- A plan – This refers to a predetermined course of action for achieving objectives. It’s a frame work that details the methods and tasks that are to be implemented in order to achieve organizational goals. Plans may be tailored to a specific project or they may be established as standing plans for future activities / actions.
- Planning – can be defined as the process of selection and sequential ordering of tasks that are required to achieve organizational goals. It’s the process of identifying the task to be achieved, methods/means to be use and time horizons of the implementation of tasks in the organization.
It’s a process of systematic thought that precedes action. It’s a process of deciding in the present what to do in the future. The planning process involves setting objectives and the means for achieving them. Planning is therefore a process of developing plans.
Characteristics of Planning
- Planning is goal oriented. A plan is not a goal itself but a means towards accomplishing objectives. Planning has no meaning unless it is directed towards achievement of desired goals.
- Planning is forward looking or futuristic. Planning is done with an eye in the future and it involves looking ahead and preparing for the future.
- Planning involves making choices among alternative courses of action. The manager identifies the various alternatives, evaluates each one of them and selects the best
- Planning is an intellectual process. It involves imagination.
- Planning is a continuous process. This means that old plans should be continuously reviewed in light of the planning assumptions. Those that are no longer valid are replaced or modified.
- Planning is an integrated process. Planning will involve assimilating the long-term medium and short-term goals. It also involves integrating the sub unit goals in order to achieve the overall organization goals
- Planning is pervasive. (Affects all the areas of the organization.) Managers at all levels are involved in planning for their various areas.
- Planning precedes the execution of all other managerial functions
- Planning is directed towards efficiency. Planning has no relevance if it does not facilitate achievement of objectives efficiently and economically.
Importance of Planning
- Planning provides direction for the organization. Without planning people would not know what is expected of them.
- Planning reduces uncertainty and risk. This is because the managers will predict the circumstances in the future and not leave anything to chance and hence will prepare well for any eventuality.
- It guides decision making; sound planning avoids hasty decisions and the plans established are used as a point of reference for future decision making
- It facilitates control as the activities and the actual performance will be checked or measured against the plans and the objectives they are in.
- It focuses attention on objectives. Plans facilitate the accomplishment of the organizations goals.
- Planning facilitates co-ordination. Through planning it is possible to divide labour and allocate resources and ensure there is harmony between the various interrelated parts of the organization.
- Planning enhances efficiency in operations i.e. planned effort is always more efficient than unplanned action and there is less wastage of time.
- It facilitates optimal allocation of resources. Through the planning process the resources that are available and those that will be available are considered in the light of the various competing needs. These resources are then allocated in such a way that will ensure maximum benefit for the organization.
- Planning precedes the execution of all other activities. Without planning other management functions would not be possible.
- It facilitates decentralization/delegation; The plans set will guide the subordinates who will receive the delegated authority
Douglas B Gehram provided the following answers to the question ‘why plan?’
- It increases chances of success focusing on results and not activities
- It forces analytical thinking
- It establishes a framework for decision making
- orients people to action instead of reaction
- Modifies style from day to day management to future based managing
- Helps avoid crisis management and provides decision making flexibility
- Provides a basis for measuring performance
- Increases employee involvement and improves communication
Types of Plans
- Strategic Plans
- Tactical Plans
- Operational Plans
- Contingency plans
- Strategic Plans
This is a plan that covers the entire organization as a single business portfolio. This is a broad plan developed top-level managers to give an organization a general direction. The strategic plans address the issue of; where should the organization be 5-10 years from now. The top level/strategic managers will develop these plans scanning the environment, determining the opportunities and threats and developing a strategic fit for the organization. Strategic plans are concerned with allocation of corporate resources. They are complex, involve a lot of uncertainties and integrate the various sub units of the organization. These plans are long-range in nature and they are influenced the values of those in power. Strategic plans are concerned with positioning the firm in its environment.
- Tactical Plans/Business Plans/Competitive Plans
These have a moderate scope and they relate to various sub-units of the organization. Sub-units may be functional areas (marketing, finance, production, human resource etc), or Strategic Business Units. These plans are derived from the strategic plans. They are medium term in nature and they are developed the tactical or middle level managers.
- Operational Plans
These have the narrowest focus and shortest time frame. They fall into two categories; i.e. standing plans and single use plans.
- Standing plans
These are plans developed to handle routine /recurring situations. They include procedures, rules, policies etc.
2. Single Use Plans
These are plans set-up to handle events that happen only once e.g. Budgets, programs, and projects.
