Importance of Planning in Management

In this article we will discuss about the importance of planning in business, management and organizations.

Planning is the first and the most important function of management. It is needed at every level of management. Without planning all the activities of a business organisation will be meaningless rendering the attainment of objectives merely a dream. Because of the increasing size and complexities of the organisations planning has come to assume more importance.

Planning is a pre-requisite not only for achieving success but also as for surviving in a complex and competitive world. It forces organizations to look ahead and decide their future course of action so as to improve their profitability.

Organizations that plan in advance are more likely to succeed than those which fail to plan for the future. It also helps coordinate and control various tasks and make sure that resources are uses optimally.

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Importance of Planning in Business, Management and Organizations

Importance of Planning – Reasons as to Why Planning is Considered a Vital Managerial Function

While planning does not guarantee success in organizational objectives, there is evidence that companies that engaged in formal planning consistently performed better than those with none or limited formal planning and improved their own performance over a period of time. It is very rare for an organization to succeed solely by luck or circumstances.

Some of the reasons as to why planning is considered a vital managerial function are given below:

Importance # 1. Planning is essential in modern business:

The growing complexity of the modern business with rapid technological changes, dynamic changes in the consumer preferences and growing tough competition necessities orderly operations, not only in the current environment but also in the future environment. Since planning takes a future outlook, it takes into account the possible future developments.

Importance # 2. Planning affects performance:

A number of empirical studies provide evidence of organizational success being a function of formal planning, the success being measured by such factors as return on investment, sales volume, growth in earnings per share, and so on. An investigation of firms in various industrial products as machinery, steel, oil, chemicals and drugs revealed that companies that engaged in formal planning consistently performed better than those with no formal planning.

Importance # 3. Planning puts focus on objectives:

The effectiveness of formal planning is primarily based upon clarity of objectives. Objectives provide a direction and all planning decisions are directed towards achievement of these objectives. Plans continuously reinforce the importance of these objectives by focusing on them. This ensures maximum utility of managerial time and efforts.

Importance # 4. Planning anticipates problems and uncertainties:

A significant aspect of any formal planning process in collection of relevant information for the purpose of forecasting the future as accurately as possible. This would minimize the chances of haphazard decisions. Since the future needs of the organization are anticipated in advance, the proper acquisition and allocation of resources can be planned, thus minimizing wastage and ensuring optimal utility of these resources.

Importance # 5. Planning is necessary to facilitate control:

Controlling involves the continual analysis and measurement of actual operations against the established standards. These standards are set in the light of objectives to be achieved. Periodic reviews of operations can determine whether the plans are being implemented correctly. Well-developed plans can aid the process of control in two ways.

First, the planning process establishes a system of advance warning of possible deviations from the expected performance. Second contribution of planning to the control process is that it provides quantitative data which would make it easier to compare the actual performance in quantitative terms, not only with the expectations of the organization but also with the industry statistics or market forecasts.

Importance # 6. Planning helps in the process of decision-making:

Since planning specifies the actions and steps to be taken in order to accomplish organizational objectives, it serves as a basis for decision-making about future activities. It also helps managers to make routine decisions about current activities since the objectives, plans, policies, schedules, and so on are clearly laid down.

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Importance of Planning – With Examples 

Plans are very useful for an organization and perform a number of functions for it. Plans help in meeting environmental uncertainties: A manager always operates in an environment, which is uncertain, and he is expected to meet this environment in the best possible manner. Plans prepare against any such uncertainties based on prediction for future and plans can be as good as the predictions. If your forecast goes wrong the plans too may go haywire.

For example, if your company is planning to purchase cars for office and forecast is that government is supposed to increase taxes on cars in the coming budget ad you decide to purchase cars in the month of February itself. Your plan seems good if prices of cars increase but if opposite happens than your plans hardly carry any value. So plans can be as good as the forecasts on which plans are based. To meet such situation alternate plans can be kept ready to meet alternated situations.

1. Plans help in better utilization of resources:

The resources with a firm are limited and can be spent on a number of purposes. Plans ensure that best outputs are attained with the given input by putting the resources at the proper place. Without proper plans resources may be diverted in the non-priority areas.

For example, a firm can use its money either to train its existing manpower or to recruit new people. In the absence of planning decision will be arbitrary and can lead to using money in the area with low returns.

