Planning Process & Types of Plans

4.6 The Planning Process — How a Plan is Actually Made

Having seen the meaning, features, importance and limitations of planning, we now ask the practical question: how does a manager actually make a plan? Since planning is an activity, there are certain logical steps that every manager follows. NCERT identifies seven steps in the planning process. They form a sequence — each step rests on the one before it.

1. Setting Objectives. The first and foremost step. Every organisation must have certain objectives. Objectives may be set for the entire organisation and for each department or unit. They specify what the organisation wants to achieve — for example, an increase in sales by 20% may be the organisational objective; how each department contributes is the plan to be drawn up. Objectives must be stated clearly so they give direction. Departments then formulate their own objectives within the broad framework of the organisation's philosophy. Objectives must percolate down to every unit and employee. Managers must contribute ideas and participate in objective-setting and must understand how their actions contribute. If the end result is clear, it becomes easier to work towards the goal.
2. Developing Premises. Planning is concerned with the future, which is uncertain — every planner uses conjecture about what might happen. Therefore the manager makes certain assumptions about the future. These assumptions are called premises^?. The base material may be in the form of forecasts^?, existing plans, or past information about policies. Premises must be the same for all and there should be total agreement on them — all managers in planning should use the same assumptions. Forecasts can be made about demand for a product, policy changes, interest rates, prices of capital goods, tax rates, etc. Accurate forecasts are essential for successful plans.
3. Identifying Alternative Courses of Action. Once objectives are set and assumptions made, the next step is to act upon them. There may be many ways to achieve the objectives. All alternative courses of action should be identified — the chosen course may be either routine or innovative. An innovative course may be adopted by involving more people and sharing their ideas. If the project is important, more alternatives should be generated and thoroughly discussed amongst the members of the organisation.
4. Evaluating Alternative Courses. Weigh the pros and cons of each alternative. Each course has many variables to be weighed against each other — the positive and negative aspects must be evaluated in light of the objective. In financial plans, for example, the risk-return trade-off is very common: more risky investments are likely to yield higher returns. Detailed calculations of earnings, EPS, interest, taxes and dividends are made and decisions taken. Accurate forecasts in conditions of certainty/uncertainty become vital assumptions for these proposals. Alternatives are evaluated in the light of their feasibility and consequences.
5. Selecting an Alternative. This is the real point of decision-making. The best plan has to be adopted and implemented. The ideal plan would be the most feasible, profitable and with least negative consequences. Most plans may not always be subjected to mathematical analysis — in such cases, subjectivity, the manager's experience, judgement and at times intuition play an important part. Sometimes, a combination of plans may be selected instead of one best course. The manager applies permutations and combinations to choose the best possible course of action.
6. Implementing the Plan. Other managerial functions also come into the picture. This step is concerned with putting the plan into action — i.e., doing what is required. For example, if there is a plan to increase production, more labour and machinery will be required; this step then involves organising for labour and purchase of machinery.
7. Follow-Up Action. To see whether plans are being implemented and activities are performed according to schedule is also part of the planning process. Monitoring the plans is equally important — only follow-up ensures that objectives are achieved.

4.7 Types of Plans — Single-Use vs Standing

An organisation has to prepare a plan before making any decision related to business operations or any project. Plans can be classified into several types depending on use and the length of the planning period. Certain plans have a short-term horizon and help achieve operational goals. These can be classified into single-use plans^? and standing plans^?.

4.7.1 Single-Use Plan

A single-use plan is developed for a one-time event or project. Such a course of action is not likely to be repeated in future — they are for non-recurring situations. The duration may depend on the type of project: a week, a month, or even one day (organising a seminar or conference). Single-use plans include budgets, programmes and projects. They consist of detailed information including the names of employees responsible for the work. For example, a programme may involve identifying steps and procedures required for opening a new department. Projects are similar to programmes but differ in scope and complexity. A budget is a statement of expenses, revenue and income for a specified period.

4.7.2 Standing Plan

A standing plan is used for activities that occur regularly over a period of time. It is designed to ensure that internal operations of an organisation run smoothly. Such a plan greatly enhances efficiency in routine decision-making. It is usually developed once but is modified from time to time to meet business needs. Standing plans include policies, procedures, methods and rules. Single-use and standing plans are part of the operational planning process.

4.8 Plans Above the Operational Layer — Objectives & Strategy

There are other types of plans which usually are not classified as single-use or standing plans. A strategy is part of strategic planning — a general plan prepared by top management outlining resource allocation, priorities and consideration of the business environment and competition. Objectives are usually set by top management and serve as a guide for overall planning; each unit then formulates its own objectives keeping in view the overall organisational goals.

