UNIT - 3

PLANNING
 DEFINITION OBJECTIVE

PROCESS

PLAN
TYPES PLANNING
TYPES

PLANNING
DM
PROCESS
MBO
CORPORATE
PLANNING
TECHNIQUES
EFFECTIVE
DM
 Definitions:
• Generally speaking, planning is deciding in advance what is to be
done. (W H Newman)

•Planning is an intellectually demanding process; it requires the

conscious determination of course of action and the basing of
decisions on purpose, knowledge and considered estimates.
(Weihrich, Koontz and O’Donnel)

•Planning is that function of manager in which he decides in advance

what he will do. It is a decision making process of a special kind, its
essence is futurity. (Hayness and Massie)

•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. (Killen)
oPlanning is the primary function of management.
oIt focuses on the future course of action.
oA primary managerial activity that specifies the objectives to be achieved in
future and selects the alternative course of action to reach defined objectives.
oThus, it involves:
•Defining the organization’s goals
•Establishing an overall strategy for achieving those goals
•Developing plans for organizational work activities.
oIt is the blue print of action and operation.
oPlanning is intellectual process which is concerned with deciding in advance
what, when, why, how, and who shall do the work. (Includes – vision and
foresightedness, bridges gaps, involves mental skills)
oPlanning involves selection among alternatives (It is a choice activity , we
choose the best alternative)
Why we Plan?
•Growing complexities of modern business (technological changes,
competition, etc.)
•Rapid social, economic and political changes.
•Recognition of social responsibilities
•Shortage of certain resources
•Reduces uncertainty
•Sets the standards for controlling
•Focuses more attention on Objectives
•Improve efficiency (Minimizes waste and redundancy)
•Innovation and Creativity
•Better Coordination
•Ensures Commitment
•Aid to Business Success
•Brings Systematization
Limitations :
1.Lack of reliable data (Facts and figures, use of trusted sources only)
2.Lack of initiatives (Requirement of Active planner)
3.Costly process (in terms of time and money)
4.Non- acceptability of change (Resistance to change)
5.External limitations (Beyond the control, war/government
regulations/natural havocs , etc.)
6.Rigidity in Organizational Workings (internal inflexibility, less
innovation, less initiation)
7.Psychological Barriers
How does a manager Plan?

Establish objectives
Collection of information

Determination of
premises
Reviewing the
planning process Planning Determination of
Process alternatives

Implementation of Evaluation of
plans alternatives

Formulation of Selecting a course

derivative plans of action
•Analyze opportunities
•Not a step of planning, it is pre-step of planning.
•Essential to make a successful plan.
•SWOT analysis

•Establishing objectives
•First and real starting point of planning.
•Management has to define objectives in clear manner by
considering organizational resources and opportunities because a
minor mistake in setting objectives might affect in implementation
of plan.
•Objectives must be specific, clear and practical.
•They should be time bound and expressed in numerical terms.
•Ask : What is the objective of doing that job?
•Planning has no utility if it is not aligned with the objectives.
•Collection of Information
•Sufficient necessary information should be collected to make plans
and sub-plans.
•Information must include critical assessment of current status of
the organization
•Can be collected : Internally or externally
•Reliable data sources should be used.
•Timely data which is updated and relevant should be used.
•Determination of premises
•Premises are the assumptions about the future in which the
planning is implemented.
•They provide environment and boundaries for the implementation
of plan in practical operation.

•These premises may be tangible, intangible, internal or external.

