TOPIC 4: THE PLANNING FUNCTION

4.1 Learning objectives

By the end of this topic, the learners should be able to;

a) Define the term planning

b) Highlight the importance of forecasting in planning
c) Explain the elements in the planning process
d) Describe the planning process
e) Discuss the importance of planning and its limitations
f) Describe the decision making process

Planning encompasses defining the organization’s objectives or goals , establishing an overall

strategy for achieving those goals, and developing a comprehensive hierarchy of plans to integrate
and coordinate activities

Nature of planning
1. Planning is the beginning of the management process

2. Planning is an intellectual process which requires thinking before acting. It is thinking in

advance. Through planning, managers decide what is to be done, when, how and by who

3. Planning involves decision making- i.e. process of choosing among alternative courses of
action

4. Planning is a continuous process- a manager must constantly watch the progress of his
plans. He must monitor conditions both within and outside the organization to determine if
changes are required in his plans

5. Planning is an all pervasive function- planning is important to all managers regardless of

their level in the organization

Importance of planning
1. Minimizes uncertainty

2. Planning is proactive and may lead to success

3. Focuses attention on the organization’s goals

 4. Facilitates control- goals and plans become benchmarks/standards against which
performance can be assessed

5. Planning establishes coordinated effort- it gives direction to managers and non-managers

alike

6. Planning reduces duplication and wasteful activities- when means and ends are clear
inefficiencies become obvious and thus can be avoided

Types of plans
• Plans can be classified according to breath (strategic versus tactical), time frame (long term
versus short term), specificity (directional versus specific) and frequency of use (single use
versus standing)

Strategic Vs Tactical plans

Strategic plans apply to the entire organization. They establish an organization’s overall
objectives. They provide the general direction that an organization is taking. They seek to
position the organization in terms of its environment. They drive the organization’s efforts
to achieve its goals. These plans form the basis for tactical plans. They cover periods of five
years or more

Tactical plans

They are also called operational plans and specify the details of how the overall objectives
are achieved. They are derived from the strategic plans. They cover shorter periods e.g. one
year and below. Managers at lower level come up with operational plans

Principles of Planning
Principles related to nature and purpose of planning

1. Principle of contribution to objectives: Every plan has to contribute positively towards the
accomplishment of enterprise objectives

2. Principle of efficiency of plans: Efficiency is measured by the contribution of the plan to

objectives of the enterprise minus the costs in formulating and implementing the plan.
3. Principle of primacy of planning: Planning is the primary prerequisite for all other functions of
management. Every action of the manager follows a planning step.

Principles Applicable to Structure of plans

1. Principle of planning premises: If more people in an organization use common and consistent
planning premises, the enterprise planning will be more coordinated.

2. Principle of policy framework: If more policies, appropriate to the organization, are expressed in
clear terms and form and if manages understand them, the plans of the enterprise will be more
consistent.

3. Principle of timing: If plans are structured to provide a network of derivative plans in sequence,
there will be more effectiveness in attainment of enterprise objectives.

Principles Applicable to Process of Planning

1. Principle of alternatives: Select the plan which is the most effective and the most efficient to the
attainment of a desired goal.

2. Principle of limiting factor: Consider limiting factor in generating alternatives and selection from
alternatives. A limiting factor is anything that can hinder goal attainment

3. The commitment Principle: Planning can cover a period over which commitment of resources
can be clearly visualized.

4. The flexibility Principle: Building flexibility in planning is beneficial, but cost of building flexibility
needs to be evaluated against the benefits.

5. The Principle of navigational change: Managers need to periodically check events of the plan and
redraw plans to maintain the move toward a desired goal.

6. Principle of competitive strategies: In a competitive arena, it is important to choose plans in the

light of what competitor will or will not do and navigate based on what competitors are doing or not
doing.


Steps in the planning process

1. Establishing verifiable goals /Set goals to be achieved
2. Establish the planning premises-Before plans are prepared, the assumptions and conditions
underlying them must be clearly defined these assumptions are called planning premises and
 they can be identified through accurate forecasting of likely future events. They are forecast
data of a factual nature. Assessment of environment helps to reveal opportunities and
constraints/threats.

• Analysis of internal (controllable and external (uncontrollable) environmental forces is

essential for sound planning. Premises are the critical factors which lay down the foundation
for planning.

