Notes on Planning in an Organisation: Meaning, Importance and Principles

After reading this article you will learn about:- 1. Meaning of Planning 2. Features of Planning 3. Importance 4. Principles 5. Limitations 6. Barriers.

Meaning of Planning:

Planning deals with framing organisational objectives and devising ways to achieve them. Managers plan business activities at all levels: top, middle and low, though planning is required more at top levels than lower levels.

While top managers plan for the whole organisation, middle-level managers plan for their respective departments and lower-level managers plan for day-to-day business operations. All sizes of organisations plan their operations. While large-sized organisations spend more time on planning, small sized organisations spend comparatively less time.

Business organisations make long-term, medium-term and short-term plans depending upon the nature of their operations. Manufacturing units make more of long-term plans while retailers engage more in short-term planning.

Planning involves forecasting, framing objectives of the firm, thinking of different courses of action and deciding the best course of action to achieve the goals. Planning, thus, involves decision making, that is, deciding a course of action for framing and achieving objectives.

Terry and Franklin:

“Planning is selecting information and making assumptions regarding the future to formulate activities necessary to achieve organisational objectives.”

Louis A. Allen:

“Planning involves the definition of objectives and planning of operations in terms of policies, plans, and budgets which will establish the most advantageous course for the company. Planning also requires that managers keep currently informed on all matters which will contribute to improved planning and performance in the position.”

Koontz and Weihrich:

“Planning involves selecting missions and objectives and the actions to achieve them; it requires decision-making, that is, choosing from alternative future course of action. Plans, thus, provide a rational approach to achieving pre-selected objectives.”

Features of Planning:

Planning is characterised by the following features:

1. Primary function of management:

Planning is the first function of management. All other functions follow planning. If planning is wrong, organisation structures will be faulty, people will carry out wrong plans, motivation and leadership policies will be ineffective and controls will also aim to achieve faulty plans. This will result in huge losses for the organisation.

2. Adaptive to environment:

Planning is a continuous process. It is done so that organisations can survive in the changing environment. Managers incorporate changes in environment like competitors’ policies, consumers’ tastes, economic policies, value system of the society in their plans and planning is, thus, adaptive to environment.

3. Future oriented:

Planning is looking ahead. It fills the gap between where we are and where we want to go. It prepares organisations to meet future challenges and opportunities. Future being uncertain, managers adopt scientific methods of forecasting. They anticipate future and incorporate changes in their activities to achieve organisational goals effectively. Correct forecasting helps in making sound business decisions.

4. Goal oriented:

Planning is done to achieve the desired goals. Planning is, thus, goal oriented. It clearly lays down the goals and ways to achieve them.

5. Pervasive:

Planning is a pervasive function. It is done for all organisations – business and non-business, profitable and non-profitable, small and big. In a business organisation, it is done at each level; top, middle and low. The nature and scope of planning, however, is different at different levels; top managers plan for the organisation as a whole, middle level managers plan for their departments and lower level managers plan for their operating units.

6. Intellectual process:

Planning is a complex process. Managers cannot plan unless they analyse the past, present and future environment. It is difficult to predict future as it keeps changing. Managers have to conceptually and analytically excel in making plans that can be implemented. They should have judgement, intuition, foresightedness, imagination etc. to make good plans. Planning, thus, cannot be done in dark. It is an intellectual process.

7. Efficient:

Efficient means cost effective. Time and money are spent on planning to earn gains in future. A trade off is maintained (comparison between cost and returns) and managers ensure that expected gains are more than the current costs. Efficiency means “the achievement of the ends with the least amount of resources.”

8. Flexible:

Planning relates to future. Future being uncertain, plans will fail to achieve the objectives if unexpected changes take place in future. Managers have to be quick in changing their plans so that future changes do not fail the plans. Planning is, thus, a flexible activity.

9. Planning and decision-making:

Planning involves decision making. Choosing goals out of multiple goals, deciding about ways to achieve them out of a number of alternatives, deciding about sources from where funds will be raised, deciding about optimum allocation of resources over different goals and departments etc. are some of the choices that managers make to run an organisation effectively. Planning continuously involves decision-making. In fact, the process of decision-making starts much before the process of planning.

For example, manager wants to install a machinery. He has to make a number of choices like: whether to buy or hire; if buy, whether to raise money from outside or use retained earnings (internal source of finance); if outside sources, whether to issue shares or debentures; if shares, whether to issue equity shares or preference shares. Planning is, thus, a continuous process of decision making.

