After reading this article you will learn about the classification of plans.
Class # 1. Classification on the Basis of Levels in the Organisation:
Similar to objectives, plans are made for different organisational levels. Plans classified on this basis are discussed below:
1. Strategic Plans:
Strategic plans are made to achieve the overall organisational goals. They achieve strategic goals through effective allocation of resources over different functional/ product areas. They match the organisational strengths and weaknesses with the environmental opportunities and threats. They are comprehensive and general in nature. They are made for all functional areas of business. They are made by the top-level managers in consultation with board members and middle- level managers and generally relate to a period of more than 5 years.
The questions most commonly answered through strategic plans are:
(a) What are the ways in which overall goals can be achieved?
(b) How to allocate resources over different areas of the enterprise?
(c) How to respond to the external environment?
(d) How to coordinate the firm’s internal strengths and weaknesses with its external environment?
Strategic plans are usually made to plan the growth rate, diversification plans, change the product line etc.
2. Tactical Plans:
Tactical plans are the means to support and implement strategic plans. They are made to achieve tactical goals of the organisation. They are related to departmental goals of the enterprise. These plans are made by middle-level managers in consultation with lower-level managers and normally relate to intermediate period of 1 to 5 years. While strategic plans are general in nature, these plans are more specific and precise.
The important questions answered through tactical plans are:
(a) How to deal with changes in competitors’ policies?
(b) How to deal with changes in the demand for products?
(c) How to increase company’s share in the market?
3. Operational Plans:
Operational plans support the tactical plans. They are made to achieve operational goals of the enterprise. These plans are highly specific and determine what different sections of the organisation need to perform. While resources are allocated in strategic plans, their efficient use to achieve overall organisational goals is ensured by operational plans.
These plans are made by lower-level managers in consultation with middle-level managers and relate to short periods of time of less than one year, say some weeks, months or even days. Different single-use and standing plans are made in operational planning to achieve the overall organisation goals. Plans to meet the delivery schedules, adjust the production schedules, budget the costs etc. are the common activities performed in operational planning.
Plans (strategic, tactical and operational) classified on the basis of levels in the organisation are tabulated as follows:
These plans related to three types of goals can be diagrammatically represented as follows:
Class # 2. Classification on the Basis of Use:
On the basis of use, plans can be:
1. Single-Use Plans
2. Standing Plans.
Single use plans are made to serve a specific objective. They cease to exist once the objective is achieved. They are, thus, short lived plans made for nonrecurring activities. For example, if company wants to install a machine, it has to plan its purchase; whether it wants to buy a new machine or a second hand machine, whether it wants to buy or acquire it on lease. Various alternative courses of action will be guided by their respective returns and costs and once the machine is acquired, the plan does not exist any more. Single use plans are intended to achieve a particular objective which is not likely to be repeated in future. These are meant to deal with problems which are non-repetitive and distinct in nature.
Different types of single use plans are:
3. Strategies and
Programme is a sequence of activities where each sequence is timed (time taken to complete each step is determined) to successfully achieve the overall objectives. According to Terry and Franklin, programme is “a comprehensive plan that includes future use of different resources in an integrated pattern and establishes a sequence of required actions and time schedules for each in order to achieve stated objectives.”
Programmes are single use plans made for a specific action. It is made to achieve a specific objective that represents a series or sequence of steps, time required to accomplish each step and resources allocated to accomplish each step. Programme is a sequence of activities carried to implement a policy or accomplish an objective.
Each programme has specific objectives, policies, procedures, methods and budgets to support its expenses.
Steps in making a programme: A programme can be made in six steps:
(i) Divide the total work into parts:
As the first step in making a programme, total work load is determined and divided into parts.
(ii) Develop the sequence of various parts:
After the steps are determined, they are arranged in a sequential order and relationship amongst the steps is established to facilitate coordination.
(iii) Determine the responsibility for each part:
The divided parts or steps are assigned to people according to their skills and abilities. This helps in determining who will do what and also fixes their responsibility.
(iv) Determine how each part will be completed and what resources are necessary: It determines the way each step will be accomplished and arranges resources (human and non-human) for their completion.
(v) Determine the time required for completing each part:
To ensure that the programme is completed within the time schedule, time required to accomplish each part is determined. Delay in completion increases financial and non-financial costs and, therefore, it is necessary to determine the time to complete the overall programme and each step of the programme.