• (a) Tangible and intangible: Tangible premises involve
capital investment, unit of production, units sold, cost per unit, time
available etc. Similarly, intangible premises involve employees
moral, goodwill, motivation, managerial attitude, etc.
• (b) Internal and external: Internal premises involve
money, materials, machines and managements. In the similar
manner, external factors involve competitors strategy, technological
change, government policy, social and cultural beliefs etc.
 •Determination of alternatives
•It is essential to identify all the possible hidden alternatives. The
information about alternative courses of action may be obtained from
primary and secondary sources. There must be search for the best
alternative.
•The management must develop alternatives through the support of
experienced and intellectual experts in management sectors.
•Evaluation of alternatives
•Evaluate the alternatives from their expected cost and benefits. This
is the logical step to evaluate each alternative from its plus and minus
points.
•Each alternative is studied and evaluated in terms of some common
factors such as risk, responsibility, planning premises, resources,
technology etc.
•Selecting a course of action
•After the evaluation of the various parameters, the best
alternative is selected by keeping in the view all the combined
factors and its effects.
•Select most feasible plan.
•Must include feedback mechanism

•Formulation of derivative plans:

•Itis essential to formulate action or derivative plans for each step of
work and to all departments of the organization.
•These action plans involve formulation of policies, rules, schedule
and budget to complete defined objectives.
•Thus, formulation of derivative plans is an essential step in planning
process. It is difficult to implement main plan without formulation of
derivative plan.
•Implementation of the plan
•Plan once made is executed through an effective utilization of
resources and also methods.
•Implementation also entails team’s motivation.

•Reviewing the plan

•Plans are constantly reviewed to ensure their relevance and
effectiveness with the changing dynamics in the business
environment.
•It helps to develop a sound plan for the future and avoiding
mistakes that surface after or while implementing the plan.
Essentials of an Effective Plan:
•Should be specific
•Should be logical
•Should be complete and integrated
•Should be flexible
•Should be capable of being controlled
 TYPES OF PLANNING

ACTITVITY PERIOD APPROACH NATURE IMPORTANCE

COVERED

Long Short
term term FORMAL INFORMAL

Corporate
PROACTIVE REACTIVE OPERATIONAL
STRATEGIC
Functional
Basis : ACTIVITY COVERED

Corporate Planning :
Determines long-term objectives of an organization as whole.
Generates plans to achieve these objectives
Future orientated
Integrated
Plan that outlines the broad objectives of a company.

Functional planning :
Undertaken for sub functions within each major functions
Derived from corporate planning.
Segmental/Unit wise
Planning for a particular unit.
 Basis : TIME-PERIOD
Depends on the type of the business and structure of the
organization.

•Long term :
Strategic in nature.
Involves generally 3-5 years.
It relates to matters like new product ,product diversification .

•Short term :
•Short term planning typically covers time frames of less than one
year in order to assist their company in moving gradually toward its
longer term.
•Examples are the skills of the employees and their attitudes. The
condition of production equipment or product quality problems are
also short-term concerns.
 Basis : APPROACH
•Proactive planning :
Designing suitable course of action in anticipation of likely
changes in relevant environment.
To take decision in advance.
Anticipate challenges and risks of the future and prepare alternative
plans.

•Reactive planning :
 Reactive planning is the process whereby future action is dictated
as a response to whatever has already, or is now occurring.
Basis : DEGREE OF FORMALISATION

•Formal planning :
It is a structured plan, well planned.
 It has some procedure to follow.
Written record is followed in formal plan.
Eg. Five year plan of a country.

•Informal planning
 It is unstructured plan, poorly designed.
It does not have any procedure to follow.
No record is maintained for future purpose.
Orally communicated or not recorded.
Basis : IMPORTANCE OF CONTENTS
•Strategic :
It sets future directions of the
organization in which it wants to proceed in future.
It involves a time horizon of more than one year and for most
of the organization it ranges between 3 and 5 years.
 Strategic plans are generally developed by top level management.
Eg : diversification of business into new lines, planned
grown rate in sales.