2. Planning provides focus to firm’s activities:

A firm may have a large number of options to exercise. Plans decide the priority so that right work is performed at right time.

For example, If a firm decides to use its internal production capacities to meet its requirements as well as to outsource the same supplies, only plans give proper direction for when to outsource and when not.

3. Planning helps in coordination and control of activities:

A properly framed plan takes care to integrate different functions of an organization so that benefits of unified actions can be reaped. Besides plans act as standards against which performance is measured to provide feedback and control.

For example, a firm may decide that all its decisions and activities will be customer oriented. If there is any difference among various departments of company to launch new products then this yardstick of customer orientation can be used to sort differences and to arrive at a decision that gets the cooperation of everybody in the organization.

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Importance of Planning – Based on Factors

Significance or importance of planning to a business can be explained based on following factors:

1. Planning reduces risks and oversight:

Planning minimises possibilities of risk and uncontrollable uncertainties for the future. It involves foreseeing all possible risks and uncertainties a business can experience thus reducing the costs of damage to life (or health) and property. For example, risks like fire in a factory, or accidents at work place or burglary can be foreseen and avoided by planning and undertaking safety and precautionary measures.

2. Planning makes controlling easier:

Planning does not only mean thinking about the future but also acting upon it. This implies that to attain a desired future, planning also suggests effective ways or a controlled design for attaining them. These effective ways for planning can be determined by forecasting. For example, car manufacturers control the production of passenger vehicles (cars for consumers) depending upon the calendar dates of festivals and accordingly control the purchasing costs of auto- components and raw materials, human resources, etc., by planning ahead. Demand for cars is mostly believed to rise during the festival seasons (especially with the onset of Diwali in India).

3. Planning enables creativity and innovation:

Planning enables identifying the best alternatives out of many options and encourages businesses to put efforts into discovering new ideas that support their goals and objectives. For example, when Cavincare Company (based in South India) wished to introduce shampoos in rural markets in south and where bottled shampoo were perceived to be bulky and expensive, Cavincare introduced their shampoos in sachets worth 50 paise that were easier to carry and used by many members in a household.

4. Planning facilitates decision-making:

Planning means deciding, which further implies determining in advance, the actions and resources (human and physical) required to reach a goal. It facilitates decision-making by selecting the most feasible course of action and resources that could lead a business achieve their final goals.

5. Planning increases organisational effectiveness:

Organisational effectiveness is related to the extent to which a business has been able to accomplish its objectives by efficiently allocating all resources. Planning can increase organisational effectiveness by determining suitable resources required for achieving organisational goals.

6. Planning provides direction:

The planning process clearly defines and maps out the guidelines for ensuring smooth operations of a business in order to achieve their main goals and objectives. For example, a coffee business decides to expand across the country in different states. The business will require proper guidelines prior to the expansion that focuses on internal workings of the business including a detailed understanding of laws and rules prevalent in different states that the business should adhere to.

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Importance of Planning: Role and Significance

Planning is a pre-requisite not only for achieving success but also as for surviving in a complex and competitive world. It forces organizations to look ahead and decide their future course of action so as to improve their profitability. Organizations that plan in advance are more likely to succeed than those which fail to plan for the future. It also helps coordinate and control various tasks and make sure that resources are uses optimally.

The role and significance of planning is discussed below:

1. Focus attention on objectives:

Every organization seeks to achieve certain objectives. The planning process helps the organization devise means to achieve these objectives. Plans focus on the achievement of objective they prevent the manager form being distracted by less significant activities.

2. Reduces uncertainty and risks:

Uncertainty and change are inevitable and planning cannot eliminate them. But planning enables an organization to cope with uncertainty and change. With the help of planning, an enterprise can predict future events and make due provision for them.

3. Provides sense of direction:

The first step of planning is setting goal and objectives for the organization. Setting goals and objectives facilities the smooth progress of organizational activities. The absence of planning makes or direction regarding the future of the organization.

4. Provides guidelines for decision-making:

Plans elaborate the actions necessary for achieving organizational objectives and thus, help in deciding the activities to be taken up in the future. Planning involves identifying alternatives and choosing among those courses of action that are necessary for carrying out a given tasks. Thus, it helps people take future oriented decisions.

5. Increases organizational effectiveness:

Planning ensures the effective functioning of an organization to be truly effective; an organization must be able to achieve its objectives with the available resources. Planning facilitates the optimum utilization of available resources. Thus, planning and control ensure that the resources are used in accordance with organizational specification.

