Everything you need to know about the types and classification of planning. The planning covers the entire organization. It is a comprehensive process of determining the long term objective of the organization and evolving inter-connected and interdependent plans to be carried out inside the organization.
This plan covers corporate growth, research and development, divestment, unprofitable product/section modernization, expansion, diversification, merger and acquisition.
The types of planning can be classified under the following heads:-
1. Hierarchy Based Classification 2. Classification on the Basis Of Scope 3. Classification on the Basis of Time Horizon 4. Classification on the Basis of Challenges 5. Classification on the Basis of Formalities 6. Classification Based on Utility.
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Hierarchy based classification of planning includes:- i. Top Level Planning or Corporate Planning ii. Middle Level Planning or Functional Planning iii. Lower Level Planning.
Classification of planning on the basis of scope includes:- i. Strategic Planning ii. Tactical Planning iii. Operational Planning.
Classification of planning on the basis of time horizon includes:- i. Long Range Planning ii. Medium Term Planning iii. Short Range Planning.
Classification of planning on the basis of challenges includes:- i. Proactive Plans ii. Reactive Planning.
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Classification of planning on the basis of formalities includes:- i. Formal Planning ii. Informal Planning.
Classification of planning based on utility includes:- i. Single Use Plans- Budgets, Programmes, Schedules, Projects, Methods ii. Multi Use Plans- Objectives, Strategies, Policies, Procedures, Rules.
Some of the other types of planning includes:- 1. Formal and Informal Planning 2. Short and Long-Range Planning 3. Single Use and Standing Planning 4. Corporate Planning and Long-Range Planning.
Additionally, learn about some of the types such as:- 1. Strategic Plans including vision, mission, values, objectives, strategies and goals 2. Contingency Plans 3. Tactical Plans 4. Operational Plans.
Types and Classification of Planning in Business and Management: On Basis of Hierarchy, Scope, Time Horizon, Challenges, Formalities, Utility and a Few Others
Types of Planning – Formal and Informal Planning, Short and Long-Range Planning, Single Use and Standing Planning and Corporate and Long-Range Planning
The process of planning may be classified into different categories on the basis of nature of planning, duration of planning or the use of planning.
Type # 1. Formal and Informal Planning:
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Planning is formal when it is reduced to writing. It would be advantageous to prepare a formal plan for the success of the enterprise when the number of action is large, as it will facilitate adequate control and pinpoint the weaknesses, if any.
An informal plan is one which is not reduced to writing but is conceived in the mind of the manager. Informal planning may be adopted if the number of actions to be taken is less and the actions have to be taken in a short period.
Type # 2. Short and Long-Range Planning:
The difference between short and long-range planning is based on the period which is kept in view while formulating a plan. Generally, short-term planning is one which covers a period from one to twelve months. Long-range planning usually covers a period of usually more than five years. In between, there may be medium-term plans. Short-term plans must be formulated in a manner consistent with long-term plans.
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Both the plans are complementary and not competitive to each other. Short-term planning is considered as ‘tactical planning’ and long-term planning is taken as ‘strategic planning’.
Long-term planning has an enduring effect on the business and is the responsibility of the top management. It involves determination of the long-range goals and the laying down of procedures, programmes and policies to achieve those goals. It is concerned more with distant future.
It involves the work of increasing or reducing the resources of the business also. Short-term plans are concerned with immediate futures. It takes into account the available resources only and is mainly concerned with the current operations of the business.
Type # 3. Single Use and Standing Planning:
A single use planning is one which sets a course of action for a particular set of circumstances and is used up once the particular goal is achieved. They may include programmes, budgets, projects and schedules. This plan is prepared by lower-level management. These plans are also called ‘specific planning’.
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Standing planning is one which is designed to be used over and over again. Standing plans are of a permanent nature and are meant for repeated use. Objectives, policies, procedures, methods, rules and strategies are included in standing plans. Its nature is mechanical. It helps the higher executives to reduce their work load Standing planning is also called ‘Routine planning’. These plans are prepared by top-level management.
Examples of Plans or Planning:
i. Architectural planning
ii. Business plan
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iii. Comprehensive planning
iv. Enterprise architecture planning
v. Event planning and production planning
vi. Family planning
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vii. Financial planning
viii. Land use planning
ix. Marketing plan
x. Network resource planning
xi. Strategic planning
Type # 4. Corporate Planning and Long-Range Planning:
Corporate planning and long-range planning is the process of determining the major objectives, policies and strategies that will govern the acquisition, use and disposition of resources to achieve those objectives of an organisation and is done at high /top level of the organisation.
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It provides the answer to the basic questions like:
i. Where are we now?
ii. Where we want to go?
iii. Why do we want to go?
iv. How we will go? Etc.
Features of Corporate Planning:
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i. Systematic – Corporate planning is a systematic way of setting the Long-term goals of a company and deciding the means to achieve them – taking internal as well as external factors into account.
ii. Continuous – Corporate planning is a continuous, on-going process. Corporate plans move in tune with internal as well as external changes. They are subject to revision and updating from time to time.
iii. Company-wide plan – Corporate plan is a kind of master plan covering the company as a whole. All functional plans are offshoots of the corporate plan.
iv. Long-term view – Corporate planning takes a long-term view of business and does not deal with day-to-day operations.
v. Top level activity – Establishing long-term corporate goals and the means of achieving these, is a top management responsibility. Of course, in the process of building corporate goals, inputs from executives working at various levels are also taken into account.
vi. Forward looking – Corporate planning tries to put the company ahead of its rivals through a careful evaluation of all relevant internal as well as external factors having a bearing on overall performance. The whole exercise is forward looking in nature, in that it tries to match a company’s internal strengths with external opportunities and utilize the corporate resources in the best possible way.
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vii. Comprehensive – Corporate planning covers both strategic planning and operational planning. Strategic planning is designed to help companies achieve competitive advantage by trying to exploit external opportunities through unique internal capabilities. Operational plans such as production plan, marketing plan, and finance plan are designed to implement strategic plans.