•Operational :
Operational plans are developed to determine the steps necessary
for achieving tactical goals..
They are used as a guide for day to day operation by department
managers.
These plans may cover a time frame of few months, weeks or even
a few days.
Basis for Strategic Planning Operational Planning
Comparison
Meaning The planning for Operational Planning is a
achieving the vision of process of deciding in
the organization is advance of what is to be
Strategic Planning. done to achieve the tactical
objectives of business?
Time Horizon Long term planning Short term planning
Approach Extroverted Introverted
Modifications Generally, the plan lasts The plan changes every year.
longer.
Performed by Top level management Middle level management
Scope Wide Narrow
Emphasis on Planning of vision, Planning the routine
mission and objectives. activities of the company.
Types of Plans

Mission
Objectives
Strategies
Policies
Procedures
Rules
Programs
Budgets
•Mission, objectives and strategy are mainly the concern of top
management while policies, programs and procedures are concerned
primarily with the middle and operating management level.

•The time horizon for mission, objectives and strategy is long-term

and their formulations have far-reaching consequences affecting the
very survival and growth of the firm.
•On the other hand, policies, programs and procedures. have a shorter
time horizon, are easier to change without much adverse impact and
do not have a very critical bearing on the firm.

•The formulation of mission, objectives, and strategy imply interaction

with the environment and their concern is with improving the
effectiveness of the firm.
•On the other hand, policies, programs and procedures affect the
internal structure and operational activities of the firm. Their concern
is with improving the efficiency of the firm
 Mission
Mission is who you are and what you do.

The mission is the very reason and justification for the

existence of a firm.

Mission is always defined in terms of the benefits the firm

provides to its customers and not in terms of any physical
dimensions of the firm or its Products.

What is our business?" and "What should it be?“

A shipping company may describe its mission as fulfilling the

transportation needs of its customers. It may, if it so chooses,
further qualify the scope by defining whether the transportation is
meant for goods (cargo) or for passengers.
 Objectives
Objectives or goals are ends towards which organizational
activity is aimed.

Specific, measurable and attainable.

Besides broad organizational objectives each department may have

its own objectives. But the objectives should be consistent and should
contribute towards attainment of organizational goals.

Objectives reflect the `action' orientation of the mission which, in

contrast, is expressed in relatively abstract terms.

Objectives may be set for different levels: for the corporate level,
business level, divisional level and individual level
 Strategies
A strategy of a business organization is a comprehensive master
plan stating how the organization will achieve its mission and
objectives.

Strategy is determination of basic long term objectives of an

enterprise, the adoption of course of action and allocation of
resources necessary to achieve these goals.

The specific path of action chosen by the firm to achieve its

objectives is referred to as its Strategy.

Strategy is concerned with choosing, from the various alternatives

open to it, that path which will best help the firm achieve its
objectives.

Ansoff’s matrix.
ANSOFF’S MATRIX
 Policies
A standing plan that establishes general guidelines for decision
making..
Not all policies are explicit statements, they may be implied from
managerial actions.
Policies define an area within which a decision is to be made and
ensure that decision is consistent with and contribute to objectives.

WHY ?
to ensure compatibility of individual decisions with the mission and
strategy;
to ensure consistency of decisions over time;
to facilitate delegation of work and authority; and
to avoid ad hoc and arbitrary decisions
to ensure consistency of individual decisions taken by different
branches and departments.
Policies
exist in all levels of organization, ranging from major
company policies, departmental policies or minor policies.

Example: hiring only university trained employee, inviting

employee suggestions increased cooperation, promoting from
within, setting competitive prices, etc.

Policies are guide to decision and thus allow for some

discretion else they will be rules.
 Procedures
Procedures are plans that establish a required method of handling
future activities. They are guides to action rather than to thinking and
they detail exact manner in which certain activities must be
accomplished.
E.g. company may have a policy of annual leave for employees. ,
procedure established to implement policy will provide for scheduling
vacations to avoid work disruptions, setting methods and rate of
vacation pay, spelling out means of applying for vacations.
Procedures refer to the specific method and sequence by which an
activity has to be performed

Should be:
evolve from knowledge of past experiences and facts;
be as precise as possible; and
have the concurrence of the people who have to use them.
 Rules
Rules spell out specific required actions or non actions, that are
to be taken in a given situation.