6. Provides efficiency in operations:

Planning results in the use of the most efficient methods for achieving organizational objectives. It improves performance by focusing management’s attention on adjectives and by helping management established priorities and cope with the ever-changing external environment.

7. Helps in co-ordination:

Planning is the best stage for the integration of diverse forces at work sound planning interrelates all the activities and resources of an organization. It also helps to relate internal conditions and processes to external events and forces. Seeks to achieve a co-ordinate structure of operations. It provides a unifying framework.

8. Facilitates control:

Planning provides the basic for control. Plans serve as standards for the evaluation of performance. Sound planning enables management to control the events rather than be controlled be them. It permits control by expectation. Control cannot be exercised without plans because the function of control is to ensure that the activities conform to the plans. Any attempt to control without plans is meaningless as they are no gauges for performance.

9. Encourages innovation and creativity:

By involving employees, the process of planning encourages a healthy work atmosphere. Planning also encourages mangers to devise new ways of doing things. It facilitates innovative and creative thinking among managers. This is prerequisite for the long-term survival and growth of a business.

10. Facilitates delegation:

The planning process facilitates the delegation of authority. Well-established plans act as a guide to sub-ordinates thus eliminating the need for constant guidance by managers.

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Importance of Planning: With Benefits

The following points emphasise the importance and benefits of planning:

(1) Planning offsets future uncertainty and change:

A business concern has to work in an environment which is uncertain and ever changing. Planning helps the manager in carving out the future course of action and this brings a higher degree of certainty and order into the organisation than would be present without planning.

(2) It tackles increasing complexity in modern business:

To run a modern business undertaking there is a need for large number of people with different specialisation and complex machines. This makes it necessary for the management to depend on planning to get a clear idea of what is to be done, when it is to be done, where it is to be done and how it is to be done.

(3) It helps in co-ordination:

Planning through its defined objectives, well publicized policies, programmes and procedures helps the management in the co­ordinating process. According to Koontz and O’Donnell-”Plans are selected… course also which the management desires to co-ordinate group action.

(4) It helps in exercising effective control:

Planning involves the determination in advance of the work to be done, the persons responsible to do it; the time to be taken to do that work and the costs to be incurred. This makes it easy to compare the actual performance with the planned one. In the case of deviations, steps may be taken to find out the reasons for such deviations. Thus, planning helps in exercising effective control.

H. G. Hicks has rightly said that – “Planning helps in exercising effective controlling. It is utterly foolish to think that controlling could be accomplished without planning. Further, without planning we cannot have the pre-determined understanding of the desired performance.”

(5) It helps in proper utilisation of the company’s resources:

As planning involves deciding in advance of what is to be done, when, where and by whom it is to be done, etc., there is a possibility for the proper utilisation of company’s resources and for the achievement of the company’s objectives at the cheapest and best manner.

(6) It facilitates unity of action:

Under planning, policies, procedures and programmes are pre-determined and every decision and action should be within the framework of pre-determined policies and procedures and programmes. This facilitates unity of action and also avoids confusion or misunderstanding at any level.

(7) It helps in avoiding business failures:

As planning involves the -selection of best objectives, unity of action, co-ordination of activities, economy in operation and off-setting of future uncertainty and change there is a great possibility of avoiding business failures.

(8) Planning helps in management by objectives:

Planning gives a sense of direction; the working of the organisation and saves it from going astray or drafting about aimlessly. As efforts are directed towards a desired and well defined objectives, haphazard approaches are minimized, efforts are co-ordinated and duplications are avoided.

(9) Planning improves motivation:

A good planning system ensures the participation of all managers which improves their motivation and morale. It improves the motivation of workers also because they know clearly what is expected of them. Moreover, planning also serves as a good training device for future managers.

(10) It improves competitive strength:

Effective planning gives a competitive edge to the enterprise than the one that do not have planning or have ineffective planning. This is because planning may involve expansion of capacity, changes in work methods, changes in quality anticipation of tastes and fashion of the people and technical changes, etc.

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Importance of Planning: Top 5 Points

The importance of planning is stated as under:

Importance # (i) Planning makes personnel conscious of enterprise objectives:

Any planning starts with making the statement of its objectives as enterprise as a whole and that for each department in the organization. Planning is made to achieve desired objective of business. Planning identifies the action that would lead to desired goals quickly & economi­cally.

