Planning: Meaning, Nature, Importance, Process, Components, Six Ps, Principles, and Limitations

What is Planning?

Planning is considered to be the central function of management and determines the organization’s direction. It is a rational and systematic way of making decisions.

It involves the process of ascertaining organizational goals and objectives and deciding on activities to attain these objectives. Planning is particularly important because of scarce resources and uncertain environments with fierce competition for these resources.

Definition of Planning

Some definition of planning given by the authors are shown below:

Planning is the continuous process of making present entrepreneurial decisions systematically and with best possible knowledge of their futurity, organizing systematically the efforts needed to carry out these decisions and measuring the results of these decisions against the expectation through organized, systematic feedback.

Peter Drucker

Planning is deciding in advance what is to be done in the future.

Koontz

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Nature of Planning

The characteristics/nature of Planning are given below:

1. Planning is Primary Management Function
2. Planning is a Continuous Process
3. Planning is Anticipatory in Nature
4. Planning is a System of Decisions
5. Planning is Goal oriented
6. It is Focused on Desired Future Results
7. Planning Involves Policies, Procedures and Rules
8. Planning is a Flexible Process

Planning is Primary Management Function

Planning is the first of the four primary management functions and sets the direction for an organization. It is undertaken after the mission of the organization is defined and its goals and objectives established.

Planning is a Continuous Process

Planning is a continuous process and can be viewed in both the broad and the narrow sense. Planning is conducted for a specific period of time and plans are reformed at the end of that specific period as per the new requirements and changing conditions in the environment.

Planning is Anticipatory in Nature

A decision must be made now as to what to do and how, before it is actually done.

Planning is a System of Decisions

It involves a process of making decisions which will define what is to be achieved in the future and the formulation of action plans for the achievement of goals.

Planning is Goal oriented

Planning focuses on defining the aims, objectives and goals of the organisation. It involves a set of decisions that are required to initiate a set of activities embarked upon to achieve the goals and objectives of the organization.

It is Focused on Desired Future Results

Planning is a means of ensuring that the important organizational objectives are accomplished as and when desired.

Planning Involves Policies, Procedures and Rules

The successful implementation of policies, procedures and rules, as prescribed during the planning process, ensures the success of the organization.

Planning is a Flexible Process

Planning should be well-balanced, but flexible. A good plan should be well-balanced so that the existing resources are properly utilized for all functions.

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Importance of Planning

The importance of planning is explained in the following points:

1. Planning is Essential in Business
2. Planning is Related to Performance
3. Planning Focus on Objectives
4. Planning is Necessary to Facilitate Control
5. Planning Helps in the Process of Decision-making
6. Planning Anticipates Problems and Uncertainties
7. Planning Helps in Motivation
8. Planning Helps Utilization of Organizational Resources

Planning is Essential in Business

The growing complexity of the modern business with rapid technological changes, rapid changes in consumer tastes and growing tough competition necessitates 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.

Planning is Related to Performance

It can be expected and there is evidence to support the hypothesis that companies that engaged in formal planning consistently performed better than those with no formal planning, and improved their own performance over a period of time.

The performance was measured by such factors as return on investment, sales volume, growth in earnings per share, etc.

Planning Focus on Objectives

The effectiveness of formal planning is primarily based on the clarity and specificity of objectives. Objectives provide a direction and all planning decisions are directed towards the achievement of these objectives. This ensures the maximum utility of managerial time and efforts.

Planning is Necessary to Facilitate Control

Since plans are made to achieve objectives, periodic reviews of operations can determine whether the plans are being implemented correctly.

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, etc. are clearly laid down.

Planning Anticipates Problems and Uncertainties

A significant aspect of any formal planning process is the collection of relevant information for the purpose of forecasting the future as accurately as possible. This would minimize the chances of haphazard decisions.

Planning Helps in Motivation

Proper planning helps in the process of motivation. If plans are properly communicated to all levels of the organization, then everyone can feel involved in carrying them out.

Planning Helps Utilization of Organizational Resources

Proper planning results in the effective utilization of organizational resources. Since planning involves the identification of such resources for optimal utility, there is no waste or minimum waste of these resources.

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Process Of Planning

The process of planning includes six major stages to perform planning-related activities. Which are discussed below:

1. Establish and Define Objectives
2. Assessment of Resources
3. Develop Forecasts and Future Conditions
4. Preparation of Derivative Plans
5. Implementation of plan
6. Evaluation of Plan

Establish and Define Objectives

Establish and clearly define the central and overall objectives of the organization. Well-defined objectives can make the difference between the success and failure of an enterprise.

It clearly defines the product or service as well as the purpose of the company. Along with the overall mission of the company, it is also necessary to establish specific objectives and goals.

Assessment of Resources

The second step is to make an assessment of the available resources. This will give an idea of the resources that need to be procured.

Develop Forecasts and Future Conditions

Develop forecasts and future conditions. In order to effectively plan, it is important and necessary to forecast as accurately as possible, the future trends that will affect the company’s standing and operations.

The factors of the forecast will include general economic conditions, changes in consumer attitudes, new technology and product developments, possible competitive strategies and any adverse legal developments.

Preparation of Derivative Plans

Preparation of derivative plans. Once an overall plan has been adopted, it is necessary to develop other derivative plans for each segment of the company, to support the formal plan.

Derivative or sectional plans are developed in each area of the business, but within the framework of the primary plan in order to coordinate and integrate programmes and policies of all sections of the enterprise.