• They are vital to the success of planning as they supply pertinent facts about the future. They
need revision with changes in the situation. Contingent plans may be prepared for alternate
situations

3. Decide on the planning period

• The planning period should be long enough to permit the fulfillment of the commitments
involved in a decision.

• The planning period depends on several factors e.g., future that can be reasonably
anticipated, time required to receive capital investments, expected future availability of raw
materials, lead time in development and commercialization of a new product, etc.

4. Search for alternative courses of action

5. Evaluate and select a course of action-this entails examining the alternative courses of action in
light of the planning premises and the goals set. This is the decision point where you make a
choice
6. Develop derivative plans-this entails translating the broad goals into the day to day operations
of the organization. Middle and lower level managers must derive their plans from the overall
plan
7. Measuring and controlling progress- it is important to check the progress of their plans so that
one can either take corrective action if necessary or change the original plan if it is unrealistic.

Barriers/limitations to planning
• Planning is an expensive and time consuming process
 • Rigidity- planning sometimes restricts the organization to the most rational and risk-free
opportunities. It curbs managers’ initiative by forcing managers to operate within the limits
of the plan.

• Planning may lead to delayed decision making- rules and procedures may curtail quick
decision making

• The scope of planning is limited in some organizations like those operating in rapidly
changing situations e.g. fashion industry- working on day to day basis may be more
economical than on planned basis

• Plans become obsolete when the environment is volatile

• It is difficult to formulate accurate premises- since premises are based on forecasts, they are
subject to a margin of error yet plans are based on these premises

Forecasting
• Forecasting is a process of predicting or estimating the future based on past and present
data.

• Forecasting provides information about the potential future events and their consequences
for the organization. It may not reduce the complications and uncertainty of the future.
However, it increases the confidence of the management to make important decisions.
Forecasting is the basis of premising.

Features /Characteristics of Forecasting

• Forecasting is concerned with future events. It shows the probability of happening of future
events.

• It analysis past and present data.

• It uses statistical tools and techniques.

• It uses personal observations

Steps/procedures in Forecasting
• Analyzing and understanding the problem: The manager must first identify the real
problem for which the forecast is to be made. This will help the manager to fix the scope of
forecasting.

• Developing sound foundation: The management can develop a sound foundation, for the
future after considering available information, experience, type of business, and the rate of
development

• Collecting and analyzing data: Data collection is time consuming. Only relevant data must be
kept. Many statistical tools can be used to analyze the data.

• Estimating future events: The future events are estimated by using trend analysis. Trend
analysis makes provision for some errors.

• Comparing results: The actual results are compared with the estimated results. If the actual
results tally with the estimated results, there is nothing to worry. In case of any major difference
between the actual and the estimates, it is necessary to find out the reasons for poor
performance.

• Follow up action: The forecasting process can be continuously improved and refined on the
basis of past experience. Areas of weaknesses can be improved for the future forecasting. There
must be regular feedback on past forecasting.

Importance of Forecasting
• Forecasting provides relevant and reliable information about the past and present events and the
likely future events. This is necessary for sound planning.

• It gives confidence to the managers for making important decisions.

• It is the basis for making planning premises.

• It keeps managers active and alert to face the challenges of future events and the changes in the
environment
Limitations of Forecasting
• The collection and analysis of data about the past, present and future involves a lot of time and
money. Therefore, managers have to balance the cost of forecasting with its benefits. Many
small firms don't do forecasting because of the high cost.

• Forecasting can only estimate the future events. It cannot guarantee that these events will take
place in the future. Long-term forecasts will be less accurate as compared to short-term forecast.

• Forecasting is based on certain assumptions. If these assumptions are wrong, the forecasting will
be wrong. Forecasting is based on past events. However, history may not repeat itself at all
times.

• Forecasting requires proper judgment and skills on the part of managers. Forecasts may go
wrong due to bad judgment and skills on the part of some of the managers. Therefore, forecasts
are subject to human error.

Decision Making and Problem solving

Problem-solving is a larger process that starts with the identification of a problem and ends with an
evaluation of the effectiveness of the chosen solution.

Decision-making is a subset of the problem-solving process and refers only to the process of
identifying alternative solutions and choosing from among them.

• A decision occurs when a solution to a problem is selected for implementation

Decision-making is the process of identifying and selecting from among possible solutions
to a problem according to the demands of the situation. For example, decision-making in the
area of vendor contracting might address how to deliver a service, which bidder gets a
contract, how to ensure that a contractor meets its obligations, or whether to pay the
contractor in large or small bills.

