This article throws light upon the five key benefits of planning in an organisation. The benefits are: 1. Planning is related to performance 2. Plans focus attention on objectives 3. Plans help eliminate uncertainties and anticipate problems 4. Plans provide guidelines for decision making 5. Plans are necessary to facilitate control.
Benefit # 1. Planning is related to performance:
There is ample empirical evidence regarding the importance of planning in organisational success. It has been observed that companies engaged in formal planning consistently out performed those firms with no formal planning. The performance/superiority is usually measured by such factors as net return on capital employed, sales turnover and growth in earnings per share.
Benefit # 2. Plans focus attention on objectives:
Once the organisational objectives are set the planning process involves the development of appropriate methods for accomplishing them. Plans continuously reinforce the importance of these objectives by focusing attention on them.
The effectiveness of every decision is assessed in terms of its contribution to the achievement of objectives of organisation. The presence of plans which focus upon these objectives prevents unnecessary involvement of managers in less important decisions and activities.
Benefit # 3. Plans help eliminate uncertainties and anticipate problems:
We have already noted that there is a close relation between planning and forecasting. An important aspect of the planning process is the collection of relevant information to be used for forecasting purposes. Herein lies the importance of scenarios and contingency planning.
A company has to develop contingency plans based upon possible future events and its alternative futures. These alternatives are called scenarios, Scenario is a corporate planning term used to describe a broad assessment of the long range position of the organisation in relation to estimates the various economic, technological, market, political and social forces that will affect its future development.
Contingency plans are prepared in advance laying down action to be taken if abnormal incidents should occur.
The contingency planning process involves three important steps:
(1) Identifying the critical events;
(2) Establishing the trigger points that will determine when the plan is put into action; and
(3) Planning the firm’s reactions. Choosing the truly critical risks is the hardest part of the process.
Space does not permit us to discuss the pros and cons of contingency planning. It suffices here to say that by developing plans for alternative future contingencies decision-makers are better prepared to take actions with the least possible interruptions when one of these scenarios occurs.
Benefit # 4. Plans provide guidelines for decision making:
Since plans do specify the actions necessary to accomplish organisational objectives, decisions about future activities are largely based upon them. Managers have standards. Therefore their decisions must be consistent with their standards. Reckitt and Colman’s success was largely based on a single product — Dettol.
But the tremendous popularity of this antiseptic germicidal resulted in decisions to manufacture a broad line of antiseptic items such as Dettol soap, Dettol cream, etc.
Benefit # 5. Plans are necessary to facilitate control:
“Controlling refers to the process of measuring and monitoring actual performance in comparison with pre-determined objectives, plans, standards and budgets and taking any corrective action required. The process of control enables management to determine whether plans are being implemented correctly and whether organisational objectives are being implemented correctly and whether organisational objectives are being achieved.”
Well-developed plans facilitate controls in the following ways:
(a) Plans give advance warnings of possible plan deviations:
Once the possible contingencies have been identified during the initial process of planning, management may establish a schedule of review dates and warning signals to keep itself alert to deviations. Such review systems may refer to such things as monthly operating statements or even daily reports of deviations from specified production, sales or even levels of profits.
Such deviations can then be properly investigated and remedial actions thought of.
(b) Plans provide concrete data:
Plans not only establish methods of determining deviations from expectations but also provide quantitative data concerning production or sales. Such internally developed data can be gathered at low cost. Alternatively, planners may purchase competitive information from private research groups like Tata Economic Consultancy Services, industry statistics, or market forecasts.