Every company has its own strategies, corporate mission, planning, organisation vision etc.
E.g., public sector giant HMT which prided itself, for a long time on its dominance in the Indian wrist watch market. The company was on a high tide for a long time and failed to understand the shift in the consumer preference towards the trendier, sleek quartz watches. It took the market for granted and in the meantime HMT’s traditional markets captured by TITAN with its innovative marketing strategies and changed the face of the Indian watch market.
Corporate Planning vs. Long-Range Planning:
Corporate planning is the comprehensive planning of business operations for effective implementation of corporate policies and attainment of corporate goals. It involves preparation of strategic plans and determination of objectives to be pursued in the long-run as well as short-run. It commits resources for a future period that can be clearly looked into. It has nothing to do with the range.
For example, in groundnut cultivation, resources are deployed for a few months and the time frame of a corporate plan is less than a year. On the other hand, in iron and steel industry, the resources are deployed, having a long-term framework in mind.
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Long-range planning is a part of corporate planning. It is a plan that covers many ears and affects many departments or divisions of an organisation in a major way. It is concerned with the preparation of realistic estimates for distant future. It indicates the extent of future time horizon which is fairly long in nature and which can be meaningfully expressed in the form of tentative goals by management.
The time horizon of a long-term plan is usually dependent on the nature of industry in which it is pressed into service. Such planning is basically concerned with the economic, financial and technological aspects of the environment with special reference to the problems of corporate growth.
Types of Planning – On Basis of Hierarchy, Time Horizon, Scope, Challenges, Formalities and Utility
I. Hierarchy Based Classification:
1. Top Level Planning or Corporate Planning:
This planning covers the entire organization. It is a comprehensive process of determining the long term objective of the organization and evolving inter-connected and interdependent plans to be carried out inside the organization. This plan covers corporate growth, research and development, divestment, unprofitable product/section modernization, expansion, diversification, merger and acquisition.
Features of Corporate Planning:
i. It has a long term perspective.
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ii. It is developmental in nature and focuses on the growth of the company.
iii. It covers the organization as a whole. It involves using all resources of the organization.
iv. It is a continuous process. It keeps on identifying newer opportunities, avoiding threats and reviewing the programmes in view of ever-changing environments.
v. It integrates strategic plan with operational plans.
Process of Corporate Planning:
i. Defining the long term objectives of the company.
ii. Determining the time span of the enterprise.
iii. Scanning the environment both internal and external.
iv. Apprasing resources position both in the current and future period, and assessing the strength and weakness of the organization.
v. Devising alternative strategies.
vi. Transforming corporate planning into operational plans for different functional domains.
vii. Reviewing the accomplishments and failures.
viii. Sustained revision of plans.
2. Middle Level Planning or Functional Planning:
This refers to plans made in various departments. It lays down the objectives, policies and programmes for various domains like purchase, production, marketing, human resources, finance and other functional areas. The heads of various departments are involved in this planning.
The departmental plans are made within the framework of top-level plans. The smooth accomplishment of various departmental plans contributes to successful execution of corporate plans. Departmental heads through their periodical review meetings, integrate the functional plans into corporate plans.
This is also called sectional planning. It covers the activities associated with a given functional domain. Unit planning is highly specific and very much detailed as it encompasses the work details for the day to day guidance of human resources employed in different departments.
It determines work, duties, specific instructions, work scheduling, arranging tools, raw materials and other facilities. Effective performances of unit level plans leads to accomplishment of organizational goals.
II. Classification on the Basis Of Scope:
1. Strategic Planning:
Strategic planning envisages the possible changes that may take place in the competitive environment and other environmental conditions and making provisions for meeting them successfully.
Characteristics of Strategic Planning:
i. It is a long range one.
ii. It deals with the basic activities like product development, discovery of new geographical area, new technology, invention and social responsibility.
iii. It is purely a top level activity.
iv. It is an all-out effort made by the organization and strongly backed up by the commitment of long term assets.
v. It is a continuous process.
Process of Strategic Planning:
It involves the following:
i. Formulation of goals.
ii. Environmental scanning.
iii. Resources assessment.
iv. Identification of threats and opportunities through SWOT analysis.
v. Putting in place alternative strategies.
vi. Review of alternative strategies.
vii. Absorption of the strategy.
i. It provides consistency and shows direction to the organizational development.
ii. It enables them to deal with environmental changes.
iii. It minimizes the probability of mistakes and unpleasant surprises.
iv. It facilitates long term decision-making and shortens the lead time of any project.
v. It eases downward communication.
Shortcomings:
i. It is expensive as it involves the use of time and energy of those involved in it.
ii. It takes a longer time to structure this plan. Hence, small organizations hardly engage in devising this type of planning.
iii. It is useless in addressing current crisis.
iv. It restricts its choice to most rational and less risky projects. It avoids those projects which involve higher uncertainty. But such projects may prove profitable in the long term.
This type of planning is narrower in scope. However it is a detailed one. The thrust of tactical planning is short term i.e., one to two years. These plans are changed quite often in line with the change in the environment. It focuses on the means of accomplishing the objectives of sub-goals and action plans. Middle level managers are mostly engaged in this type of planning. It is devised mostly in terms of internal environment.
This planning is coordinative in nature and it is concerned with implementation of strategic plan by coordinating the diverse activities of different departments. For example, if strategic planning involves development of a new product by production department, tactical planning involved includes design, testing, quality control and installation of production facilities.
This type of plan limits itself to devising procedures and processes to execute the plans in work stations in different departments. It is highly detailed. Usually supervisors, foremen or superintendents are engaged in evolving the operational plans. It is short tenured plan aimed at carrying out routine tasks like production runs, work scheduling, arrangement of tools and machinery, readying raw materials, machine maintenance, etc.
In short, these plans are evolved at shop floor level implemented by frontline workers or core workers like operators, machinists, assemblers, clerks and sales persons.