(vi) Develop a schedule for implementing each step:
A schedule or time table for implementing each step in programme is determined to ensure optimum utilisation of resources allocated over different steps of the programme.
Types of programmes: Programmes can be of two types:
(i) Major programme:
It is the main programme designed to achieve a specific objective, for example, setting up a plant and machinery or modernisation of an existing unit.
(ii) Minor programme:
It is a sub-plan designed to achieve the major programme. For setting a new plant and machinery, minor programmes are made to analyse the sources from where the machinery can be purchased, arranging funds from various sources, arranging for installation, air conditioning plant for the machine, training people to work on the machine, arranging for people to work over-time (if the need be), etc.
Budgets are plans that specify resources for specific activities in a given period of time. Managers make decisions through budgets to allocate resources over various courses of action. It is a statement of inflow and outflow of financial resources spread over a period of time. The time period for which budget is prepared is known as planning horizon. A budget may be prepared for one year, six months, or even one month depending on the nature of business activities. The time period is generally divided into shorter periods known as sub-periods. A budget prepares the expected inflows and outflows of men, material, output etc. expressed in monetary terms.
Budget is “a plan for income or outgo, or both, of money, personnel, purchased items, sales items or any other entity about which the manager believes determining the future course of action will assist in managerial efforts”.
A budget also acts as a controlling device. It plans the organisational performance and ensures that actual performance is in conformity with planned performance. The basic element of budget is the planning horizon; it refers to the time period covered by the budget. There may be long-term or short-term budgets depending on the nature of enterprise. For enterprises operating in a stable environment, the planning period could be long, say one year while for concerns which are affected by seasonal variations, a six monthly or a quarterly budget may suffice.
The time period over which a budget is spread may be sub-divided into shorter intervals called sub-periods. A yearly budget, for example, may have monthly intervals as sub-periods; a monthly budget may be sub-divided into daily activities. The purpose of sub-division is to co-ordinate and control the flow of activities from one sub- period to another sub-period. This enables the managers to trace the deviations before the end of the budgeted period.
Features of a budget:
A budget has the following features:
(i) A plan:
Budget is a plan that provides the standard of performance.
(ii) Controlling device:
A budget aims at reporting performance according to the estimated levels. It, thus, acts as a controlling device.
(iii) Future oriented:
Past provides the basis for making budgets but budgets are made for controlling future actions.
Types of budgets:
There can be a variety of budgets. These can be broadly classified as follows:
(i) Operating budgets:
These budgets relate to operating or daily activities of the business and involve revenues and expenses.
They can be of the following types:
(a) Expense budgets:
They relate to expenses of the organisation in producing goods and services. The expenses can be fixed or variable.
(b) Revenue budgets:
They project earnings from sales and other business activities.
(c) Profit budgets:
They are the projections of profits. Profit is the difference between revenue and expense budgets.
(ii) Financial budgets:
These budgets facilitate the use of operating budgets. They predict the sources and uses of funds for carrying out various business activities.
They can be of the following types:
(a) Capital expenditure budgets:
Capital expenditure means expenditure on fixed assets like plant and machinery, building etc. These budgets indicate the time when investments will be made and sources from where funds will be raised to invest in these assets.
(b) Cash budgets:
They predict cash position over the budgeted period. Periods when there will be shortage and cash surplus can be known and adjustments can be made to raise or invest cash to ensure smooth flow of cash throughout the budgeted period.
(c) Balance sheet budgets:
They project the structure of assets, liabilities and capital over the budgeted period.
Budgets can further be classified as sales budget, production budget, materials budget etc.
Strategy is a course of action. Strategy provides guide to action. The word ‘strategy’ was initially used in military organisations, related to making plans in adverse situations. Now the concept is used in business organisations also. Strategy is “determination of the purpose and the basic long-term objectives of an enterprise and the adoption of courses of action and allocation of resources necessary to achieve these aims.”
Strategy means selecting a course of action out of various courses in order to achieve the long-run goals through continuous and active interaction with the environment. Strategy gives direction to organisational plans (to achieve its goals). It is also a means (way to achieve) to an end (the goals).
Strategies cannot be generalized. Depending on environmental threats and opportunities, strategy is prepared every time managers want to overcome the threats or exploit the opportunities. Well formulated strategies help to grow and develop in the fast changing environment.