• It is the process of identifying and selecting a course of action to deal with a specific
problem or take advantage of an opportunity

• A problem is the difference between the actual condition and the desired condition. For
example when financial or sales targets are missed
 • Problem-solving is a continuous, conscious process which seeks to reduce or correct the
difference between the actual and desired conditions. Decision making is one of the steps in
the larger process of problem-solving.

Types of Decisions
• Programmed decisions.

• Involve routine problems that arise regularly and can be addressed through standard responses.

• Non programmed decisions.

• Involve non routine problems that require solutions specifically tailored to the situation at hand

Decision Making Environments

1. Certain environments.

2. Risk environments.

3. Uncertain environments

Certainty

– Exist when information is sufficient to predict the results of each alternative in advance of
implementation.

– Certainty is the ideal problem solving and decision making environment

Risk

– Exist when decision makers lack complete certainty regarding the outcomes of various
courses of action, but they can assign probabilities of occurrence.

– Probabilities can be assigned through objective statistical procedures or personal intuition.

Uncertainty

– Exist when managers have so little information that they cannot even assign probabilities

– Uncertainty forces decision makers to rely on individual and group creativity to succeed in
problem solving.
 – Also characterized by rapidly changing:

External conditions/environment.
Information technology requirements.

Decision Making Process

Step 1: Problem Identification/Definition
Make sure it’s a problem and not just a symptom of problem
Before a problem can be determined, a manager must be aware of any discrepancies which
can be found by comparing current result with some standard/target. Pressure must be
exerted on the manager to correct the discrepancy

Step 2: Clarify Objectives

Develop appropriate decision objectives i.e. what the decision is intended to achieve. This is largely
dependent on step 1.
Step 3: Data Collection/ Intelligence Gathering
Data relevant to the problem in question must be collected from both internal and external sources
to aid in decision making
Step 4: Generate alternatives
The manager must generate alternative courses of action in the context of the options which could
be designed to resolve a particular problem. All viable alternatives to solving the problem should be
developed
Step 5: Evaluate alternatives
All the alternatives need to be evaluated / analyzed in line with the set decision objectives.
Consideration must be made with regard to the financial, resource and organizational implications of
each alternative. Compare the advantages and the disadvantages in order to get the strength and
weaknesses of each alternative.

Step 6: Selecting an alternative

The act of selecting the best alternatives from among those identified and assessed is critical.
Choosing the best alternative is the decision point. The chosen alternative must be the most
preferable and feasible.
Step 7: Implementing the chosen alternative
Implementation involves conveying the decision to those affected by it and getting their
commitment to do it. The chosen alternative must be implemented to solve the problem identified
in step 1. This must also be monitored

Step 8: Evaluating decision effectiveness

The last step involves appraising the outcome of the decision to see if the problem has been
resolved. Here the impact of the decision is assessed if the selected alternative has yielded desired
results

Difficulties in Decision Making

Some common difficulties in making decisions and implementing them are as follows

1. Incomplete information- lack of information leaves a manager with a lot of uncertainty. In

addition, most decisions involve too many complex variables for one person to be able to
examine all of them fully
2. Unsupporting environment- the environment (physical and organizational) that prevails in
an enterprise offers both the nature of decisions and their implementation. If there is all
round goodwill and trust and if the employees are properly motivated, the manager is
encouraged to take decisions with confidence. On the other hand, under the opposite
circumstances he avoids decision making.
3. Non acceptance by subordinates- if subordinates have a stake in the decision or are likely to
be strongly affected by it, acceptance will probably be necessary for effective
implementation. On the other hand, subordinates may not really care what decision is
reached. In such situations, acceptance is not an issue. Democratic leadership style which
encourages subordinates to suggest, critique, make recommendations or decide upon policies
or projects is an effective device for gaining their acceptance and commitment.
4. Ineffective communication- this makes implementation difficult. The manager should
therefore take care to communicate all decisions to the employees in clear, precise and
simple language.
5. Incorrect timing- in decision making, the problem is not merely of taking a correct decision.
It is also of selecting an appropriate time for taking the decision. If the decision is correct
but the timing is inappropriate, it will not serve any purpose.
Review Questions
a) What are the principles that govern the planning function of management?
b) Describe the decision making process
c) Explain the relationship between planning and forecasting
d) Evaluate the benefits of management by objectives
e) What are the limitations to planning?