III. Classification on the Basis of Time Horizon:
This type of plan covers a time period of two to five years. At times, the tenure of plan may go beyond five years. It takes the form of goal setting for various functional domains, framing strategies, policies and programmes. This type of plan can be more suited to industries which are not mainly hit by ever changing environmental variables.
This is quite common in textiles, railways, defence, public utilities, etc. It is the top level management which is usually engaged in evolving long term plans. The goals of long term plan may be attaining market leadership, technological leadership, globalization of operations, building up employer brand and so on.
The duration of medium term planning ranges between one year and three years. However, it may vary given the nature of business, risk and uncertainties, market conditions, level of technology absorption, etc. It is more detailed and specific one. The medium term plans are evolved by departmental heads.
The tenure of short term plan is up to one year. It is more specific, detailed and instructional in nature. It is action centric plan. It is mainly carried out by those at lower echelons of the management. For example, sales quota, work scheduling, work assignment, choice of machine to work, decision on shift working, repairs and maintenance, quality inspection, waste control, material economy, etc.
IV. Classification on the Basis of Challenges:
The environment dynamics influence the planning in no small measure. In such a case, planning is made to weather the storm emerging from environmental forces. Accordingly, planning is divided into proactive and reactive planning.
Proactive planning involves devising suitable course of action in anticipation of likely changes in the relevant environment. Organizations have to scan the environment very deeply and have decentralized control. They should keep in readiness the resources required for meeting anticipated eventualities.
The organizations using the proactive plans do not wait for the environment to change. Managers challenge the environment. Only very big entities with financial soundness and other resources support can afford to go for proactive planning. In India, Reliance, TATA etc., engage in proactive planning.
This type of planning reacts to the events unfolding in the environment. This planning happens after the occurrence of events. In the contemporary business world, organizations have to respond to the changes swiftly so as not to lose the opportunity. In cellular telephone market, Nokia lost to Samsung due to delayed or non-response to changes unfolding in the cell phone market.
In India, Hindustan Automobile Ltd., lost its market share to Maruti Udyog Ltd., due to very belated response to changes in consumer behaviour in automobile market. Hence, reactive planning holds good only in stable business environment. In other words, reactive planners have to lose to proactive planners in changing business environment.
V. Classification on the Basis of Formalities:
This connotes a well-structured process, involving clearly identifiable and sequentially arranged steps. Persons cast with the responsibility of making formal plans are empowered by the organization. Some organizations have a separate department dedicated to planning. Thus planning is centralized.
This department makes plans for the organization as a whole. But most of the organizations nowadays adopt decentralized planning. The very structure of the organization is changed to enable the employees across the levels make plans at their respective levels. Formal planning is a well-documented exercise. It serves as a reference material for future planners in the organization.
This connotes unstructured plans based on the memory of events and evaluation of environment factors of the managers. This is mainly adopted in small organizations where operations are small and simple.
VI. Classification Based on Utility:
Plans under this head are grouped as follows:
Single use plans are called adhoc plans. It intends to achieve objectives in a given situation. They are tailored to meet a specific situation. These plans are formulated for addressing non-repetitive and unique problems. Once the specific objective is achieved, this plan ceases to exist and new plan is devised, e.g., budgets, programmes, projects, schedules and methods.
a. Budgets:
This represents a single use plan containing expected results in quantitative term. It is expressed in terms of time, money and material. It is prepared for various functional areas like production, sales, finance, human resources and materials.
It may be a fixed budget or variable budget. A fixed budget is one prepared for a given level of production activity. It does not provide for changes in cost for various levels of activity. A flexible budget is one prepared for different levels of production activities.
Characteristics of Budget:
i. It is expressed in numerical terms.
ii. It is related to future period.
iii. It is prepared in advance and derived from the long term strategy of the organization.
iv. It sets standards of performance against which actual performance is matched for control purpose.
v. There are separate budgets for different functional departments. A budget called master budget is prepared for the whole organization.
vi. It is both planning and control device.
Objectives of Budget:
i. Determination of target of performance for each department or section of the enterprise.
ii. Fixation of responsibilities for each executive so that one knows what is expected of him and how he will be evaluated.
iii. Provision of measures for performance evaluation.
iv. Enabling better utilization of available resources to maximize output or profit subject to constraints.
v. Initiating corrective action to address deviations from the targeted performance.
vi. Centralisation of control.
vii. Decentralisation of responsibility to each manager.
Advantages of Budget:
1. Charting future course – Budget enables business enterprises to chart a future course of action.
2. Performance measurement device – It facilitates measurement of performance and efficiency of functional departments.
3. Blueprint for goal attainment – It serves as a blueprint for attainment of the objective.
4. Motivation to staff – Target fixation through budgeting exercise serves as motivation to staff members to put in their best efforts to attain it.
5. Coordination device – Budget serves as a tool for coordination through which the functions of various departments are coordinated. Each department becomes aware of limitations faced by others. It results in reduction of inter-departmental conflict. It enables the department to cooperate with one another in realising objectives of one another.
6. Foundation for standard costing – It is a foundation on which standard costing and other cost control techniques are put in place.
7. Feedback on plans – It provides a feedback for revision and alteration of future plans.
8. Sense of commitment – Since staff of each department are engaged in framing the budget of a department, there may prevail a sense of commitment among the staff to actualize the target.
Limitations:
1. Uncertainty factor – The effectiveness of a budget depends on the accuracy of budget figures. Besides, uncertainty of future events may tone down the potency of budgetary system.
2. Expensive – The prohibitive cost of installation of budgetary control system does not allow small businesses to embrace it.
3. Interdepartmental conflict – Interdepartmental conflict, if any, may diminish the value of budgetary control.
4. Lowering morale – Lesser budget allocation to any department than the actual expectation may tone down the morale of the staff of the department concerned.
5. Infusion of rigidity – When the budget is not revised according to the major shift in the circumstances, it becomes irrelevant. Rigidity may impair the efficacy of budgetary mechanics.
6. Time consuming – It is a time consuming and expensive process requiring different kinds of data and specialized service.