For example, competitors of a firm adopt new technology to reduce the cost of production and sell the products at lower prices. Other business firms will also adopt a strategy to change their technology or adopt other means of cost reduction to reduce their prices and compete with competitors.
When organisational objectives are framed and programmes (major and minor) formulated to decide how these objectives will be achieved, strategy unifies resources and their movement/allocation in the desired direction to achieve the objectives. This can also be called a situational plan.
Features of strategy:
Strategy has the following features:
(i) It is made for a long period of time. It coordinates business activities with environmental activities.
(ii) The impact of strategies can be known after a long period of time. Losses in the short- run does not mean strategies are wrong unless long-run results show losses.
(iii)A strategy results in optimum allocation of resources. Scarce organisational resources are allocated over business activities in the order of priority.
(iv) It is a pervasive business plan prepared for all business organisations, in all functional areas, at all levels.
Merits of strategies: Strategies have the following merits:
(i) They provide a course of action to achieve a specific goal.
(ii) They allocate scarce organisational resources over effective business areas.
(iii) They coordinate organisation’s internal environment with its external environment.
(iv) They provide scope for growth and expansion in the light of changing competitors’ policies.
(v) They provide direction to organisational activities.
Strategic planning aims at knowing what we are and where we want to go so that environmental threats and opportunities can be exploited, within the strengths and weaknesses of the organisation.
“A project is a plan that co-ordinates a set of limited – scope activities that do not need to be divided into several major projects in order to reach a major non-recurring goal.” A project is part of the major programme plan with a distinct object achieved within the given time frame. Each project requires a plan layout and physical, financial and human resources for its successful completion and is, therefore, supported by budgets.
Once the project is completed, the work force engaged in that project is disintegrated and the project plan ceases to exist.
Project plans are made for preparing an advertisement campaign, building a bridge, flyover, dam or a new office, introducing a new product line, buying land and building, plant and machinery etc.
A company frames objective to increase sales by 8%. It makes a programme to increase sales by spending more on advertisement. It further makes a project plan.
Each project plan is headed by the project manager who directs people to complete the project within the financial and non-financial resources.
The project manager lays responsibilities of his group members and facilitates control over activities of the project members.
Features of a Project:
1. It has a specific objective which contributes towards organisational objective. A project to design an advertisement campaign contributes to the objective of promoting sales.
2. It is a unique, non-repetitive activity undertaken after considering all relevant factors that affect the project. It is unique because project plans are usually not made for repetitive activities. Once the objective is achieved, the project plan ceases to exist. The project to construct a factory building, for example, till the building is under construction. Once the construction is completed, the plan does not exist any more. If at all, another building is to be constructed, it will be supported by another project plan.
3. It is complex with respect to interdependence of tasks and is supported by goals, policies, procedures, rules and budgets. Policies provide guide to action within the defined area of discretion.
In relation to a project, it provides guidelines regarding selection and implementation of projects. It helps in selecting the project on the basis of defined policy parameters. If the company has a policy of avoiding risky situations and has to choose between two projects; risky and less risky, it will select the less risky project even though risk is related to return. Implementation of the project is also affected by the company policy.
Selection of construction site (implementing a construction project): hilly area or planes, backward area or developed area is affected by company policy. If it aims at promoting balanced regional development, it will choose to set up the plant in the backward area. If its policy is only profit maximisation, it will choose to set up the plant in the developed area.
Procedure defines the steps to carry out a policy.
If the policy supports regional development and has a project to set up a plant in the remote/backward area, the procedure defines the route it has to follow to prepare the architectural plan, to apply to concerned authorities for getting the sanctions for construction and doing the necessary paper work.
Budget ensures financial strength to the project arranging for funds at the right time and cost, spending them in the right direction, avoiding cash deficit and surplus in any sub-period of the budgeted period is ensured through budgets.
It is critical to the organisation and must be completed within assigned time and cost constraints. Delay in completion of the project can result in huge financial losses. For example, construction of a building, dam or a bridge has huge costs involved and delay in construction can result in cost overrun which may not be affordable.
Standing plans are made to deal with situations which occur repeatedly in the organisation. They standardize the recurrent activities so that routine decisions with respect to such activities can be taken by lower level managers and top-level managers can concentrate on strategic issues.