- Contingency plans
Involve identifying alternative courses of action in advance of implementation of a plan in order to overcome possible changes in environmental conditions which may affect goal achievement. Contingency plans therefore add an element of flexibility that assists managers in the anticipation of changes that may occur suddenly.
Time Frame for Planning
There are three levels of planning based on time frame;
- Short range / annual planning
Refers to plans developed for implementation within a planning horizon of up to one year. They are mostly made line managers and general employees of the organization. They focus on day to day activities of the organization. They help achieve annual objectives.
- Medium term / intermediate planning
Intermediate plans generally involve a time perspective from one to five years and are designed to implement activities among middle or divisional level managers of the organization.
- Long range planning
Involves identfying the activities to be performed over an extended period of 5 years and above. While short range and intermediate planning deals with planning activities which are more specific, long range planning does not. Long range plans help organizations to remain focused and achieve their vision.
Elements of planning
Planning requires managers to make decisions on the following fundamental elements; objectives, actions/strategies/means, resources, implementation and evaluation.
Objectives specify the needs/expectations to be achieved the organization. They specify the targets to be achieved e.g. 5% growth in profit within two years. Objectives are concrete and specific. Objectives must be SMART i.e. Specific, Measurable, Attainable, Realistic and Time bound.
- Action/ strategies
Actions are the preferred means or strategies to achieve the set objectives e.g. the ideal course of action to realize a company’s objective of increasing profit 5% in 2 years could be to expand existing business or diversify business through increased investment. It could however opt to increase its promotional campaigns (advertisement) to improve its existing product appeal to customers. Whichever course of action a company takes depends largely on its internal resource capability and available opportunities in the environment.
These may act as constraints on the courses of action. They include physical assets, raw materials, financial and human resources, time, technology and information. In practice resources are limited or scarce.
A plan to realize increased company’s profit through a business expansion strategy would require the manager to specify the kinds and amount of resources required, potential sources and allocation of the resources to be committed to the planned activities.
This involves the assignment and direction of personnel to carry out the planned activities. The plan should be well communicated to employees for effective implementation. Plans can be implemented using policies, procedures, programmes and rules.
Organizational policy is a statement that describes in very general terms the interrelated courses of actions. After the fundamental objectives of an activity have been established policies are developed to serve as guidelines that channel actions and decisions of managers towards achievement of organizational goals.
Purpose of organizational policies
- To facilitate accomplishment of organizational goals
- To provide guidelines for managerial decision making
- To check or restrain managers or subordinates from performing actions or making decisions that are deemed undesirable or which affect achievement of organizational goals.
- To guide decision making managers
These are plans which establish the required method for undertaking organizational activities. A procedure describes in details the exact manner in which certain activities must be accomplished. They are a chronological sequence of the required methodology for achieving objectives.
A programme represents activities developed to carry out policies. Programmes require appropriate action at all levels of the organization. Thus a programme embraces a set of related actions and activities surrounding the plan in order to achieve the set objectives.
A rule is a statement precisely describing what should or should not be done without permitted deviations. The essence of a rule is that it reflects a managerial decision that certain actions must or must not be taken. Rules therefore spell out specific required action or non action allowing no discretion to managers.
Implementation process should be well monitored and necessary measures taken to ensure that plans and strategies being implemented are achieving goals.
The Planning Process
There are no specific processes in planning. However, planning is not a random process but one that generally follows certain steps.
These steps may vary from one organization to another;
- Identification of opportunities
- Settings objectives. Here the manager must ask the question of where the organization wants to go, how and when to get there. Objectives must be established for the entire organization then for each unit.
- Determining the planning premises. Planning premises refer to the various assumptions that are made about situations and the environment affecting the execution and the results of the entire plan. Assumptions may be in areas such as, what the preferences of the market would be, how much money the customer would be willing to buy the product for, the state of political stability, tax rate etc.
- Developing alternatives. To achieve an objective, several courses of action may be adopted. This step requires that the manager develops all the possible courses of action that would achieve the objectives already established. The purpose of this is to ensure that, the manager selects optimal courses of action.
- Evaluating the various courses of action and then selecting the best. In this step the various alternatives are evaluated for;
- Suitability – Meaning, is the course of action consistent with the situation of the organization e.g. mission and vision?
- Feasibility – How practicable is the course of action in terms of resource availability. Feasibility analysis will also involve a cost benefit against the cost that will be incurred. The risk level will also be established at this point.
- Acceptability – Is it acceptable to the stakeholders. After the evaluation a choice is made among the alternatives based on the evaluation results.