Rules guide action without specifying a time sequence.

Procedure may be considered a sequence of rules.

A rule however may or may not be part of procedure.

E.g. No smoking is unrelated to any procedure. But a procedure

for handling orders may have a rule that all orders be confirmed
the day they are received.

Rules should be used when employees are not required to use

their discretion.
 Programs
Program refers to a set of clear instructions in a clear and logical
sequence to perform a particular task.
Program may be as major as implementation of five year plan by GOI
or as minor as a program formulated by supervisor to boost employee
morale.
The concern of programs is to organize and schedule repetitive
activities which constitute a complete set or work assignment in the
most efficient manner.
 Programs relate to activities rather than decisions: They may help in
making strategic decisions but are not concerned directly with
operating decisions.
 The factor which characterizes a program is that all the activities
involved constitute a complete work-set.
A program must be derived from the policy which it seeks to help.
 Budgets
Formal quantitative statements of resource allocated to
specific programs or projects for a given period.
A budget is a statement of expected results expressed in
numbers.
Operating budget expressed in terms of revenues and expenses,
is called a profit plan.
A budget may be expressed either in financial terms or in terms
of labor hours, unit of products, machine hours or any other
numerical parameter.
Budgets are also control devices.
 MBO
MANAGEMENT BY OBJECTIVE
The concept of ‘Management by Objectives’ (MBO) was
first given by Peter Drucker in 1954 (The Practice of
Management’)
Management By Objectives (MBO) can be defined as a
process whereby the employees and the superiors come
together to identify common goals, the employees set
their goals to be achieved, the standards to be taken as the
criteria for measurement of their performance and
contribution and deciding the course of action to be
followed.
It is also known as management by results and goals setting
approach.
It is a comprehensive management planning and control
technique.
It is bound to effect the entire organisational structure,
culture, style.
Closely
. associated with decentralisation
It is an operational technique – practical in nature.
(objectives must be capable of being converted into specific
targets and assignments.
Emphasises on participative approach of management
Performance oriented (concentrates on ends rather than
means)
Follows system approach- it attempts to integrate
individual, organisational and its environment.
Management by Objectives Principles

Cascading of organizational vision, goals and objectives

Specific objectives for each member
Participative decision making
Explicit time period
Performance evaluation and feedback
Determine or revise the organizational objectives
Strategic organizational objectives are the starting points of
management by objectives.
These objectives stem from the mission and vision of an
organization.
If an organization has not formulated these yet, it does not
make sense to carry out the next steps.
In order to set objectives of the enterprise, a detailed
assessment has to be made of the various resources at its
disposal.
Market surveys, proper forecasts are required for detailed
assessment
This analysis will lead to highlighting desirable objectives
both, ;long and short term.
Translating the organizational objectives to employees
goals/Cascading Objectives Down to Employees

After determining the organizational goals, the next thing to do is to

know the individual’s goals or more clearly employees’ goals.

Drucker used the acronym SMART (specific, measurable, acceptable,

realistic, time-bound) to express the concept.

The element Acceptable is crucial in management by objectives as this

is about agreement on the objectives between the employees and the
organization. The management by objectives principle does not allow
management to determine the objectives by themselves.

According to management by objectives, objectives should be clearly

recognizable at all levels and everyone should know what their
responsibilities are in this. Communication is also an important item
for consideration when it comes to expectations and feedback
Continuous Monitoring Performance and Progress
MBO process is not only essential for making line managers in
business organizations more effective but also equally important for
monitoring the performance and progress of employees.

MBO ensures periodic meetings between the manager and his

subordinate to discuss the progress towards the accomplishment of the
targets of the subordinates.

For this the manager must establish check points or standards of

performance for evaluating the progress of the subordinate.

The standards should be specified quantitatively as far as possible and

the subordinate must understand them fully.

This practice should be followed by each manager with his

subordinate and it should lead to key result analysis as targets or goals
are represented in terms of results.
Performance Evaluation

Under this MBO process performance review are made by the

participation of the concerned managers.

performance evaluation is one the most important factors of the

organization that can help operating certain objectives smoothly.