7. Self-centric attitude – Managers may tend to forget their commitments to the attainment of overall goals of the organization in their zeal to meet the departmental target expressed through budget.
8. Restricting freedom – Budgetary controls restrict the freedom of departmental manager in managing their domains.
Types of Budgets:
There are broadly two types of budgets namely financial and non-financial budgets.
A. Financial Budget:
1. Revenue Budget – It estimates the revenue earned in a given years.
2. Expenses Budget – It estimates the expenses involved in running the business in a given year, e.g., raw material, labour, fuel, rent, etc.
3. Capital Revenue Budget – It estimates the capital income earned in a given year.
4. Capital Expenditure Budget – It estimates the value of capital expenditure to be incurred in capital assets like land, machines, building, etc.
B. Non-Financial Budget:
1. Sales Budget – It estimates the quantities of products which can be sold in the next operating period.
2. Production Budget – It estimates the volume of goods to be produced during the next operating period.
3. Labour Budget – It estimates the different kinds of labour requirements to produce the budgeted output.
4. Material Budget – It estimates the quantities of materials to be consumed in the production of budgeted output.
5. Overhead Budget – It estimates the value of overheads to be incurred in the manufacturing process.
6. Master Budget – The consolidation of all functional budgets is called master budget.
Budgeting Based on Level of Activity:
Sometimes budgets may be prepared for a single level of activity. It is called fixed budget. On the other hand, when it is prepared for different levels of activities it is called flexible budget. This budget is considered to be superior to fixed budget as it distinguishes fixed and variable costs and indicates cost variations activity-wise.
Zero Based Budget:
This forces the manager to review the budget every year a fresh. If the outcomes of budget do not justify the resources invested, it is dropped. Further funding is stopped.
Prerequisites for Effective Budgeting:
i. Clear cut objective – Objectives of the budget should be clearly laid down so that budgets can be made in keeping with those objectives.
ii. Sincere data collection – Budgetary data should be collected with utmost seriousness and sincerity.
iii. Involvement of those concerned – Subordinates who are to be charged with implementation should be involved in budgeting process.
iv. Provision for review – There should be provision for review of budget in the light of change in circumstances.
v. Freedom for modification – Operating managers should be allowed room to make necessary modification in the course of implementation, if necessary.
b. Programmes:
Programme is a complex or blend or admixture of objectives, goals, strategies, policies, rules and job arrangements as well as the fiscal, physical and human resources required to implement them.
For example, airliner company may like to acquire 20 jet planes in 10 years at 2 per year; Deputing x and y for supervisory training in IIM for the year 2014. A television manufacturing company may plan to have production programme as follows – Jan. 2014, 200 sets; Feb. 2014, 250 sets; March 2014, 300 sets; and so on.
Steps involved in evolving programmes:
i. Objectives should be quantifiable.
ii. Identification of task involved in realization of the objective.
iii. Making reference to the policies framed.
iv. Laying down the procedure most appropriate for performing those tasks.
v. Splitting the procedures into a number of steps.
vi. Sequencing the aforesaid steps.
vii. Determining the resources required to achieve the objectives.
viii. Preparing action plan corresponding to each step.
ix. Identification of persons responsible for each activity.
x. Fixing start and end time of each activity.
Advantages and Disadvantages of Programme:
Advantages:
1. It concretises the plan and facilitates its implementation.
2. It aids in framing budgets and contributes to the planned allocation of resources.
3. It enables the employee to work with enthusiasm as every staff knows the task he/she has to do.
4. It minimizes the wastage of time in the work place.
5. Consultation and engagement of employees in evolving programmes promote employees’ active participation in its implementation.
Disadvantages:
1. It requires a great deal of time, energy and other resources to make programmes.
2. Once programme is evolved, employees tend to think within framework of programmes. It incapacitates their creativity.
3. The influence of extraneous factors hinders the smooth execution of a programme.
c. Schedules:
A schedule is a time table of work. It specifies the beginning and ending time of each task. Scheduling involves three components; identifying activities or tasks to be performed, determining the sequence and specifying starting and ending dates for each and every activity.
Scheduling is the process of establishing a time sequence for the work to be performed. Schedules facilitates smooth transition of programmes. Schedules are concerned with technical operation. For example, time tables prepared by educational institution; various events scheduled in any meeting. Training agenda and work schedule prepared in any manufacturing industry represent schedule.
d. Projects:
Division of a larger programme into a number of sub programme is a project. It is also defined as a scheme for investing resources which can be analysed as an independent unit.
Features:
i. It is a non-recurring plan.
ii. Each project is distinct, adhoc and temporary.
iii. It involves time-bound activities.
iv. It has distinct mission and has a termination point.
v. It has its own manager, budget and manpower drawn from other departments.
vi. It is a self-contained activity with distinct goal and time frame.
Suitability:
Project approach is suited where:
i. Work done is of special nature requiring expertise from different departments.
ii. Work is of complex nature.
iii. Cost of the work to be executed is high.
iv. Work is to be completed in a fixed time frame.
e. Methods:
A method is a manner prescribed for performing a given task with due consideration to objectives, facilities and total expenditure of time, money and effort.
Features:
i. It represents standard ways of doing things.
ii. It seeks to enhance the efficiency of operations.
iii. Methods are prescribed after research and analysis.
iv. There is no penalty for violation of method.
v. It is directly connected with control.
vi. It is mostly related to physical and other tasks.
vii. It provides detailed and specific guidance for day to day operations.
viii. It is more limited in scope than a procedure.
Advantages:
i. It facilitates performance of operation on the planned lines.
ii. It prevents confusion and adhocism.
iii. It simplifies the work.
iv. They serve as uniform norms to guide and control operations and performance.
v. It makes it possible for efficient and consistent work performance.
2. Multi Use Plans:
a. Objectives:
Objectives represent the end towards which all the managerial functions are directed. It indicates the destination of ah organization. The entire planning process begins with the setting up of objectives. In the words of Allen, “Objectives are goals established to guide the efforts of the company and each of its components. It provides a standard against which the organization can measure its performance and results”.