10. Feedback:

Planning is closely related to control. It specifies future actions and control ensures those actions are carried out. Planning frames organisational goals and control ensures those goals are achieved. Controlling function provides constant feedback about the efficacy of plans. Deviations (if any) in actual performance against planned performance helps in reviewing or abandoning plans to make fresh plans.

11. Open system approach:

Almost all organisations are open systems as they interact with the environment (input — conversion — output) in their desire to reach the future stated goals. In bridging the gap between the present and the future, the open system approach helps the organisation in responding to the environmental challenges.

Importance/Objectives of Planning:

Planning is important because it enables the organisation to survive and grow in the dynamic, changing environment. Planning is the basis of distinction between the successful and unsuccessful organisations. In the dynamic environment, planning helps in scanning the environmental changes and forecasting the future.

It is important to plan because of the following reasons:

1. Achievement of organisational objectives:

Planning helps the organisation to achieve its objectives. Planning provides the path for achievement of organisational goals with minimum waste of time, money and energy. It bridges the gap between where we are and where we want to go.

2. Fulfillment of organisational commitments:

Organisations have long-term and short-term commitments towards society, depending on their nature. A defence organisation, for example, has long-run commitments while a retailer is more interested in short-term goals or responsibilities. These commitments or goals of the organisation can be fulfilled through planning.

3. It facilitates decision making:

Decision-making is deciding what to do when managers face a problem-solving situation and adopting the best way out of the available courses/ ways of doing it.

It is “the process of choosing a course of action from two or more alternatives.”

Managers have to make decisions like: what to produce and how to produce, what are the organisational resources and how can they be effectively allocated over different functional areas, what are their primary goals — profit or social responsibility and many more. Planning helps to decide a course of action that will solve the specific problem.

4. It provides stability to organisations:

Organisations that plan their operations are more stable than others. Managers foresee risk and prepare the organisations to face them when they occur. Planning precedes all other managerial functions and coordinates them for providing stability to the organisation.

Planning before organising (what kind of organisation structure), planning before staffing (what kind of people), planning before direction (what kind of motivation, leadership and communication system) and planning before control (the controlling techniques to achieve standards of performance) promotes group effort and team work to give right direction to organisational activities.

5. Overall view of the organisation/coordination:

Organisation is a structure of relationships where authority and responsibility are clearly defined. Planning coordinates the functions performed by individual members and departments and unifies them into a single goal — the organisational goal. It unifies inter-departmental activities so that all departments work according to plans.

6. Optimum utilisation of resources / efficiency of operations:

Organisations work with limited resources. Planning allocates these resources over different objectives and functional areas (production, personnel, finance and marketing) in the order of priority. This results in optimum utilisation of scarce organisational resources (men, material, money etc.) and their effective conversion into productive outputs.

7. Development of managers:

Planning involves imagination, thought and creativity by managers. Managers develop their conceptual and analytical skills to plan and coordinate organisational activities with external environment.

8. Promotes innovation / creativity:

Planning involves forecasting. Managers foresee future, analyse the strengths of their competitors and think of new and innovative ways of promoting their products. Planning promotes new ideas, new products, new relationships and, thus, promotes innovation and creativity.

9. Basis for control:

Planning frames standards of performance and control ensures achievement of standards. Controlling involves measurement of actual performance, its comparison with standard performance, finding deviations and taking steps to remove the deviations to make better plans for future. Unless there are plans, there will be no control. Planning is, thus, the basis for control.

10. Reduction of risk:

Risk is a situation where moderately reliable information is available about future but it is incomplete. Uncertainty, on the other hand, is a situation where no information is available about future. Changes in government’s policies is a situation of uncertainty while entry of competitors in the market with better technology represents a situation of risk. Planning helps to reduce risk through forecasting.

11. Morale boost up:

If organisational plans succeed and goals are achieved, managers and employees feel satisfied and morally boost up to concentrate on organisational activities. Successful planning, thus, promotes success of the organisation and higher standards in the next planning cycle.

12. Facilitates delegation:

Well-designed plans enable managers to concentrate on strategic issues and delegate routine/operating activities to lower-level managers. It, thus, facilitates delegation.

Principles of Planning:

Principles provide the basis for sound planning. Koontz et al describe the following principles for effective planning:

1. Principle of contribution to objectives:

Plans must be directed towards organisational objectives.

2. Principle of objectives:

Since objectives are the basis for planning, they should be clear, specific, measurable and unambiguous. They should be understood and accepted by all the organisational members.

