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Planning Process (With Diagram) : 5 Steps | Management

This article throws light upon the top five steps involved in the process of planning in an organisation. The steps are: 1. Establishing Goals (or Setting Objectives) 2. Determining where the Organisation or Subunit Stands Relative to the Goal 3. Developing Planning Premises 4. Choosing from Alternatives 5. Developing Methods to Control the Op­eration of the Plan.

Step # 1. Establishing Goals (or Setting Objectives):

This refers to deciding what the organisational or subunit wants or needs. Organisational objectives are integral parts of the planning process. These objectives are often considered as ends since they serve as the focal point for organisational decisions and activities.

The two most important organ­isational objectives are corporate growth and profitability. And there are different ways of achiev­ing growth — through acquisition or merger or diversification.

Business goals are often conflicting in nature: Therefore, so long as resources remain scarce, business firms have to choose one goal over another. It is because with limited resources it is not possible to achieve both the goals at the same time.

Step # 2. Determining where the Organisation or Subunit Stands Relative to the Goal:

This means “deciding how far the unit is from the goal, what resources it has for reaching the goal, and what its limitations are.” Corporate goals do not exist in a vacuum: Such goals must be evaluated in term of the organisation’s actual and potential abilities. This implies that the future must have a realistic basis in the present.

Thus once the goal (or the desired future situation) has been established on a tentative basis, it is the task of management to evaluate it in the light of the organisation’s or subunit’s present situation. Suppose the marketing manager of J.K. Synthetics sets an objective of achieving a 10% profit margin for a given product line within the next two years.

It now becomes necessary for the manager to evaluate the current situation: the present profit margin for that product line is 7% and the company arrives at an estimate that its chief competitor is marketing a similar line at a 105 profit margin. On the basis of this information, the manager may decide that the 10% objective is fair enough.

At this stage it becomes absolutely essential for managers to gather data to assess the present situation properly. It is because without such data informed planning can never take place. This explains why it becomes necessary for managers to keep all channels of communication open. In case of necessity a formal information system has to be developed for collecting relevant data.

Step # 3. Developing Planning Premises:

Premises are assumptions about the organisational environment, i.e., about the environment in which the organisation exists. The activities of an organisation are continually influenced by changing environmental factors, forcing adaptations of current operations and reviews. Efficient managers do tap all resources of information to anticipate and plan methods of coping with such contingencies.

Such environmental factors may be either internal or external. Internal factors develop within the organisation. An example of this is reduced production costs due to abundant supply of cheap raw materials. Internal factors may also develop within the manager’s own immediate scope of authority.

An example of this is reduced productivity among new employees. External factors develop outside the organisation. An example of this is a fall in the demand for jute goods due to development of a close substitute (synthetics). Short- and long-term forecasts often serve to aid the manager in developing alternative plans which, in their turn, serve as the means by which the organisational ends are reached.

In fact, after selecting the goals managers must determine what factors will aid or hinder them in achieving these goals. More often than not the resources of the organisation — its finances, equipment, and personnel — are the main aids available in the tool kit of the manager.

For example, if the goal of Maruti Udyog Ltd. is to reduce the size of its cars over next five-year period, the equipment on hand and the capital available for retooling this equipment will help it reach its goal. On the contrary, insufficient organisational resources may act as an effective barrier to the attain­ment of goals.

At times barriers to organisational goals exist as part of the organisational structure. Suppose, the goal of a manager is to develop a sense of unity in the organisation. Also suppose that communication in the organisation appears to be openly formal or the physical layout of the work place acts as a barrier to effective communication. Such barriers may have to be removed before the goal can be achieved.

Barriers to goals may also exist outside the organisations. For example the market conditions may prevent the introduction of a new product. Competitors may set low prices with a view to preventing the entry of new firms into the industry. Legal restrictions (such as the MRTP Act) may prevent the growth of the firm through acquisition or merger.

Step # 4. Choosing from Alternatives:

The next step in the planning process involves charting out (or developing) “various alternative courses of action for reaching the desired goal(s), evaluating these alternatives and choosing from among them the most suitable (or, at least, a satisfactory) alternative for reaching the goal.”

This fourth step may not be necessary if the manager is able to predict, after examining current trends, that the plan already in effect will carry the organisation or sub-unit to its desired goal. In such a case, the manager usually keeps a very close watch on the progress under the old plan and remains prepared to react quickly if there is any deviation from expected goals.

True enough, managers engage in planning because in most situations present conditions fail to fulfill goals and expectations.

Developing alternative courses of action:

If the existing plan of an organisation is not found usable, the manager has to develop alternatives from which to choose a new plan. These alternatives have to be realistic (or down-to-earth) in the sense that they must be based on existing and potential resources of the organisation.

Potential resources here refer to those resources which can be used without much difficulty (i.e., without affecting the company’s existing plans and programmes).

Evaluating the alternatives:

After drawing up a set of feasible alternatives a manager has to evaluate and compare them. In this process he (she) has to estimate the cost of carrying out each alternative and balance it against the potential benefits that can be desired from it.

Costs here refer not only to monetary costs but non-monetary costs as well. Non-monetary costs may refer to the effects of the planned actions on the people in the organisation, customers, suppliers, and others.

Making a selection among alternatives:

Its seems at first that most managers try to optimize, i.e., they try to choose the best, or, ‘optimal’ alternative. Such an alternative can be thought of as one which achieves the best possible balance of the costs, benefits, and uncertainties and is, therefore, most likely to achieve the best possible results.

However, Stoner has pointed out that there are often three major limitations placed on the planning/decision-making process:

1. Firstly, when making decision the manager may be crippled by the non-availability of important information.

2. Secondly, the manager may almost al­ways be under pressure to act quickly and with apparent decisiveness.

3. Finally, on most occasions, managers tend to overlook more attractive alterna­tives at the early stages of the planning process. See Figure 5.2.

 Step # 5. Developing Methods to Control the Op­eration of the Plan:

In Step 4 we noted that the manager watches the progress under the old plan. This is nothing but controlling the performance of the organisation in the light of the plan. . Controlling refers to the process of measuring and monitoring actual performance in comparison with pre-determined objectives, plans, standards and budgets for taking any corrective action required.

It involves “the continual analysis and measurement of actual operations to be established and standards developed during the planning process.” Controls ensure that plans are properly implemented or carried out. See Fig. 5.3.

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