- Formulating derivative plans and contingency plans. Derivative plans will support the basic plan e.g. the plan is to increase production levels, this will need hiring more workers thus a hiring plan will be formulated. Contingency plans are alternative courses of action/plans in case the original plan fails.(Plan B)
- Set a programme for implementation and control
APPROACHES TO PLANNING
- STRATEGIC PLANNING APPROACH
Strategic planning is the process of identifying organizations mission, goals and objectives and developing action plans of how to achieve them. In strategic planning organizations identify what they want to achieve, how to achieve them and when to achieve them.
Strategic planning process.
1) Defining mission / purpose
The mission statement serves to define for management the intent of the organization i.e. purpose of the organization and guides them in setting appropriate goals and objectives.
- Setting organizational goals / objectives
Goal setting is an essential component of strategic planning process in that it specifies performance targets for managers at all levels of the organization
- Formulating the strategic plan
This involves the development of strategies / action plans to achieve goals. SWOT analysis must be carried out to assess the current internal and external situations so as to determine the best strategies for the organization
- Implementing the strategic plan
Implementing strategies involves converting strategic plans into action. To implement the strategic plan successfully, managers must effectively communicate the plan, assign appropriate authority and responsibility for activities within the firm, develop the methodology for measuring the results of activities and develop the procedure for taking corrective action if the results are not positive.
- Evaluating the strategic plan
Evaluation of outcomes of strategies implemented is a critical activity for management. They must continually monitor and take any corrective action necessary to ensure that organizational goals are achieved.
FORMULATING A STRATEGIC PLAN: (using SWOT analysis)
When formulating a strategic plan managers must assess the organization’s prior performance, current position and desired outcome / performance.
SWOT MATRIX & ITS APPLICATION IN STRATEGIC PLANNING
SWOT is an acronym meaning strengths, weaknesses, opportunities and threats.
Through SWOT analysis managers are able to develop a strategic profile of their organization based on information they have collected from both the external and internal environment. SWOT analysis assumes that an organization will achieve its success maximizing strengths and opportunities and minimizing weaknesses and threats.
An organizational strength may be a strong capital base, skilled man power, superior technology, large scale operation, good corporate image etc. these are positive internal conditions of the organization
An organizational weakness may be weak capital base, inferior technology, poor corporate image, lack of skilled man power, narrow product lines, small size etc these are negative internal conditions of the organization.
These may be new markets to be explored, growth in demand of company’s products, new laws passed government that are favourable to the organization etc. These are positive external conditions in the environment.
Organization threats may include: new competitors in the industry, unfavourable laws passed the government, consumers boycotting the company’s products, emergence of new technology capable of rendering the company’s production system obsolete etc. These are negative external conditions in the environment.
As a strategic planning tool, SWOT analysis enables strategic planners to identity their competitors and develop appropriate competitive strategies. Competing firms within the same industry should be concerned with each other’s strengths and weaknesses in offering certain goods or services so as to develop superior competitive strategies.
Explanation of the SWOT diagram
Quadrant 1 – this is where strengths match opportunities through appropriate strategies. A company can explore available opportunities in the environment with appropriate strategies supported strengths.
Quadrant II – this is where a company has a certain critical weaknesses which work to its disadvantage. By taking advantage of the opportunities in the environment, a company should come up with strategies which reduce the level of its weaknesses to remain competitive in the industry.
Quadrant III – new competitors in the market or industry affect existing firms capitalizing on their weaknesses. Existing firms may also be affected other environmental threats. The existing firms should review their strategies whenever threats emerge.
Quadrant IV – here, threats affect the strengths of the strong firms in the industry. Companies with substantial strengths should review their strategies whenever threats emerge.
IMPORTANCE OF STRATEGIC PLANNING TO ORGANIZATIONS
- Enables top managers to identify long term goals and strategies required to achieve them.
- Provides managers with a clear strategic direction to be followed the organization.
- Helps managers to anticipate problems before they arise and deal with them before they become severe.
- Helps managers make effective strategic decisions
- Minimizes the chances of mistakes and unpleasant environmental surprises which may have a negative effect on goal achievement
2) MANAGEMENT BY OBJECTIVES MBO
Meaning and concept of MBO
Management objectives is a planning approach developed and popularized Peter F. Drucker in 1954. It is a collaborative / participative approach to planning. MBO begins with goal setting and continues through performance review. The approach actively involves staff members at every organizational level. By building on the link between planning and controlling functions, MBO helps to overcome many of the barriers to planning.
