise planning will be.
Forecasting is important in premising eg what kinds of markets, what prices etc.
Step 4: Determination of alternative courses of action
The 4th step in planning is the search for and the examination of alternative courses of action, especially these
not immediately apparent. .Examination involves identifying their weak and strong points.
Establishing the organizations strategy
Grand strategies explain how the organizations mission is to be accomplished. Three common grand strategies
are; growth, stability and defensive.
The growth strategy involves expansion as in sales, market share, number of employees or number of
customers.
The stability strategy involves little or no change. The company maintains its stratus in market share, number
of products
Step 5: Evaluating alternative courses
This involves weighting of strong and weak points of each alternative according to the premises and goals.
Several techniques exist to evaluate the alternative courses of action including quantitative and qualitative
techniques.
Step 6; Selecting a course
This is the point at which a course is selected.
Step 7: Formulating derivative plans.
Once a course is chosen, then derivative plans to implement the decision have to be made. For example if a
decision is made to purchase a type of a plan, then derivative plans include plans for hiring staff, training of
various specialists, sourcing of finance etc.
Step 8: Numbering the plans
After decisions are made and plans are set, the final step is to give them meaning by numbering them i.e. giving
them meaning by converting them into budgets.

MANAGING BY OBJECTIVES
The phrase Management by objectives was first coined by Peter Drucker in the 1950s. He saw it as a principle
of management aimed at harmonizing individual managers goals with those of the organization. The most
important features of MBO are:

It focuses on results rather than on activity

It develops logically from the corporate planning process by translating corporate and departmental
objectives into individual managers objectives

It seeks to improve management performance.

MBO is a comprehensive management system that integrates many key management activities in a systematic
manner and that is consciously directed toward the effective and efficient achievement of organizational and
individual objectives. This view of MBO as a system of managing is not shared by all.
Benefits of MBO
i).

Improvement of managing through oriented planning

ii).

Clarification of organizational roles, structures and delegation of authority according to the results
expected of different departmental managers.

iii).

Encouragement of personal commitment to their own and organizational goals

iv).

Development of effective controls, measuring results leading to corrective action.

Failures of MBO

Failure to teach the philosophy of MBO. Managers must explain to the subordinates what it is, how it
works, why it is being done, what part it will play etc.

Failure to give guideline to goal setters. Managers must know what the corporate goals are, and how their
own activities fit in with them

PARTS OF A PLAN
i) Purpose of mission
This identifies the organizations basic functions or tasks of an organization or any part of its. Every organization
has, or at least should have a purpose or mission. Society assigns functions to enterprises. For example the
purpose of a business enterprise is the production of goods and services and the distribution of those goods and
services. The purpose of a University is teaching and research and so on.
ii) Objectives or goals
The objectives or goals are the ends toward which activity is aimed. They represent not only the end point of
planning but also the end towards which organizing, staffing leading and controlling are aimed. Goals can be
long-term or short term, broad or specific.
Hierarchy of Objectives
Organizational goals form a hierarchy ranging from the broad aim to the specific individual objectives, The
result of the hierarchy is the purpose (society) second is the objective.
Multiplicity of objectives
Organizations normally have multiple objectives which they seek to achieve. This is because they have multiple
stakeholders.
iii) Procedures

All plans must establish a required method of handling future activities they are chronological sequences of
required actions they are guide to action, and they detail the exact manner in which certain activities must be
accomplished.
iv) Rules
Rules spell out specific required actions or non actions, allowing no discretion. The essence of rules is that they
reflect a managerial decision that some certain action must-or must not be taken rules differ from policies in
that they give no discretion unlike policies which guide decision making.
v) Programs
Programs are a complex of goals, policies, procedures rules, tasks 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.
vi) Strategies
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 to achieve the goals.
vii) Policies
Are the general statements or understanding that guide or channel thinking in decision making, sometimes
statement may not be there, but the CEO of the enterprise can show by example the organizations policy eg by
regularly reporting at 8.00 the CEO shows by practice what the policy of the organized is, will regard to
reporting that. Another example is when the CEO decides to promote from within the organization, this may be
interpreted as policy and carefully followed by subordinates.
Policies define an area within which a decision is to be made.
They also ensure that the decision will be consistent with and contribute to the objective with and contribute to
the 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 subordinate do.
There are many type of policies
vii) Budgets
A budget is a statement of expected results expressed on financial terms. A budget may be expressed in financed
terms in terms of labour hours or **** outs or any other numerically measurable term. I may deal with
operations (operations budget) or may reflect capital outlays (capital budget) or it may show cash flows (such as
the cash budget).A budget is the fundamental planning instrument in many companies. A budget focuses on
advance, whether a week or for five years, a numerical compilation of expected cash flow expenses and
revenues, capital outlays or labour or chine hour utilization.
A budget is the principal tool of control.