3. Principle of primacy of planning:

Planning is pre-requisite to other managerial functions. It should be effectively done so that other functions of management also contribute to the overall organisational goals.

4. Principle of efficiency of plans:

Plans should be efficient in their contribution to objectives Le., returns must exceed the costs.

5. Principle of planning premises:

Since planning is based on forecasts, clear planning premises lead to efficient planning process. Planning premises are assumptions or forecasts about future on which plans are based. Premises form the foundation of plans. Sound planning premises help in making sound plans. They reduce uncertainty in achieving planned targets. Premises or assumptions are based on the information that managers generate by forecasting. Forecasting, thus, precedes planning premises and premises precede planning.

6. Principle of strategy and policy framework:

Strategies and policies help to attain organisational objectives. Clear policies and strategies lead to clear and effective plans.

7. Principle of limiting factor:

Limiting factor limits the capacity of the organisation to achieve the goals. While selecting a course of action, managers narrow their search for alternatives and try to overcome them. The principle of limiting factor states: “By recognising and overcoming those factors that stand critically in the way of a goal, the best alternative course of action can be selected.”

8. Principle of commitment:

Plans should cover a time span long enough for managers to fulfill their commitment to the decisions made by them.

9. Principle of flexibility:

Plans should be flexible to adjust to environmental changes.

10. Principle of navigational change:

This principle is closely related to the principle of flexibility. It reviews the plans from time to time and reframes them if the need arises (according to future changes and expectations.) as the navigator does when the ship is not going in the right direction.

Limitations of Planning:

Planning is inevitable. Its importance and benefits cannot be undermined. However, it suffers from some limitations.

Following are the limitations of planning:

1. Costly:

Planning is costly. It consumes lot of time and money to plan with no guarantee of achieving planned targets. Time and cost are the limiting factors in making plans. Elaborate planning requires considerable spending on time and money. The time and cost have to be budgeted because both these have to be spent within limits.

Beyond a particular point, spending too much time and cost may not be warranted as plans have to be put into action. If that point is not the optimum point, the benefits may not be commensurate to the cost incurred in making the plans. Thus, a proper trade off is required where time and cost incurred in making the plans should justify the benefits expected to be earned out of planning.

2. Restricts creativity:

Plans provide a pre-determined course of action. Members may have to follow them blindly even when they have better suggestions to offer. They do not deviate from plans for the fear of criticism by superiors. Plans, thus, hamper the ability of members to initiative steps as they are guided by pre-defined courses of action.

3. Planning in advance is not always the right course of action:

It is easier to plan than to implement the plans. Actual realities or situations may be different from the planned ones. In the context of observed realities, it may be wise to depart from planned actions. Courses of action depend upon facts and circumstances of each case and not on pre-determined paths.

4. Multiple goals:

If planning is done for too many goals, scarce organisational resources get thinly spread over them. This affects effective attainment of goals.

5. Too much focus on future:

Planning is future-oriented. There is too much focus on future whether short-term or long-term. Day to day activities are generally ignored. Planning must be done every day, every moment and not periodically.

6. Delay in action:

Planning involves time. It delays action when managers face emergent situations.

7. False sense of security:

When plans are made, it gives a sense of security to organisational members that targets will be fulfilled. It promotes complacency and slows down action. This may be harmful for organisations.

8. Coordination with other managerial functions:

Planning precedes other managerial functions. Other functions are dependent upon planning. A well designed organisation structure, suitable motivational plans for rewarding good performance, sound control system have to be linked with planning otherwise, planning will fail to achieve its results. It is not just enough to plan. Plans have to be linked with other functions also.

9. Planning premises:

Premises are the assumptions about future on which plans are based. If premises are not properly developed, plans based on these premises will be faulty.

10. Lack of resources:

Managers spend lot of financial, physical and human abilities on making plans. If the organisation does not have sufficient resources that justify making of plans, it limits the capacity of managers to make sound plans.

In terms of ability, managers require analytical and conceptual skills, judgement and creativity to make plans. Managers with inadequate skills are not good planners.

11. Environmental constraints:

Environmental constraints in terms of fixed Government policies, tax laws, labour laws, political climate, financial instruments etc. may constraint the planning process of organisations.

12. High volatility in the environment:

Fast changes in the environment can limit the ability of managers to achieve the planned objectives even if plans are flexible in nature. Technology is changing at such a fast rate that managers may not be able to update the plans frequently.

Though, however, it may be possible for large-scale organisations to do so, small scale organisation may not be able to keep technology upgradation possible. Though this is not an excuse for business (large or small), if they want to succeed in the competitive business environment, if it happens, planning process will not achieve its intended purpose. These limiting factors do not mean that managers should not plan. Planning is inevitable. Managers should consider these factors while planning to make the process of planning effective.