Process of MBO
The MBO process involves the following steps:
- Top level goal setting
MBO begins with establishment of the overall goals of the organization top level managers. These managers may set goals consulting with other organization members e.g. divisional or departmental managers
- Collaborative goal setting throughout the organization
Each person’s major area of responsibility is clearly defined in terms of measurable objectives. Managers consult with departmental members to set objectives
- Periodic review of performance
The objectives set are used the management and employees to review or monitor the actual implementation of plans / activities / objectives from time to time.
- Final evaluation and feedback
Performance appraisal is finally conducted to determine the achievement of goals and objectives.
As a collaborative planning approach, MBO enables managers and subordinates to set goals jointly and decide what resources are needed to achieve them. They then review the performance or goal achievement jointly.
Merits of MBO
- It motivates the workers since they are involved in decision making.
- It aids managers in reviewing employee performance i.e. it helps to implement the controlling function together with planning simultaneously.
- There is commitment to attaining the organizational goals.
- It reduces resistance to change.
- There is higher productivity through efficiency.
- Periodic review in the MBO process will ensure that problems are addressed before it’s too late.
- There is improved communication between management and employees.
- It leads to self-discipline on the part of the subordinate.
- It clarifies the specific roles, responsibilities and authority of personnel.
- There is participative/democratic management
- It provides an opportunity for career development i.e. employees will be trained on setting objectives.
- It saves top management time which can be used to do other things that are of strategic importance since there is self-regulation on the part of subordinates/employees.
- Its time consuming to implement.
- Some subordinates may not be good at goal setting.
- It may lack top management support as they may feel they are being replaced.
- It tends to over emphasize on short-term goals over long-term goals.
- It may lead to inflexibility, as subordinates will stick to the objectives they have set.
- There is the danger of managers forgetting that there is more to management than goal setting.
- It may be resisted subordinates because they may not know how to set goals.
- Conditions in the environment change too frequently for MBO to work at all times.
Barriers to Planning/Limitations to Planning
- Lack of planning skills on the part of the management.
- Planning is based on forecasts and things do not always turn out to as anticipated.
- The planning premises do not always hold.
- The planning process is time consuming and expensive.
- Resistance to change. Planning may require a change in the existing set-up and organizational members may want to maintain he status quo.
- The managers who do the planning are usually not the ones who implement. Those who were implementing may not understand the plan well since there may be issues that were not expressly indicated but were implied.
- Powerful people with vested interest may frustrate planning and planners, they may also lead to adoption of sub-optimal plans.
- Government interference may affect implementation of plans setting restricting business policies.
- Lack of resources as planning is expensive.
- Managers may be reluctant to establish goals and this will hinder planning as the planning process begins with goal setting.
- Planning leads to rigidity.
- Have contingency plans i.e. Alternative plans incase what you had planned fails, you have another one.
- Involve all the stakeholders in planning e.g. workers/operatives. They may come up with more realistic plans as they understand the work related problems more clearly.
- The long-term, short term and medium term plans should be consistent with each other.
- Enough research should be done to obtain adequate information for the purpose of determining the goals and determining the planning premises.
- Planning must be forced. Planning will not occur unless it is forced on some managers and deadlines set.
- The management should avail enough resources to assist in planning.
- The management should take an environmental analysis before drawing plans.
- Communication and participation with the stakeholders.
- Planning should start at the top
A goal is a statement of where the organization wants to be at a specific time in the future.
Goals are the ends towards which the efforts of an organization are directed to achieve. Quantitative goals are referred to as objectives while non-quantitative goals are referred as aims. Therefore goals and objectives are sometimes used interchangeably.
Types of Goals
- Corporate goals
Corporate goals are the broad goals that relate to the organization as a whole i.e. what the overall organization wishes to achieve. They include the mission and the vision of the organization.
- Operational goals
These are goals that relate to specific functional areas e.g. marketing department may aim at venturing into new areas, increasing sales etc. Operational goals also include specific objectives relating to specific tasks within the organization.
- Long term and short term goals
Long-term goals cover periods of between 5-10 years or beyond while short-term goals cover btw 0 – 1 year.
- Economic and Non-Economic goals
Economic goals relate to profitability while non-economic goals are other goals other than economic goals e.g. social responsibility goals.
- Primary and Secondary goals
Primary goals are the basic goals that an organization is established to pursue and they basically relate to profitability. Secondary goals are subsidiary goals that an organization will pursue as it pursues primary goals e.g. Non-economic goals.
Characteristics of Good Objectives
Objectives should not be ambiguous but must indicate exactly what is to be accomplished and who is to accomplish it and within what time. This will help eliminate confusion and ensure that organization members know and understand exactly what is expected of them.