“Objectives are goals; they are aims which management and administration wish organizations to achieve”. — Robert C. Appleby
“Objectives are goals, aims or purposes that organization wish to achieve over varying periods of time”. — Dalton E. Mcfarland
i. Organization has different objectives like earning a given level of profit, expansion of product line, geographical expansion, modernization, service to society and so on.
ii. Objectives have time span.
iii. They form a hierarchy.
iv. The objectives of various segments of an organization collectively contribute to the accomplishment of overall objectives of the organization.
v. There are tangible and intangible objectives.
vi. It may be short term or long term.
vii. Objectives take different forms namely, vision, mission, target standard, goals, quota and deadline.
b. Strategies:
According to Koontz, “strategy is a plan made in the light of plans of the competitor”. It connotes unified, integrated and comprehensive plan of action to achieve an objective or set of objectives. This may also refer to plan devised in response to changes in environmental forces. It deals with how to achieve an objective. For example, passing IAS may be one of the objectives of a person. There are different ways to accomplish the said objective.
Joining a coaching class, choice of options, hardworking, group study, attending mock interviews etc., connotes strategy. Similarly, achieving a turnover of 25 crores is an objective. Strategies for accomplishing the objective include price, opening own outlet, e-marketing, personal selling, advertisement, increasing product line, etc. Thus strategy is born from objective.
Strategies are long term in nature. They are action oriented. They are dynamic and flexible. They are formulated both at top level and middle level managements. They aid in achieving objectives.
c. Policies:
Policies are general statements that guide in decision-making. Policy decisions are usually taken by top level management. It takes the form of written statement. Policies should be clear, stable, understandable and observable. They serve as guides to thought and action. They transform objectives into workable form. They are of different types like originated policies, implied policies, appealed policies and externally imposed policies. There are various phases involved in formulation of policy viz., formulation, communication, application and review and appraisal.
“A procedure is a series of inter-related sequential steps that can be used to respond to a well-structured problem”. — Mary Coulter
Benefits or Significance of Procedures:
i. It routinizes recurring jobs so that employees need not find out creative solution to address repetitive problems.
ii. Uniformity – It helps in bringing about uniformity in work performance.
iii. Work simplification – It simplifies the work to be performed and eliminates unnecessary work steps.
iv. Reducing subjectivity – It reduces subjectivity in judgement which facilitates delegation of work to lower level management.
v. Freedom of communication – It speeds up flow of information and enables the top management to practice management by exception.
vi. Creating orderly function – It creates order, tidiness and expediency in the enterprise.
vii. Relief to managers – It relieves the manager of the burden of directing the subordinates due to standardization of steps to be followed by them in performing their work activity.
Limitations:
i. Absence of flexibility – Procedures laid down do not offer any flexibility. Once it is established, it is to be unquestionably followed. Hence it dampens individual initiative.
ii. Rigidity – Procedures creates rigidity in functioning as they do not allow the individuals the scope to interpret it. They are customized.
iii. Absence of periodical review – Procedures formulated need a constant review given the dynamics in a given situation. But they are reviewed.
iv. Red-tapism – Too much of procedures cause delay in decision-making. It may give rise to bureaucracy.
Hallmarks of a Good Procedure:
i. Procedures should be fact based and not be evolved on personal whims and fancies.
ii. It should be focused on accomplishing a desired objective.
iii. It should minimize the paper work.
iv. It should ensure faster flow of work.
v. It should be standardized so as to fix accountability.
vi. It should be stable but should be altered according to changes in work environment. In other words, it should be constantly reviewed.
vii. It should be pragmatic and action oriented.
e. Rules:
The term rule may be defined as the prescribed directive to people on their conduct and behaviour. It is a specific instruction of what should be done in a given environment.
Features:
i. Rigidity – Rule is a rigid and definite plan. It leaves no scope for discretion or deviation.
ii. Discipline – It brings discipline in the organization.
iii. Uniformity – It ensures uniformity of action in the organization.
iv. Relief to top management – Rule is to avoid repeated reference to higher level authorities for authorization of routine matters.
v. No bias – Rules are applicable to all employees across the organizational hierarchy.
vi. No room for personal prejudice – No personal likes, dislikes, bias and personal judgement can interfere with rules.
vii. Distinct rules for domains – Rules are prescribed for different functional domains.
viii. Violation leads to penalty – It is highly rigid and their non-compliance attracts penalty.
ix. No standardised condition – Rules do not require standardization of condition.
x. No connection with performance efficiency – Rules have nothing to do with performance efficiency.
Benefits:
i. No chaos – Application of rules promotes smooth functioning of an organization. It averts chaos and confusion.
ii. Uniformity of action – It ensures uniformity and consistency in work performance.
iii. Relaxed supervision – It reduces the need for tight supervision.
iv. No scope for interpretation – Rules are specific instructions and commandments. They do not provide any scope for individual interpretation. Hence there is no scope for judgement and bias.
v. No discrimination – Rules do not provide room for partiality and discrimination.
vi. Sense of security – Employees who go by rules gets a sense of security.
vii. Orderly behaviour – It brings in orderly behaviour in the organization.
Shortcomings:
i. Red-tapism – Too much emphasis on rules breeds red-tapism and bureaucracy.
ii. Demoralizing impact – Punishment awarded while applying rules may result in demoralizing the employees.
iii. Rigidity – Rules are rigid and their non-compliance attracts penalty. They do not give consideration to individual needs and type of situation.
iv. Killing initiative – Rules are said to be killing individual initiative.
v. Mechanical behaviour – It tends to straitjacket human behaviour and make them behave like a robot in an organization.
Types of Planning – Strategic Plans, Contingency Plans, Tactical Plans and Operational Plans
Plans are of various types. Let us discuss them and try to understand their utility in different scenarios.