Barriers to Planning:

Barriers to planning explain reasons why managers cannot effectively plan.

These reasons can broadly be classified into two categories:

1. Individual based barriers

2. Organisation based barriers

1. Individual-based Barriers:

These barriers relate to individuals who frame and implement the plans. Both at the formulation level and implementation level, there may be barriers to planning because people involved are either not committed to the planning process or they are not clear of objectives or planning premises.

These barriers are:

I. Unwillingness to set goals

II. Unwillingness to accept change

I. Unwillingness to set goals:

There may be situations when managers do not want to frame goals. Kolb, Rubin and McIntyre give following reasons as to why managers are not willing to set goals.

(a) Unwillingness to give up alternative goals:

When managers have to choose amongst a number of goals, it becomes difficult for them to choose one and leave the rest. Commitment to one goal and foregoing the rest leads to reluctance to establish goals.

(b) Fear of failure to achieve them:

Since goals are future oriented and future is risky, risk averse managers do not assume the risk of setting goals which they may not be able to achieve.

(c) Lack of knowledge:

Managers should have knowledge about organisation’s internal and external environment so that goals can be framed for each department at each level. These goals must also synchronize with the needs of the environment that consists of suppliers, customers, competitors etc.

When managers do not have complete knowledge about the organisation structure, number of departments, number of levels in the organisational hierarchy, authority-responsibility relationships, it becomes difficult to make effective plans.

(d) Lack of confidence:

One should believe in oneself. Managers who lack confidence to set definite and challenging goals are generally poor planners.

II. Unwillingness to accept change:

Organisational members often resist change because of the fear of unknown. They wish to maintain status quo if they are happy with their present set up. This inhibits their capacity and willingness to plan for challenging goals.

Paul R. Lawrence gives three reasons why organisational members resist change:

(a) Uncertainty about the causes and effects of change:

People are generally resistant to change because they get used to the working environment. Specifically, when they do not know why changes are being introduced in the organisation and how it will affect their authority and responsibility in the organisation, they do not take part in planning for such changes.

(b) Unwillingness to give up existing benefits:

People usually have psychological inflexibility towards change because they are happy with the existing benefits. They are satisfied with their present benefits and do not want to accept proposed changes whose benefits are not known.

(c) Awareness of weaknesses in the changes proposed:

Sometimes, change may not be possible because members are aware of the limitations of the system that are not conducive to proposed changes. If the rules are rigid and members do not have the flexibility of using their initiative in the changed environment, these rules and regulations become an end and a source of internal inflexibility in making effective plans.

2. Organisation-based Barriers:

Barriers at the organisational level are as follows:

1. Environmental factors:

Though plans are based on planning premises, yet unpredicted, external, non-controllable predictions can fail even the best plans. The environment is changing at such a fast pace that managers may have to frequently alter the plans or reframe them. If it is not done, it becomes difficult for managers to make effective plans.

2. Constraint on resources:

Planners may have ideas but not enough resources to put the ideas into action. Insufficient resources can limit the capacity of organisations to make sound plans. In case the organisation has made irreversible investment, that is, investment in heavy fixed assets (land, building, fixtures etc.), and the managers want to switch over to another investment because they feel that investment is not sound, it may not be possible to liquidate that investment as it would result in huge financial loss. Till the time such assets exist, planning based on such assets will not bring the desired results.

3. Lack of information:

Managers must have access to complete information about market conditions to make effective plans. A company plans to sell its products at 5 per unit. It may not be able to do so if its competitors are selling at Rs. 13 per unit.

Complete information about the environment is, therefore, necessary for effective planning. Managers are often constrained by lack of complete and accurate information about the future. If future events do not occur as planned, they will affect the plans.

4. Group dynamics:

Though group decision-making helps to make good plans, groups also obstruct effective planning.

Some of these barriers are:

(a) Groups members have a tendency to accept high-risk projects which they would not accept as individual members. This may result in accepting projects which cannot be optimally achieved.

(b) Lower-level managers, as part of the group, generally go along with the ideas of the superiors even if they have better ideas to offer.

(c) People who assert their view point dominantly get their ideas accepted at the cost of ideas offered by others.

(d) Groups may take short route to planning rather than analysing complete information to generate alternative courses of action to prepare plans.