Good objectives are measurable in quantitative terms and those that are not measurable in quantitative terms have a standard/ benchmark established against which the actual performance can be measured.
Good objectives should be challenging but attainable. If too simplistic, they demotivate employees and if they are too high they may frustrate the employees.
Good objectives should be in line with or consistent with reality and achievable within the resource constraints of the firm.
- Time bound
A time period should be specified within which the objectives are to be achieved.
Other qualities include.
- Objectives must be flexible – Provide room for change.
- Easy to understand and interpret.
- Long-term, short term and medium term goals should be consistent with each other.
- Objectives should be valid indicating that consistent review of the objectives is important to determine whether they are still valid or they need to be changed.
Steps of goals setting
- Environmental scanning and monitoring through SWOT analysis.
- Set overall organizational goals based on the SWOT analysis.
- Establish sub-unit goals.
- Establish operational goals that will help in attainment of the sub-unit goals.
- Implementation and monitoring of the progress towards goals attainment at all levels of the organization.
- The assessment of the feedback.
Barriers to effective goal setting
- Setting in appropriate goals that don’t fit the organization’s purpose.
- Setting unattainable goals.
- Over emphasizing quantitative goals at the expense of qualitative goals.
- Rewarding ineffective goal setting.
Importance of Goals
- They provide motivation.
- They assist in control since they can be used as the yardsticks to measure how far the organization has gone in achieving the objectives.
- They assist in co-ordination.
- It eliminates harp hazard action. All actions are purposeful since they are directed towards attaining the objectives.
- Objectives lead to unified planning. Objectives provide the bases for planning. Setting of the objective is the first stage of every planning and for any plan to have meaning it must be designed to achieve particular objectives.
- It helps in decentralization of power and authority, as those with delegated authority know exactly what they are to achieve.
1) FORECASTING AS A PLANNING TOOL
Meaning: Forecasting is the systematic development of predictions about the future. Managers must estimate how future internal and external environment conditions will affect operations in their organizations. Organizations must estimate the changes in environmental conditions so as to quickly adopt to such changes which occur rapidly and which are likely to affect their planning activities and other operations.
Areas of forecasting
- Revenue forecasting – carried out businesses, banks, governments to determine what their future revenue will be
- Marketing and sales forecast – concerned with demand forecasting of a company’s good and services
- Human resource needs for the future
- General economic conditions – concerned with past GNP trends, consumer price index, private investment expenditure, government expenditure, balance of payment trends, population trends, trends in the interest rates etc.
- Social environment – concerned with trends in societal values
- Political environmental changes
- Future technological changes etc.
Methods of forecasting
1) Qualitative methods – involves judgmental estimates of the future. The methods included
- Brainstorming – This method uses a group of individuals with common knowledge in a specific problem area. The brainstorm allows free flow of creative comments from participants. Expert opinion is sought and refined. Independent experts are consulted who give their opinions which are evaluated and accepted when the opinions are in agreement.
- Scenarios development – this is an approach used for handling the lack of precision in forecasting. It involves development of several scenarios each scenario providing a different set of assumptions about future events. The scenarios describe a logical sequence of events that might occur in future
- Derived forecast – refers to a phenomenon that has been forecasted a government agency or other experts and is closely associated with variables to be predicted. A forecast may be derived from this estimates.
2) Quantitative methods – Involves the use of mathematical models to predict the future. The actual data is used in forecasting e.g. time series analysis, ratio analysis, budget forecasting, computer modeling etc.
Difficulties faced managers when forecasting
- Rapid fluctuation in external environmental conditions. This may affect the results of forecasting
- Lack of training on effective use of forecasting tools
- Cost of forecasting e.g. surveys are very expensive
- Lack of appreciation manager of the important of forecasting or planning and other management decisions
- Inaccurate data used in forecasting hence poor results and decisions
- Inaccurate judgmental estimates e.g. in brain storming sessions
2) BUDGETING AS A PLANNING TOOL
Meaning of a budget – A budget is a description of spending and financing plans of an individual, business, or government. As a planning tool, budgeting enables managers to plan for the financial implication of the principal activities to be implemented in the organization.
Importance of budgeting to managers
- Serves as a planning and control tool setting predetermined criteria against which managers can compare actual results of their performance
- Serves as a tool of coordinating the activities of various functions and operating segments of the organization
- Provides managers with the basis for allocating resources
- Information provided the budget enables managers to estimate and anticipate financial results / future commitments