1. Strategic Plans:
These are long-term plans spanning a planning horizon of about 3 to 10 years. Strategic plans set out the overall direction for the firm keeping in view the long-term objectives to be achieved. In strategic planning, the top management tries to answer such questions as- “What is the environment we are operating in?”, “Where are we heading?”, “How do we take the organization from the current state to a higher state of success?” The various types of strategic plans are mission (including vision and values), objectives, and strategies.
i. Vision:
A desired future state of the organization. Imagination and inspiration are important components of a vision. Typically, a vision can be viewed as the ultimate goal of the organization, one that may take 5 or even 10 years to achieve.
ii. Mission:
The purpose or reason for the organization’s existence, i.e. what business we are in, what we do, and whom we serve.
iii. Values:
What the organization stands for and believes in. These are the principles to be observed to meet the vision or principle to be served.
iv. Objectives:
These are the desired outcomes in such areas as customer service, profitability, and social responsibility, that the management of an organization hopes to attain.
v. Strategies:
Once the top management of an organization has created the mission, vision, values and objectives, they are ready to create the strategies or grand plans for achieving them. Strategies are long-term plans which are chosen from a set of possible options after careful analysis of the opportunities and threats offered by the external environment as well as the strengths and weaknesses of the organization vis-a-vis competitors.
vi. Goals:
The terms objective and goal are often used synonymously. However, there is a subtle difference between the two. Goals are more concrete aims of the organization and more specific than the objectives. Goals are the specific means by which the ultimate objectives of the organization are achieved. For example, during the late 1950s, General Electric (GE) had the objective “Provide fair return on investment” and its corresponding goal as “20% on investment (after taxes); 7% on sales (after taxes)”.
The strategic objectives are translated into (say annual) goals, while the strategy is broken down into (say annual) tactical plans.
2. Contingency Plans:
Today’s business environment has become highly volatile and unpredictable due to global competition. Organizations, therefore, have to be prepared to change their strategies in the wake of drastic changes often encountered in the environment. It is much more beneficial if organizations follow a proactive approach of developing alternative strategies for various scenarios which may prevail over a period of time. These alternative plans are called contingency plans.
Thus, contingency planning involves identifying alternative courses of action which can be implemented if and when the original plan proves inadequate because of changing circumstances. Contingency plans are kept ready alongside the business grand strategy currently under implementation.
3. Tactical Plans:
The strategy developed by the top management is helpful in winning the corporate “wars” against the competition, while the tactical plans help in winning the shorter duration “battles”. As we know, winning many battles leads to winning the war. In a similar way, well thought of tactical planning (say for a duration of a year) derived from the business grand strategy aids in long-term survival and growth of the organization.
Strategic planning has the focus of providing directions on what the organization would be doing in the future (in the long-term), while tactical planning is all about deciding how these activities would be accomplished (in the medium-term).
For example, the strategy of Laxmi Niwas Mittal group for the past decade has been to grow inorganically by acquisitions of steel companies worldwide. The successful acquisition of Luxembourg-based Archelor in 2006 was a tactical plan in line with this overall strategy through which Mittal Steel acquired many plants over the years in Mexico, Canada, Germany, and Kazakhstan.
4. Operational Plans:
Operational plans (also called functional plans) are very specific, focused and short-term plans in line with the tactical (say annual) plans. These plans pertain to the various functional departments of an organization like finance, operations, marketing, HR, and IT. The time duration covered by these plans can be monthly, weekly, or even daily. For example, the production plans prepared by a manufacturing organization fall into this category.
If the tactical goal is, say, to increase the revenue by 20% this year (in line with the business objective of, say, doubling the revenue in the coming 5 years) and the corresponding tactical plan is to gain 10% new business (from new clients) while increasing 10% business from existing clients, the operational plan of the marketing department may be to create a new advertisement for electronic media to attract new clients while arousing the interest (and business volumes) from existing clients.
Similarly, the corresponding operational plan of the production department may be to reduce production costs by 10% which in turn will help in offering better pricing to the clients and thus, in attracting new clients would be easier (while gaining more business from the existing clients). Hence, operational plans strive to utilize the available resources optimally in order to support the tactical plan (and achievement of the tactical goals).
There are two types of operational plans, namely standing plans and single-use plans. Standing plans (also called continuing or on-going plans), are usually made once and retain their value over a period of a year (or a couple of years), while undergoing periodic revisions and updates during this time frame. These periodic revisions and updates ensure that the standing plans remain in tune with the (annual) tactical plans.
There are basically three types of standing plans:
i. Procedures,
ii. Policies, and
iii. Rules and regulations.
A set of step-by-step directions that explains how activities or tasks are to be carried out is called a procedure. By defining the steps to be taken and the order in which they are to be done, procedures provide a standardized way of responding to a repetitive problem. For example, standard operating procedures (SOPs) are pictorially displayed over complex machines in factories to aid (as well as remind) the operator to follow the exact sequence of steps as explained there. This becomes a useful mechanism to ensure quality of products processed by the operator on the machine.
Similarly, the purchase departments of an organization usually have standard procedures to be followed. For example, in India, the public sector units (PSUs) like Indian Oil Corporation Ltd (IOCL), Steel Authority of India Ltd (SAIL), Bharat Heavy Electricals Ltd (BHEL), etc. have the standard procedures prescribed by the Comptroller and Auditor General of India (CAG) to purchase items from vendors.
As per this procedure, a PSU has to float an open tender and invite proposals from vendors. Out of the proposals received, the procedure prescribes the selection of the lowest bidder (popularly known as the LI). The merits (and demerits) of this procedure are however debatable.
Policies are guides to managerial action. Policies are general statements that explain how a manager should attempt to handle routine management responsibilities. An organization may have policies in a number of areas- quality, environment, safety, human resources, etc. These policies guide day-to-day decision-making. For example, an organization may have the policy of providing “equal employment opportunity to all” implying that no biases would be done in relation to caste, creed, religion, or nationality.
iii. Rules and Regulations:
These are explicit statements that tell an employee what he or she can and cannot do. These are “do” and “don’t” statements put into place to promote the safety of employees and the uniform treatment and behaviour of employees. For example, it is a rule in Maruti Suzuki plant at Gurgaon that anybody entering the factory premises must wear a helmet provided by the main gate security in order to ensure the safety of the visitor inside the factory.