Overcoming the Barriers:

The barriers to planning can be overcome through the following measures:

Helping planners to set the goals:

1. Unwillingness to give up alternative goals can be overcome through scientific selection of goals. Managers should carry out cost-benefit analysis for each alternative and accept goals whose returns are greater than costs.

2. The fear of failure to achieve the goals can be reduced by applying mathematical models to the goals selection process. Besides, managers should make flexible plans which can be changed according to situations.

3. Lack of organisational knowledge can be overcome through a well-connected communication system where managers at all levels remain well informed of the organisational activities. A well-developed management information system can solve this problem.

4. Managers remain informed about the external environment through effective system of communication. Regular contact with outside parties, through seminars and conferences can provide knowledge of environment. In fact, the need for planning arises because of uncertainties in the environment. If everything could be forecast, there would be no need for planning. The environmental changes can be predicted through forecasting techniques like time series, correlation, regression and other statistical methods that help to know the environmental factors and their effect on setting the goals.

5. The above measures develop managers’ confidence to make rational and realistic goals which are challenging but attainable. The important, overall organisational goals are set at the top level of management and goals lower in priority are framed by lower- level managers, in consultation with the superiors.

Helping Organisational Members to Accept Change:

Changes is the essence of life.

Organisational members should realise this and resistance to change should be overcome by the following measures:

1. Managers should explain to members the causes and effects of change. Members should be informed of the benefits of changes in the current system of working.

2. The existing benefits should be compared with future benefits that will arise as a result of change and unwillingness of members to give up existing benefits should be removed.

3. If members feel plans have deficiencies and weaknesses, management should involve members in framing the plans. Thus, members know the effects of proposed changes and they minimise the impact of their weaknesses.

Besides the above discussed measures, the following measures also help to overcome barriers to planning:

(a) Top management support:

Planning process should start at the top level. Managers should keep in mind the barriers to planning and overcome them by setting realistic and attainable goals.

(b) Setting responsibility:

If responsibility is fixed for framing and implementing plans, plans will be more realistic. Strategic plans should be the responsibility of top management and tactical plans and operating plans should be the responsibility of middle-level and operating managers respectively.

(c) Training to planners:

Lack of planning skills can be overcome by training managers to acquire skills for planning.

(d) Encourage group participation:

Rather than framing and communicating plan organisational members for implementation, everyone should collectively contribirs4 to the planning process. Though group participation has limitations, they can be overcome through rational and realistic planning process.

(d) Encourage group participation:

Rather than framing and communicating plans to organisational members for implementation, top managers should encourage group participation where people who frame and implement the plans are collectively involved in the planning process.

(e) Prepare contingency plans:

Organisations that operate in highly dynamic and complex environment should prepare contingency plans which can be adopted if unpredicted situations occur.

Principles of Planning:

Principles provide the basis for sound planning. Koontz et al describe the following principles for effective planning:

1. Principle of contribution to objectives:

Plans must be directed towards organisational objectives.

2. Principle of objectives:

Since objectives are the basis for planning, they should be clear, specific, measurable and unambiguous. They should be understood and accepted by all the organisational members.

3. Principle of primacy of planning:

Planning is pre-requisite to other managerial functions. It should be effectively done so that other functions of management also contribute to the overall organisational goals.

4. Principle of efficiency of plans:

Plans should be efficient in their contribution to objectives i.e., returns must exceed the costs.

5. Principle of planning premises:

Since planning is based on forecasts, clear planning premises lead to efficient planning process. Planning premises are assumptions or forecasts about future on which plans are based. Premises form the foundation of plans. Sound planning premises help in making sound plans. They reduce uncertainty in achieving planned targets. Premises or assumptions are based on the information that managers generate by forecasting. Forecasting, thus, precedes planning premises and premises precede planning.

6. Principle of strategy and policy framework:

Strategies and policies help to attain organisational objectives. Clear policies and strategies lead to clear and effective plans.

7. Principle of limiting factor:

Limiting factor limits the capacity of the organisation to achieve the goals. While selecting a course of action, managers narrow their search for alternatives and try to overcome them. The principle of limiting factor states: “By recognising and overcoming those factors that stand critically in the way of a goal, the best alternative course of action can be selected.”

8. Principle of commitment:

Plans should cover a time span long enough for managers to fulfil their commitment to the decisions made by them.

9. Principle of flexibility:

Plans should be flexible to adjust to environmental changes.

10. Principle of navigational change:

This principle is closely related to the principle of flexibility. It reviews the plans from time to time and reframes them if the need arises (according to future changes and expectations.) as the navigator does when the ship is not going in the right direction.