These plans can be repeatedly used in similar situations. Managers refer to these plans to deal with problems of recurring nature and, thus, save time, money and efforts in making decisions every time a problem of the same type arises.
For example, standing plans can be made for dealing with leave cases of employees. Every time an employee goes on leave, he follows leave rules framed in the standing plans. This saves top managers from the botheration of personally dealing with leave case of every employee. “Standing plans are directives that serve to increase organisational effectiveness by standardizing many routine decisions.”
Merits of standing plans:
(a) These plans guide daily behaviour so that managers can delegate part of their work load to subordinates. Standing plans, therefore, facilitate delegation.
(b) They facilitate co-ordination as there is pre-determined way to solve recurrent organisational problems.
(c) As the decisions for recurring problems are routinized, organisational efficiency tends to increase.
(d) They provide ready basis for making decisions and, thus, facilitate fast decision-making.
(e) They save top managers’ time, money and energy by providing a basis for quick action.
Differences between single-use and standing plans:
Different types of standing plans are discussed below:
Policy means a general guideline that defines the way a company operates. It clarifies the intents of top managers to be followed by all its branches (inland or abroad) in all departments, at all levels. Mrs. X goes to a saree store and buys a saree. On reaching back home, she finds that the saree is defective. She telephones the store and states her problem. The store owner tells her that the board in the store clearly stated — No Return or Exchange.
This is the company policy and therefore, the customer had no redressal to her grievance. The policy clearly states the broad (parameters) guidelines or intentions of managers that should be observed by everyone in the organisation. Policy directs organisational activities towards its goals and is a wise attempt to coordinate organisation’s philosophies with the needs of its environment.
They are made at all levels for all departments. Top managers make policies to achieve the broad organisational goals and departmental managers make policies to achieve departmental goals. They are usually long-term plans stated in general terms.
However, they are flexible. Policies are not rigid. Managers can change the policies if the situation demands. If the company policy states that all organisational posts shall be filled from internal sources (transfers or promotion), managers have the discretion to fill the post through external sources if no internal candidate is found suitable.
“A policy is a verbal, written or implied overall guide setting up boundaries that supply the general limits and discretion in which managerial action will take place.”
“Policies define an area within which a decision is to be made and ensure that the decision will be consistent with, and contribute to, an objective.”
Policies are plans stated in general terms to deal with specific situations, expressing the intention of top management. They are framed with active participation of managers at all levels, intended to achieve the overall organisational goals.
Procedure provides sequential order to a policy. It describes the steps in which policy matters will be dealt with. It is more specific than a policy. While policy provides a general guideline to action, procedure expresses the way that guideline will be followed. “A procedure is a series of related tasks that make up the chronological sequence and the established way of performing the work to be accomplished.”
It is a guide to action rather than thinking. It details the exact manner in which certain activities will be accomplished. It provides a detailed guideline to policy. While policy is a general guideline to action, procedure provides a step-by-step sequence for accomplishing policy matters. It describes how the task will be done, who will do it, when will it be done and what is the time taken to accomplish each step so that end result is achieved in time.
A procedure is however, less flexible than a policy. Managers can use discretion while dealing with policy matters but not with procedures. A policy that states all appointments shall be made through a selection procedure will follow the procedure in order —job specification, application form, preliminary interview, conducting tests, cross checking, formal interview, medical examination, employment decision, job offer.
Since procedure prescribes step-by-step handling of organisational matters, top managers can delegate routine matters to lower-levels and concentrate on important issues. Once the procedure is established, it is repeatedly used to deal with similar problems. Appointment procedure, for example, is followed every time an appointment is made.
In fact, policies are laid by top managers and procedures are determined by managers at lower levels. A well defined procedure speeds up the managerial work as duplication of work at various stages is avoided. Procedures cut across the functional areas also.
Various departments are involved in carrying out a procedure that mainly relates to one department. Though procedure for production mainly relates to production department, it is prescribed in such a way that it requires coordinated effort of all the departments.
Procedure for managing production of a new product, for example, involves co-ordinated effort of all other departments. It pre-supposes a well designed procedure for finance department (to arrange for funds), advertising department (to create awareness about the product), personnel department (to provide the required manpower), accounts department (for recording transactions) and sales department (for ensuring the sale). They make policies to coordinate organisation’s internal working with external environmental variables. They may have to change the policies, if required. Procedures are made for all the departments to carry out their respective activities.