Single-use plans, as the name suggests, are made for activities which do not recur or repeat. Thus, such plans are required for activities which have one-time occurrence.
The types of single-use plans are:
a. Budgets,
b. Projects, and
c. Programmes.
a. Budgets:
These are financial plans which predict sources and amounts of income and how much they are used for a specific organization, activity or department. For example, an annual budget is announced by the Union Railways Minister for the Indian Railways. Every year, the Railway budget has some unique features or the other, which distinguish it from the budgets for the previous years.
b. Project:
It is a temporary endeavour undertaken to create a unique product or service. Due to the uniqueness of the product or service to be created by it, every project is unique in itself and thus, qualifies to be categorized under single-use plans. For example, the Indian Oil Corporation Limited (IOCL) has numerous refinery and pipeline projects, many of which have been completed while the others are on-going.
c. Programme:
It is a schedule or an ordered list of events to take place. For example, an inauguration programme for a new facility which includes the ribbon cutting, speeches by key officials/invited guests, tour of the new facility for the guests, etc. in a predetermined sequence.
Directional Plans versus Specific Plans:
McCaskey (1974) challenged conventional descriptions of planning as necessarily tied to setting specific goals (specific plans). In his view, instead of specifying concrete measurable goals, the planners should work more from who they are and what they like to do. This type of planning without goals is called planning from thrust or directional planning which points to the positive characteristics of the process.
A device sometimes used to identify direction for an individual is to consider events and activities in the recent past which have been most deeply satisfying to him. From those events, the individual tries to identify a pattern which describes a direction for him. Objects which lie along the path in which the direction is moving may become goals. But even when goals are chosen, one goal might easily be substituted for another as long as it lies on the general path of the direction.
Directional planning thus has a lot of flexibility compared to specific planning, however it is much more stressful and cumbersome for planners who are accustomed to planning with specific goals. Therefore, directional planning is more suitable for top management who are involved in strategic planning and the entrepreneurs creating their new business ventures.
Managers in lower hierarchies of the organization, involved in tactical and operational planning are better off working with specific plans based upon specific goals (which are guided by the overall directional plans provided by the top management).
Figure 2.2 shows an example to demarcate between directional and specific plans. The directional plan only provides a general direction for a traveller in a city map depicted in this figure. The traveller has the liberty to choose any set of routes suitable to him as per personal preference. However, in a specific plan, the traveller is given a specific route between the source A and the destination B (a predetermined goal).
Types of Planning – 11 Types
There are different ways in which plans are classified. Basically plans are of two types, formal and informal. Formal planning is comprehensive and rational. Informal planning is exclusive for managers who develop plans but never formally put them on paper and may not even communicate them to others. The informal planning remains only within the minds of the managers as an image of what should or shall be done.
It lacks definiteness expression and even rationality in the sense that it is instinctive in nature and not systematic. But, however, it is interesting to note that, at times, informal plans are more significant than formal ones. Another classification of planning can be done according to the time dimension i.e. – (1) Short-term plans extending up to one year, (2) Medium-term plans of more than one year but less than five years, (3) Long-terns plans of five years or a longer period.
Plans could also be classified in terms of functions like production planning, marketing planning and so on as against overall company planning.
Another way to classify plans is to divide them into:
1. Objectives,
2. Policies,
3. Rules,
4. Procedures,
5. Programmes,
6. Schedules,
7. Budgets,
8. Methods,
9. Strategies and tactics,
10. Standards,
11. Forecasting.
These are now briefly described below:
Type # 1. Objectives or Goals:
The end results to be achieved or towards which an activity is to be directed, are described as objectives or goals. Objectives are plans for the futures that will serve to provide direction for subsequent activity. We have a hierarchy of objectives. Primary or basic objectives are determined by top management. Each department has its own objectives within the framework of basic goals.
Objectives of the organisation have to be crystalized for the enterprise as a whole which would constitute the basic plan of the organisation. This requires creative thinking and foresight. These objectives constitute a part of the planning activity.
Effective management is always management by objectives, corporate objectives influence the management philosophy and practice. They have a great influence on the organisation, policies, personnel and leaderships as well as managerial control. All other elements of planning such as policies, procedures, rules and budgets assist and guide in selecting those alternatives that permit the achievement of predetermined objectives in the most economical and efficient manner. They guide on the path leading to achievement.
Type # 2. Policies:
Policies are general statements aimed at guiding and thinking during making decisions. It is a guide to action or decision of Manager. They constitute broad boundaries, permitting initiative of the Manager to the extent of interpreting the particular policy. Policies need not necessarily be written as they may be implied from the past actions of managers. Policies are directives, providing continuous frameworks for executive actions on recurrent managerial problems.
A policy helps in keeping work in line with objectives. Both objectives and policies guide the mental and physical actions of a manager. Policy assists decision making, but there may be deviations in certain extraordinary circumstances. That only means there is a limited scope for discretion in dishonoring a policy.
Type # 3. Rules:
Rules are also looked upon as plans as they prescribe the course of action required. Rules are related to procedure as they guide action but there is no time sequence attached to them.
Rules are the simplest type of plan chosen from alternatives. Rules provide for a specific action to be taken or not with respect to a situation. It is more rigid and more specific than policy. It guides action but provides no discretion in its strict application. Rules are essential for discipline and smooth operations of the business. A rule is designed to define in advance as to what alternative must be selected or what decision must be made. Rules are related to procedure.
Type # 4. Procedure:
Procedure is another kind of plan as it involves selections and establishment of a logical series of tasks within the framework of predetermined policies and objectives. Procedures are, therefore, more definite than policies. It is a standing action plan as a means of implementing the policy.
For example, the sales department lay down a policy to execute all orders within 24 hours. The procedures of execution of orders will prescribe a sequence of steps that must be followed after the receipt of an order till the dispatch of goods to the customer. These chronologically arranged series of steps or tasks constitute a procedure. Procedures are, therefore, more definite than policies, defining specific activities to be completed towards a predetermined goal.