Based on what plans seek to achieve, plans can be classified as Objectives, Strategy, Policy, Procedure, Method, Rule, Programme and Budget.

① Objective

The first step in planning is setting objectives. Objectives are the desired future position that management would like to reach — they are very basic to the organisation and are defined as ends which the management seeks to achieve by its operations. An objective is what one would like to achieve, i.e., the end result of activities. Examples: increase sales by 10%, earn a reasonable rate of return on investment, earn a 20% profit. Objectives represent the end point of planning; all other managerial activities are directed towards achieving them. They are usually set by top management and focus on broad, general issues. Different departments or units may have their own objectives. Objectives should be expressed in specific, measurable, quantitative terms — written statements of desired results to be achieved within a given time period.

② Strategy

A strategy^? provides the broad contours of an organisation's business. It also refers to future decisions defining the organisation's direction and scope in the long run. A strategy is a comprehensive plan for accomplishing an organisation's objectives. It includes three dimensions: (i) determining long-term objectives, (ii) adopting a particular course of action, and (iii) allocating resources necessary to achieve the objective.

Whenever a strategy is formulated, the business environment needs to be considered — changes in economic, political, social, legal and technological dimensions affect the strategy. Strategies usually take the course of forming the organisation's identity in the business environment. Major strategic decisions include questions like: should the organisation continue in the same line of business; combine new lines with existing business; or seek a dominant position in the same market? A company's marketing strategy may have to address: who are the customers? what is the demand? which channel of distribution to use? what is the pricing policy? how do we advertise the product? Many such issues must be resolved while formulating a marketing strategy.

③ Policy

Policies are general statements that guide thinking or channelise energies towards a particular direction. Policies provide the basis for interpreting strategy, which is usually stated in general terms. They are guides to managerial action and decisions in the implementation of strategy. For example, a company may have a recruitment policy or a pricing policy within which objectives are set and decisions made. If there is an established policy, it becomes easier to resolve problems or issues. As such, a policy is the general response to a particular problem or situation.

There are policies for all levels and departments — from major company policies to minor policies. Major company policies are for everyone (customers, clients, competitors); minor policies are applicable to insiders and contain minute details vital to employees. Policies define the broad parameters within which a manager may function. The manager uses discretion to interpret and apply a policy. For example, decisions under a Purchase Policy would address questions like: should the company make or buy its requirements (packages, transport, printing of stationery, water and power)? How should vendors be selected? How many suppliers? What is the criteria for choosing suppliers? All these queries are addressed by the Purchase Policy.

④ Procedure

Procedures are routine steps on how to carry out activities. They detail the exact manner in which any work is to be performed. They are specified in chronological order. For example, there may be a procedure for requisitioning supplies before production. Procedures are specified steps to be followed in particular circumstances; they are generally meant for insiders to follow. The sequence of steps or actions enforces a policy and helps attain pre-determined objectives. Policies and procedures are interlinked — procedures are steps to be carried out within a broad policy framework.

⑤ Method

Methods provide the prescribed ways or manner in which a task has to be performed considering the objective. A method deals with one step of a procedure and specifies how that step is to be performed. The method may vary from task to task. Selection of a proper method saves time, money and effort and increases efficiency. For example, for imparting training to employees at various levels — top management to supervisory — different methods can be adopted. For higher-level management, orientation programmes, lectures and seminars can be organised; at the supervisory level, on-the-job training methods and work-oriented methods are appropriate.

⑥ Rule

Rules are specific statements that inform what is to be done. They do not allow for any flexibility or discretion. A rule reflects a managerial decision that a certain action must or must not be taken. Rules are usually the simplest type of plans because there is no compromise or change unless a policy decision is taken. Examples: "Smoking is prohibited inside the factory premises"; "Report for work at 9 a.m. sharp"; "All payments must be made by e-transfers only".

⑦ Programme

Programmes are detailed statements about a project that outline the objectives, policies, procedures, rules, tasks, human and physical resources required, and the budget to implement any course of action. Programmes will include the entire gamut of activities as well as the organisation's policy and how it contributes to the overall business plan. The minutest details are worked out — procedures, rules, budgets — within the broad policy framework.

⑧ Budget

A budget is a statement of expected results expressed in numerical terms. It is a plan that quantifies future facts and figures. For example, a sales budget may forecast the sales of different products in each area for a particular month. A budget may also be prepared to show the number of workers required at peak production times.

Since a budget represents all items in numbers, it becomes easier to compare actual figures with expected figures and take corrective action — thus a budget is also a control device from which deviations can be addressed. But making a budget involves forecasting; therefore it clearly comes under planning. It is a fundamental planning instrument in many organisations.

4.9 Snapshot — Where Each Plan Sits