Merits of procedures:
Procedures have the following merits:
1. They make the work simple. People at various levels follow procedures and perform their work without disturbing top managers. Top managers can, thus, concentrate on important activities.
2. They increase organisational efficiency by providing a standard way of performing the task.
3. Well-defined procedures provide consistency and uniformity of actions.
4. They lay out a definite sequence of activities. There is no duplication of work.
5. They facilitate delegation as there is a defined way of doing the work. Delegation relieves top managers of routine work and develops the ability and skills of lower-level managers.
6. They define exact sequence of work and time taken to accomplish each sequence. This facilitates quick decision-making and control.
7. They help in doing the work fast.
8. They provide consistency and uniformity of actions.
Limitations of procedures:
Procedures suffer from the following limitations:
1. They are inflexible. They cannot be easily changed.
2. As they are inflexible, they hamper the initiative and creativity of employees.
Managers should constantly review the procedures and change them according to the situation. Subordinates should have the freedom to carry out the procedures in dealing with the situation in a constructive manner.
Policies and Procedures:
The following table highlights the points of difference between policies and procedures:
Strategies and Policies:
Both strategies and policies help to make decisions to achieve organisational goals. Clear strategies and policies provide right direction and guidance to organisational goals and plans.
However, they differ from each other in the following respects:
Method is “a prescribed manner for performing a given task with adequate consideration to the objective, facilities available, and total expenditure of time, money and effort.” It is the way of doing each step in the procedure to increase efficiency of that task, decrease cost and achieve organisational goals with minimum disturbance.
A method is more specific than procedure. It is the way of doing an event out of the sequence of events defined in the procedure. It is the way of accomplishing one task or one step of the procedure. Method increases the effectiveness of procedure.
In the procedure of selection, for example, cross checking can be done by contacting people who had contact with the candidate ever before. His previous employers, for instance, can be contacted to verify the candidate’s professional details.
The methods of conducting interview can be face-to-face or indirect interview through questionnaires. It defines a standard, scientific, efficient and specific way to increase the task efficiency and was well studied by Taylor in time and motion studies where each task was carefully planned and defined in the ‘Scientific Management Approach.’
Efficiency can be improved by keeping the method simple. Method can be improved through time and motion study and work simplification so that employees can identify their skills to increase output by using that method. Method defines the task in terms of the manner and time taken to complete the task.
Rules is a set of actions or directions that must be followed by every member of the organisation. “Rules are statements that a specific action must or must not be taken in a given situation.” They are the guide to action in the form of orders and instructions which have to be followed by employees.
Rules bring discipline in the organisation by promoting and restraining individual actions. They are enforced rigidly in the organisation. A rule may say – ‘No loitering in the corridors.’ If anybody is found loitering, he will be subject to disciplinary action.
A rule is a prescribed direction that tells people to do or not to do things or to behave in certain ways. Rules are strictly observed as they are meant to be followed by everyone in the organisation. They are like orders that enforce obligation on people to do things in certain ways. Rules, thus, promote rational behaviour on the part of organisational members.
They are stated in writing to avoid confusion in understanding. Non-compliance to rules is subject to punishment, and, therefore, it is necessary they are available for ready reference. They are not subject to managerial discretion and are, therefore, non-flexible. They identify specific actions that must be taken or not taken. Rules may or may not form part of procedure. ‘No loitering in the corridors is not part of any procedure.
All purchases should be made by inviting tenders is part of purchase procedure. Strict compliance to rules sometimes make these rules an end rather than means to end. People follow rules blindly whether or not they are in the larger interest of the organisation. They also delimit individual freedom, creativity and innovativeness. People follow rules simply to avoid disciplinary action. Strict rules make the organisation a ‘bureaucratic organisation.’
Rules must be followed by everyone. There is no scope for personal discretion, likes or dislikes.
Differences between Rules and Policies:
Class # 3. Classification on the Basis of Time:
There is no definite basis for classifying plans as long-term, medium-term and short-term. It depends on the nature of business, nature of product and adaptability of organisation to external environment, market demand, production cycle etc. For a firm producing heavy goods which do not change frequently, period of 10 years may be intermediate or short-term but for a firm producing seasonal goods, period of even one year may be long-term.