Procedures exist throughout the organisation. Once a procedure is established, it ensures uniformly high level of performance. It results in work simplification and eliminates overlap or duplication of efforts. A procedure lays down the manner or method by which work is to be performed in a standard and uniform way.
Type # 5. Programmes:
A programme integrates policies, procedure etc. required for effecting a certain course of action. It thus integrates activities which are diverse but related. It may be looked upon as “planned actions” integrated into a unity and designated to bring about the stated objective. In other words, it is a sequence of activities designed to implement policies and accomplish objectives. It gives step by step approach to guide action necessary to reach predetermined targets.
It is an instrument of coordination i.e. a timetable of action. A good programme ensures smooth and efficient operation. Procedure tells how it is to be done whereas programme tells what is to be done. It enables a manager to prepare himself carefully and systematically for difficulties before they arise.
Type # 6. Schedules:
Schedules are the timings fixed for completing the programmed operations. They lay down timings when each step in a programme is to be executed. Schedules are necessary part of planning in order to ensure continuity in production, to secure constant flow of product into market and to avoid delays in various operations.
A schedules specifies the time when each of a series of actions should take place. Once the tasks to be done and persons who must do them are clear according to our standing plans, scheduling may be only element needing immediate management attention.
Type # 7. Budgets:
Budget is described as both a planning and a controlling device. A budget is a project of defining anticipated costs of attaining an objective. It is an appraisal of expected expenditure against anticipated income for a future period. A budget is a statement of expected results expressed in numerical terms like rupees, product units and man hours. It is also used as an instrument of managerial control. It provides the standard by which actual operations can be measured and by which variations can be checked.
But it should not be forgotten that preparing a budget is clearly planning. A budget is a forecast of an enterprise to make, in advance, a numerical compilation of expected cash flow, expenses and revenues, capital outlays or machine hour utilisation, etc. Budgeting is essential for control coordinates the activities of various departments of a business enterprise by adjusting and incorporating the departmental budgets into the master budget.
However, to be effective means of planning budgets should have functional flexibility. They should not be rigid instruments. They should be able to cope with unforeseen circumstances within a predictable range of activities.
Type # 8. Methods:
The method prescribes specifically and in detail how a task is to be performed constituting the best manner. Methods are sub-units of a procedure. They show clearly as to how a step of a procedure should be performed. They indicate the techniques to be employed to make the procedure effective. The primary focus is on finding out the best way of doing a piece of work.
For example in a manufacturing concern, product sampling may be a method used as a part of quality control procedure. A method is the manual or mechanical means by which each operation is performed. It means an established manner of performing an operation. Thus, a method is more limited in scope, than a procedure, because it deals with a task that is only one step of a procedure.
For example in the procedure for processing an order, there are methods for acknowledging the incoming order, checking the credit status of the customer, preparing the sales invoice and distributing its copies.
Type # 9. Strategies and Tactics:
“Strategy” is a military term which means to counter the moves of the enemy forces. This term is widely used in business also. A strategy involves preparing oneself for unforeseen and unpredictable events. In other words a strategy means placing oneself in the position of competitors and seeing what one’s own reaction will be in a similar situation. Strategies may be regarded as interpretative planning or plans made in the light of the plans of a competitor.
They are, therefore, a special type of plans based on the background of the plans of the competitor. Obviously, the best kind of strategy can be developed. The Manager has perfect knowledge of his competitors, plans. He can then weigh his own plan in the light of those of his competitor, modify them to take advantage of what his competitor is planning to do and reach his own goals with greater certainty.
Strategic programmes are planned in accordance with top management policies, for accomplishing the company’s objectives by properly managing resource allocation, environmental adaptation, internal co-ordination and organisational strategic awareness. Operational planning or tactical planning which systematises the operational activities to produce best results, is effectively guided by strategic planning while strategic plans are designed to accomplish the broad objectives of the organisation.
Operational, plans provide details of how objectives can be achieved at the operational level to fulfill the expectation of the strategic plans. Thus operational tactical plans are meant to achieve the objectives enshrined in the plans through effective operations.
Type # 10. Standards:
A standard is a measure of the level of expected achievement. It is a model for comparison or evaluation. Standards are therefore very useful in measuring deviations from the plan. Basically standards are set up to compare the standard with actual achievement and if there is any deviations, to find out the measures to do away from deviations.
Circumstances, situations are always changeable, therefore, everything may not happen according to plans. The standards help in measuring the achievements as well as evaluation of achievements. It is an important tool in the hands of management.
Type # 11. Forecasting:
Forecasting is an integral part of managerial planning. The purpose of forecasting is to offer the best available basis for management’s expectation of the future and to help management understand the implications for alternative course of action.
Forecasting implies the act of making a detailed analysis of the future to gain a foresight of background situations and talents forces. Planning is essentially based on forecasting. If the future could be forecasted accurately, planning would be relatively simple. But the future is unforeseen, uncertain, and unpredictable and thus creates difficulties in designing the plans. The need of forecasting is self-evident in the field of planning. But it has values otherwise also.
It improves quality of management by compelling it to look into the future and provide for it. The very act of forecasting may disclose areas where control is lacking and where adequate control is necessary. It helps in smooth functioning of an enterprise. Henri Fayol speaks of provenance as the essence of management i.e. looking ahead which includes both assessing the future and making provisions for it. He further refers the plan as the synthesis of the various forecasts whether short or long term, special or otherwise.
It is interesting that Fayal recommends yearly forecasts and ten yearly forecast, the latter being revised at least each five years and earlier one if proved necessary by the yearly ones. Each forecast is to include a wide range of subsidiary and elemental forecasts, comprising of such data as capital output, production, costs, selling price and sales etc.
Although accurate forecasting is highly desirable, yet it is always subject to a degree of error. Guesswork can never be omitted from forecasts, although guessing can be reduced to a minimum. Forecasts should therefore, carefully be made and still more carefully be relied upon by the managers.