Notes on Planning Process of an Organisation: 9 Steps

This article throws light upon the nine main steps involved in planning process of an organisation. The steps are: 1. Need for Planning 2. Identification of Goals 3. Analysis of Present Situation 4. Identify Barriers to Planning 5. Develop Planning Premises 6. Develop Alternative Courses of Action 7. Evaluate Courses of Action 8. Select a Course of Action 9. Feedback.

Step # 1. Need for Planning:

Managers realise the need for planning as a first step to planning. The need sets the climate for planning. The need can be identified through environmental analysis where the organisation identifies its strengths and weaknesses vis-a-vis environmental opportunities and threats.

If the environment offers opportunities (for example, demand for a new product) or threats (entry of competitor with a similar product), the organisation has to deal with the situations according to its strengths or by converting its weaknesses into strengths.

For instance, if sales of the company are declining, the need for planning arises in the sales department. Organisational resources are identified and allocated to the specified area. A structural arrangement for planning is made with a well designed communication system, decision-making centers etc.

Step # 2. Identification of Goals:

After the need is determined, planners identify what they want to achieve through planning. If, for example, sales are declining because of poor promotion policies of the company, the goal of planning is advertising and promotion management.

Clear identification of goals helps in optimum allocation of resources and effective implementation of plans. Objectives must be framed for the organisation as a whole, for different departments and for different levels of each department.

This creates a hierarchy of objectives in the organisation. The objectives must be clearly communicated to all the organisational members so that plans can be effectively implemented. If objectives are clearly identified, managers will be able to allocate scarce organisational resources over different functional areas effectively.

Step # 3. Analysis of Present Situation:

Being clear of what to achieve, the planners must know how equipped they are to achieve the targets. They analyse the organisation’s present resource position (physical, financial, information, human etc.) and its internal and external environment. The internal environment represents its strengths and weaknesses and the external environment identifies the opportunities and threats.

Information about economic, political, legal, technological forces is provided through external environment. Appraisal of external environment enables the organisation to prepare plans and strategies for the internal functioning of the enterprise. Planning is effective if organisation is well informed about its internal and external environment.

Information about internal environment (departments and their sub-units) can be collected from past records, statistical data and financial statements. Information about external environment (competitors, customers, government) can be collected through financial journals, economic surveys, RBI bulletins, research reports etc.

Step # 4. Identify Barriers to Planning:

Planning cannot be effective if members (those who plan and those who implement) are unwilling to set goals, lack planning skills and are unwilling to accept change. Managers identify barriers to achievement of goals.

It helps in identifying areas in which existing objectives can be continued, modified or abandoned and the areas in which new objectives can be framed together with plans to achieve them. It helps to exploit potential areas of growth and withdraw from non-profitable areas.

Step # 5. Develop Planning Premises:

Planning process is based on estimates of future as plans are made to achieve goals in future. The estimates about future markets, consumer preferences, political and economic environment are the planning premises on which business plans are developed.

The process of planning is based upon estimates of future events. Though past provides guide for making plans in present, plans are made to achieve goals in future. The forecast or assumptions about future which provide basis for planning in present are known as planning premises.

Since planning premises forecast environmental factors which directly affect organisational plans, they reduce the chances of failure of plans under different sets of assumptions about future. Future events cannot disturb the plans if planning premises are rationally developed. A premise that new technology will be cost-effective and result in low prices and high sales will promote the company to adopt that technology. There can be different types of planning premises.

Step # 6. Develop Alternative Courses of Action:

After managers are clear of goals to be achieved, they think of ways to achieve them. They should make alternative plans of action since there can be no best way of doing things. All possible alternatives to achieve the objectives should be considered by managers.

For example, a firm that wants to grow its operations should make alternative plans for entering into new lines of business, expanding the same line of business in new markets, cater to existing customers by offering them discounts etc.

Though a large number of alternatives can be generated at this stage, managers use some criteria for limiting the number of alternatives that can be generated. For instance, in order to enter into a new line of business, managers may develop alternatives where the new business is similar to the existing business like add consumer goods only or only garments for males or females etc. The criterion could be capital required, for instance, no alternative exceeding the capital requirement of Rs. 75 lakh should be accepted.

Step # 7. Evaluate Courses of Action:

When the alternative courses of action are developed, managers select the most appropriate plan that will adjust to the internal and external environmental conditions and can be achieved with the available resources.

Each course of action has costs and benefits. Managers should carry out cost-benefit analysis (comparison between costs and revenues) in terms of risk and return associated with each alternative. The alternative which gives higher returns may be risky and vice versa. Various techniques of decision making help in carrying out this analysis. The plan which gives maximum return should be accepted by managers.

Step # 8. Select a Course of Action:

When the best course of action is determined, it should be finally selected by managers. Each plan should be supported by sub-plans known as derivative plans. The main plan of marketing engineering goods may be supported by sub-plans for marketing heavy and light engineering goods. Derivative plans help in effective implementation of main plans.

A production plan for example, has derivative plans to manage purchasing, production planning and control, manufacturing etc. A personnel plan can have derivative plans to look after appointment, training, placement and promotion of workers. The plan should be flexible (which can be changed according to situation), acceptable (to organisational members who have to implement it) and cost effective.

Step # 9. Feedback:

Feedback means response. When plans are selected and implemented, managers receive information about how effectively they are implemented. If there are deviations in actual performance against planned performance, managers remove these deviations or make fresh plans. Plans must be continuously reviewed as the environment in which they operate is a set of changing, dynamic factors.

Planning is complete if its implementation is effective. It should be able to achieve the goals within the constraints of budgetary resources. The planning process must allow leverage in the achievement of organisational goals. Deviations beyond the acceptable limit should be remedied. It may require changes in any of the steps, changes in the implementation process or re-planning altogether.