MBO is designed to improve performance at all levels of the

organization. To ensure this happens, you need to put a comprehensive
evaluation system in place.

Employees are evaluated on their performance with respect to goal

achievement (allowing appropriately for changes in the environment.)
All that is left to do is to tie goal achievement to reward, and perhaps
compensation
Providing Feedback
The psychologically influential factor of MBO is constantly providing
feedback to employees regarding their performance and individual
goals, so that they can monitor, correct and extra improve their skills
and mistakes.

Mostly, the feedback is provided in periodic meetings where

supervisors and their subordinates review the performance and
progress towards achievement of goals.

At one point, feedback helps individuals know their weakness.

While on the other hand, it also motivates already potential
individuals to enhance and develop their performance additionally.

This continuous feedback is supplemented by periodic formal

appraisal meetings which superiors and subordinates can review
progress toward goals, which lead to further feedback.
Performance Appraisal
Performance appraisals are a regular review of employee performance
within organizations. It is done at the last stage of the MBO process

By definition, a day by day review of the employee’s performance

across the organization can be called as performance appraisal

When you reward goal achievers you send a clear message to everyone
that goal attainment is valued and that the MBO process is not just an
exercise but an essential aspect of performance appraisal. The
importance of fair and accurate assessment of performance highlights
why setting measurable goals and clear performance indicators are
essential to the MBO system.

The periodic performance appraisal should be based upon fair and

measurable standards so that the subordinates are fully aware and
understand the degree of performance they have made at each step.
Benefits of Management by Objectives
Improves Management: Objectives cannot be established without
planning, and results-oriented planning is the only kind that makes
sense. MBO forces managers to think about planning for results,
rather than merely planning work or activities. In order to make
objectives realistic, Management by Objectives also requires that
managers think of the way they will accomplish results and the
resources and assistance they will require.

Encourages Personal Commitment: MBO encourages employees to

commit themselves to their goals because they have before them
clearly defined objectives. Moreover, the fact that they often
participate in goal- setting, improves their commitment to work. As a
matter of fact, people become enthusiastic when they control their
own fate.
Clarifies Organization: MBO forces management to clarify organizational roles and
structures. So far as possible, organizational positions are built around the key results
expected of the people occupying them. Moreover, the companies that embark on
MBO programs can easily discover deficiencies in their organization and take the
necessary steps to rectify.
Device for Organizational Control and Systematic Evaluation: It serves as a device
for organizational control integration. MBO helps in making a more systematic
evaluation of performance.
Develops Effective Control: There is no better incentive for self- control and no
better way to know the standards for control than having a set of clear goals. When
each and every employee knows what to achieve, control becomes very easy and
automatic.
Improving Productivity: Management by Objectives helps in improving productivity
as the management team concentrates on the important task of reducing costs.
Motivating the Subordinates: It stimulates the subordinates’ motivation.
Personal Satisfaction: It provides greater opportunity to managers for personal
satisfaction on account of participation in objective setting and rational performance
appraisal.
 WEAKNESSES OF MANAGEMENT BY OBJECTIVES
1.It sometimes ignores the prevailing culture and working conditions of
the organization.
2.More emphasis is being laid on targets and objectives. It just expects
the employees to achieve their targets and meet the objectives of the
organization without bothering much about the existing circumstances at
the workplace. Employees are just expected to perform and meet the
deadlines. The MBO Process sometimes do treat individuals as mere
machines.
3.The MBO process increases comparisons between individuals at the
workplace. Employees tend to depend on nasty politics and other
unproductive tasks to outshine their fellow workers. Employees do only
what their superiors ask them to do. Their work lacks innovation,
creativity and sometimes also becomes monotonous.
4. Failure to teach the philosophy of MBO which is built on concepts of
self-control and self-direction that are aimed at making managers as
professionals.