It provides sense of direction to various activities, e.g. Maruti Udhyog is trying to capture once again Indian Car Market by launching diesel models. Objectives represent the ultimate points of planning, so management should try to visualize future possibilities and revise its plans so that objectives are achieved effectively.

Importance # (ii) Planning leads to economy in operations:

Planning is always done to achieve economy and efficiency in operations. Planning allows making the best choices amongst the available alternatives, which helps to achieve desired results and minimize undesired consequences.

Planning leads to accomplishment of objectives at the minimum possible cost. Planning being an all-pervasive function improves effectiveness of all other functions of management and ensures co-ordinated efforts throughout the orga­nization.

Planning reduces rethinking, last minute troubles, especially for repetitive or routine matters. Through proper planning, management can place itself to face future contingen­cies boldly, confidently and effectively.

Importance # (iii) Planning precedes control:

Control means to ensure that everything happens as per plans and hence taking preventive steps and measures to avoid any deviations. Hence Planning is a necessary prerequisite for control and control cannot exist without planning.

Management function of control checks the performance against set standards or action plan which was made during the planning process. Though planning affects all other functions of management, the unique feature is that Control is always exercised in the light of planning.

Importance # (iv) Planning is a precious managerial instrument to provide for future:

Planning is always for future and never for the past. It is forward looking function based on forecasting in which plans are drawn after anticipating future events. Thus, planning is futuristic as it helps in meeting future events effectively and efficiently to the best advantage of the organization. Taking necessary steps for future contingencies (possibilities) is an equally impor­tant part of planning. Thus planning involves forecasting.

Importance # (v) Planning influences effectiveness of other managerial functions:

Every function of management is important as it contribute towards achievement of organizational goals. Planning facilitates other functions of management. It allows the managers to plan and implement other significant managerial functions of organising, staffing, directing, and controlling.

Therefore, without planning, there cannot be any organising, staffing, directing, and controlling. Thus, planning being a primary function ensures efficiency of all the other functions.

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Importance of Planning: 11 Important Facts

Planning is the first and the most important function of management. It is needed at every level of management. Without planning all the activities of a business organisation will be meaningless rendering the attainment of objectives merely a dream. Because of the increasing size and complexities of the organisations planning has come to assume more importance.

Planning has also become more important because these days business has to live in an environment dominated by perpetual uncertainties and dynamism. Without planning it is difficult, if not impossible, to anticipate the uncertainties of future. Effective planning also provides a basis for other managerial activities.

Georg R. Terry has supported this view by observing, “Planning is the main foundation of other functions of management like organising, motivating and controlling. No work specifically laid down by planning can be organised, activated and controlled.”

The purpose or functions or importance of planning become clear on the basis of the following facts:

(1) Focuses attention on organisational objectives:

With the help of planning the objectives of the organisation are clearly defined in simple words. Its result is that the attention of all the employees is directed towards a particular goal. In this way planning has an important contribution to the attainment of the chief objective of the organisation.

(2) Minimises the future uncertainties:

Planning is always made in respect of future which is always uncertain. Nobody can tell it clearly what is going to happen. Business environment is constantly changing. Sometimes the tastes of the consumers undergo a change and sometimes the techniques of production experience changes. Planning by anticipating the possible changes plans various activities in the best possible way. In this way the risk of future uncertainties is sought to be minimised.

(3) Utilises resources properly:

The important advantage of planning is that it makes it possible to utilise the available resources in an organisation in a better way. First of all information about all the resources of an organisation is collected, and, then on its basis the activities are planned. Since all the activities are planned only on the availability of resources, the shortage of resources is never felt and the work moves on unhindered.

(4) Ensures economy in operation:

First of all, under planning the objective are determined and then follows the process of selecting the best work system out of various alternatives. As a result of this economy in operation is natural.

(5) Achieves coordination:

Under the process of planning appropriate plans are devised for various departments keeping in view the availability of resources. The result is that there is no clash among different departments. Every department is informed beforehand about the work to be done, when it is to be done and how it is to be done. Thus, planning achieves a good coordination which ultimately yields good results.

(6) Facilitates control:

Planning facilitates the function of controlling and, therefore, it is considered the foundation of control. By determine the objectives of the organisation with the help of planning everybody working in the organisation is told about the ‘what’, ‘why’, and ‘how’, of everything. Standards are prescribed in context with their work, time and cost.