The period should, however, justify the time and resources committed to the plans. The period should enable the organisation to fulfill its commitments to the decisions. The decisions should have positive impact on the future outcomes.
1. Long-term Plans:
These plans are normally made for a minimum period of 5 years. They relate to goals and usually cover all functional areas of the business. Future being uncertain, these plans foresee environmental changes (by applying techniques of forecasting) so that organisations can accept them when they occur. They relate to investment in fixed assets which generate returns over a long-period of time. They aim to achieve strategic goals of the organisation over a long time period.
2. Medium-term Plans:
These plans normally relate to a period of one to 5 years. They are the supporting plans that help to achieve long-term plans. Plans made to analyse the impact of advertisement campaign on expansion of business into new markets are medium-term plans. These plans usually relate to tactical goals.
3. Short-term Plans:
These plans are normally prepared for a period of one year, though in some cases, these may even relate to a period of less than one year. They look into immediate future of the company. They are usually made for specific functional areas. Plans made to retain or promote sales, to train workers (so that labour turnover rate is reduced) are short- term plans. They relate to operational goals of the enterprise.
The classification of plans according to time and their relationship with goals of the enterprise is depicted as follows:
These plans are not independent of each other. A successful organisation coordinates all these plans. Short-term plans contribute to medium-term plans which further contribute to long-term plans.
Class # 4. Classification on the Basis of Functional Areas:
These plans are more specific and relate to a particular area of operation. They develop guidelines to action in a specific functional area. They usually set short-term objectives for each functional area and define the means to achieve the objectives within the given time frame.
Features of Functional Plans:
Functional plans have the following features:
1. They aim to achieve short-term objectives of functional areas and are, therefore, made for a short period of time, usually less than one year.
2. They look into immediate future of the functional areas. They are designed by operating managers.
3. They are specific plans which define the area of operating personnel.
“A functional plan describes the specific actions to be taken in the immediate future by people responsible for that particular functional area. It usually sets forth short-term objectives, the actions to be taken to achieve those objectives, and a time frame for the accomplishment of each action.”
1. Production plans:
“Production plans consist of planning and overseeing the process of converting inputs into value – enhanced output.” The areas of production plans are: production system, efficiency of operations, location of company facilities, design of company facilities, and day-to-day process planning.
These plans set the targets of production. They are designed according to production policy of business organisations. Firms may produce throughout the year, pile inventories and sell them during peak season or produce only during the peak season of demand. In the latter case, they can diversify into other areas during slack season to keep their plant and machinery occupied.
2. Marketing plans:
Marketing plans are designed by marketing managers. They “tell sales and marketing personnel who will sell what, where, when, to whom, in what quantity and how.” They help to sell the products and develop new products to increase the share of market; to plan for sale in cash or credit; if it decides to sell on credit, to determine the credit terms and credit policies for the sales department. Production plans and marketing plans aim to satisfy consumer needs and are inter-dependent. The production department produces according to expected sale and sales department sells what is produced.
3. Financial plans:
Finance managers prepare financial plans for raising and utilizing / allocating financial resources effectively. These plans meet the fixed and working capital requirements of the firm. They plan for financial cuts during recessionary economic conditions and raising additional funds during boom.
All departments need funds for their effective functioning. Production department needs raw material for smooth flow of production and marketing department needs funds for advertising and sales promotion campaigns. Financial plans contribute to financial strength of the organisation through effective cost control techniques that reduce cost of operations.
4. Human resource plans:
These plans make optimum use of the most productive asset of the organisation, its people. They ensure best match between the employees and their jobs, thus, avoiding manpower shortages and surpluses. They forecast the demand for labour, analyse the present supply and balance the projected demand and supply of labour.
These plans forecast the size and nature of human resource required by the organisation to achieve its strategic goals. They identify human resource requirements of the organisation and plan to satisfy these requirements. They forecast quantitative (how many people are needed) and qualitative (what type of people are needed) human resource needs of the organisation.
They also plan for ways in which people are developed so that they contribute to organisational goals effectively.
They focus on the following important activities:
1. Identify the right number of people with right skills and also acquire them for the organisation.
2. Motivate the employees to enhance their performance skills.
3. Train the workforce who can adapt to the changing uncertain environment.
4. Formulate employee retention, compensation and development policies.