Implementation of plan

The success of the plan would depend upon how effectively the plan is implemented. This implementation is going to require a combination of all skills and coordination of all factors. Also in this ever-changing dynamic environment, it is necessary to keep the plan open to evaluation and modification.

Evaluation of Plan

The plans should be periodically re-evaluated to measure their progress and effectiveness so that any deviations can be corrected and any adjustments can be made.

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Components of Planning

The components of planning are needed to be considered when conducting a plan for attaining goals. We have discussed here some major points that are needed to be considered for conducting a plan:

1. Environmental Conditions
2. Economic Conditions
3. Internal Resources
4. Anticipating the Future

Environmental Conditions

These conditions include the availability of raw materials, skilled labour, energy and other resources. The long-range objectives must ensure that these resources will not become scarce. Additionally, the objectives must keep abreast with the new technological developments.

Economic Conditions

The current economic conditions and the economic trends must be seriously considered while setting objectives. The objective of expansion during a recession may not be advisable. The economic fluctuations must be assessed and predicted accurately.

Internal Resources

There is no point in establishing an objective if we do not have the means to achieve it. Accordingly, the objectives should be set relative to the company’s resources of capital, skilled personnel, physical equipment, and so on.

Anticipating the Future

Future events, being most unpredictable, have a major impact on the realization of objectives. Future opportunities and threats must be identified and as far as possible, they must be incorporated in the organizational plans.

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The Six Ps of Planning

The six Ps of planning are as follows:

1. Purpose
2. Philosophy
3. Premise
4. Policies
5. Plans
6. Priorities

Purpose

An effective planning system requires a clear understanding of the organization’s objectives. What are the reasons for the organization’s existence? Is it to increase profit or increase market shares or generate more employment or introduce more products, etc? This purpose must be clear and elaborate. It helps in effective planning.

Philosophy

Philosophy contains the fundamental beliefs as to how the organization’s goals is to be achieved. For long-term survival and growth, a philosophy of ethical conduct must be adopted.

Premise

The premise involves the strengths and weaknesses of the organization and its knowledge and assumptions about its environment. By forecasting and other methods, the management can make some conclusions about the environmental trends and by knowing its own strengths and weaknesses it can deal with the changing environment in a more intelligent way

Policies

Policies are general guidelines or constraints that aid in managerial thinking and action. In a typical organization, there are production policies, marketing policies, financial policies, accounting policies, personnel policies, etc. These policies are more specific than the philosophy and form a basis for planning and necessary operational actions.

Plans

Plans represent specific objectives and activity statements. Objectives are the goals to be met and the activities statements are the means to achieve these ends. These plans guide us step-by-step as to how to reach the objectives and also at what stage the progress is at a given time.

Priorities

Every organizational goal must be given priority. Such as limited resources of time, financial materials, and so on, must be proportionally allotted to goals of priority.

The priorities will affect the allocation of resources. Goal priorities would determine what is relatively more important. A goal of higher priority would receive more observation and more resources.

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Principles of Effective Planning

Following are the principles of Effective Planning:

1. Goals and Objectives Must be Clear
2. Develop Accurate Forecasts
3. Acceptance of Subordinates in Planning Process
4. Do Not be Over-optimistic
5. Plan Must be Flexible

Goals and Objectives Must be Clear

The goals and objectives must be clear, unambiguous, solid, reasonable and attainable. Badly defined objectives do not lend to accurate and effective planning.

Develop Accurate Forecasts

Accurate events and trends in the future are the most important inputs into the planning process. Accordingly, the managers making the forecasts must be highly skilled and must use quantitative methods wherever applicable in addition to intuitional judgements to improve the accuracy of the forecasts.

Acceptance of Subordinates in Planning Process

This will ensure the acceptance of the plans by those who are going to implement them. Studies have indicated that people, who put the plans into operation, do so much better when they participate in the formulation of the plans than when such plans are simply assigned to them.

Do Not be Over-optimistic

Objectively and rational thinking is an essential ingredient of effective planning. Over-optimism is based on feelings, emotions and intuition.

Plan Must be Flexible

Keep the progress of your plan under constant review so that it can be revised and modified as the situation demands. The future trends should also be assessed by continuously monitoring economic, social, political, technological and competitive trends. Any changes in these variables may require changes in the original plans.

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Limitations of Planning

Limitations of planning are explained as follows:

1. Planning is Time Consuming
2. Planning is Expensive
3. Planning Leads to Frustration
4. Hindrance to Innovation
5. Information Inputs
6. Planning Involves Paperwork

Planning is Time Consuming

Planning is a time-consuming process according to your goals and objectives. It requires information, information analysis, forecasting, etc., for selecting the best course of action for attaining goals and objective

Planning is Expensive

Planning can be very expensive, when you are conducting a plan you require information data related to your goals and objectives that you need expertise and information, which incurs a lot of cost for the organisation.

Planning Leads to Frustration

Planning can sometimes be very frustrating because it requires an extremely detailed, careful and analytical thought process. Accordingly, it is more of an intellectual exercise. It requires a high level of imagination and analytical ability in addition to total commitment.

Hindrance to Innovation

Planning itself can be a hindrance to innovation. In a planned setup, every operation is pre-planned. This means simply proceeding according to plans and following the rules mechanically.

Information Inputs

It is very important to have adequate and accurate information about the situation for effective planning, otherwise, the quality of the plan will suffer.

Planning Involves Paperwork

Planning involves paperwork as plans cannot be finalised in one go. The plans are customised again and again and after getting a final plan, subordinates give copies of the plan to the top-level management in the form of a report or a proposal to get the plans finalised for implementation.

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