In the end by comparing the actual work performance with the standards laid down, an effort is made to find out deviations and in case the work performance is not as desired the person concerned is held responsible.

(7) Encourages innovation and creativity:

It is evident that planning chooses the best alternative out of the many available. These various alternatives do not come to the managers of their own; they have to be found out. In an effort to find them, new ideas emerge and these new ideas are deeply studied to crystalise them. In this way planning encourages the process of thinking. This thinking leads to innovations and creativity.

(8) Makes management by exception possible:

Management by exception means that a manager should not join every activity. If the whole work is proceeding satisfactorily, the manager should remain contented but if the work is not proceeding according to the work plan he should intervene. Planning lays down the objectives of the organisation and all efforts are directed towards their attainment.

In this way the managers do not have to interfere in the daily work. Therefore, it is said that planning makes management by exception possible as a result of which managers get enough time to think more about good plans.

(9) Prevents irrational decisions:

Planning is a process under which various alternatives are analysed and only the best one is chosen. That is why it is said that thinking is the essence of planning. When thinking and analysis come in, irrational and impatient decisions end automatically. Thus, planning helps in developing a rational point of view among the managers.

(10) Improves cooperation and satisfies the employees:

Planning makes it clear to all the employees the ‘what’, ‘how’, and ‘when’ of each work. This prepares them mentally about their future work and when the moment for the work approaches, they handle it with more dedication and hard work. This hard work and dedication increase their reputation in the organisation and they come to acquire an identity of their own. In this way they get satisfaction and the feeling of cooperation gets an impetus.

(11) Provides basis for other managerial functions:

Planning is the first function of management and all other activities depend on planning. In the absence of planning the type of organisation cannot be decided, the number of appointments and the method of recruitments cannot be determined, and so is the position of controlling. Thus, planning presents a basis for the other functions of management and makes them meaningful.

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Importance of Planning: For Managers

Planning is the crucial function of management. Before managers can organize, direct, or control, they must set a course of action for the organisation. Koontz and O’Donnell observe, “Unless a manager has some planning responsibility, it is doubtful that he is truly a manager.” They also write, “Without planning, business becomes random in nature, and decisions become mean­ingless adhoc choices.” Terry has rightly stated that “Planning is the foundation of most successful actions of any enterprise.” Robert Fulmer has very aptly remarked. “Failing to plan means planning to fail.”

Planning is valuable to managers due to the following reasons:

Importance # 1. Basis of Success:

Planning is the foundation of successful operations of any organisation. Montgomery sums up that “Successful planning-i.e., a clear definition of goals, determination of methods to move towards them and a review of progress—is the keynote of success in an organisation.”

Importance # 2. Keystone Management Function:

Planning is with­out doubt the keystone management functions because all other functions are required to carry out the decisions of planning. Planning function distinguishes ‘managers’ from ‘non-managers’.

Importance # 3. To Manage by Objectives:

Planning is a philoso­phy of managing by objectives. All activities of an organisation and its members are designed to achieve certain objectives. Planning makes these goals realizable, actionable and more concrete by giving direction to the efforts of managers and workers. David Holt says: “Plan­ning provides objectives and articulates those objectives for everyone in the organisation.”

Importance # 4. To Offset Growing Complexity of Business:

The increase in the rate of technological change and growing complexity of business environment have greatly compli­cated the manager’s job. With planning, managers can anticipate future events and develop plans of action to be used if and when those events occur.

Importance # 5. Better Utilisation of Resources:

Planning is neces­sary for effective and proper utilization of organisational resources. It identifies physical, financial and human resources and initiates their better use.

Importance # 6. To Gain Economy in Operation:

Planning minimiz­es costs because of the emphasis on efficient operation and consistency. It involves the selection of most profit­able course of action that would lead to the best result at the minimum costs.

Importance # 7. Establishes Coordinated Effort:

Planning coordi­nates the activities of the organisation towards defined and agreed-upon objectives. A lack of planning can foster “zigzagging” and thus prevent an organisation from mov­ing efficiently towards its objectives.

Importance # 8. Facilitates Control:

There is no way to control without plans. Planning establishes objectives or stan­dards that facilitate control. Planning states what is to be accomplished, and control systems are developed to evaluate how plans are progressing.

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