Education

What is business planning

What is Planning?

Planning refers to a process of looking into the future or presuming what will happen in the future under the existing circumstances and being prepared for it. For instance, consider there is a government regulation for buying a particular kind of machine because it is not eco-friendly. Then there is a good chance a machine similar to the banned one in emissions and posing the same kind of danger will become down upon too unless that machine is indispensable. Hence a business can make plans accordingly and not invest there. Planning thus essentially involves deciding what to do and how to do something by making rational studied presumptions about the future. It is a creative process that intends to bridge the gap between where the business currently is and where it desires to be.

Organizations have to typically plan for long-range and short-range future direction. By forecasting and predicting the market and socio-political-economic trends, managers can plan to determine where they desire the company to be in future.

Planning involves determining various types and volumes of physical and other resources to be acquired from outside, allocating these resources in an efficient manner among competing claims and to make arrangement for systematic conversion of these resources into useful outputs.

Since plans are made to attain goals or objectives, every plan should lead to the achievement of the organization’s purpose and objectives. An organized enterprise exists to accomplish group objectives through willing and purposeful co-operation.

Planning bridges the gap between where the organization stands currently and wishes to be in future. In the absence of planning, events are left to chance.

Importance of Business Planning.

Planning is an important function of management, it tells the manager where the organization should be headed. It also helps the organization reduce uncertainty. Let us take a look at some important functions of planning.

1] Planning provides a sense of Direction.

Planning means coming up with a predetermined action plan for the organization. It actually states in advance what and how the work is to be done. This helps provide the workers and the managers with a sense of direction, a guidance in a way. Without planning their actions would be uncoordinated and unorganized.

2] Planning reduces Uncertainty.

Planning not only sets objectives but also anticipates any future changes in the industry or the organization. So it allows the managers to prepare for these changes, and allow them to deal with the uncertainties. Planning takes into consideration past events and trends and prepares the managers to deal with any uncertain events.

3] Planning reduces Wastefulness.

The detailed plans made keep in mind the needs of all the departments. This ensures that all the departments are on the same page about the plan and that all their activities are coordinated. There is clarity in thought which leads to clarity in action. All work is carried out without interruptions or waste of time or resources,

4] Planning invokes Innovation.

Planning actually involves a lot of innovation on the part of the managers. Being the first function of management it is a very difficult activity. It encourages the manager to broaden their horizons and forces them to think differently. So the managers have to be creative, perceptive and innovative.

5] Makes Decision=Making Easier.

In business planning the goals of the organization have been set, an action plan developed and even predictions have been made for future events. This makes it easier for all managers across all levels to make decisions with some ease. The decision-making process also becomes faster.

6] Establishes Standards.

Once the business planning is done, the managers now have set goals and standards. This provides the manager’s standards against which they can measure actual performances. This will help the organization measure if the goals have been met or not. So planning is a prerequisite to controlling.

Limitations of Planning.

While business planning is important and a requisite for every organization, it does have some limitations. Let us take a look at some limitations of business planning.

1] Rigidity.

Once the planning function is complete and the action plan is set, then the manager tends to only follow the plan. The manager may not be in a position to change the plan according to circumstances. Or the manager may be unwilling to change the plan. This sort of rigidity is not ideal for an organization.

2] Not ideal in Dynamic Conditions.

In an economic environment rarely anything is stagnant or static. Economic, political, environmental, legal conditions keep changing. In such a dynamic environment it becomes challenging to predict future changes. And if a manager cannot forecast accurately, the plan may fail.

3] Planning can also reduce creativity.

While making a plan takes creativity after that managers blindly follow the plan. They do not change the plan according to the dynamic nature of the business. Sometimes they do not even make the appropriate suggestions to upper management. The work becomes routine.

4] Planning is Expensive.

Planning is a cost-consuming process. Since it is an intellectual and creative process, specialized professionals must be hired for the job. Also, it involves a lot of research and facts collection and number crunching. At certain times the cost of the planning process can outweigh its benefits.

5] Not Completely Accurate.

When planning we have to forecast the future and predict certain upcoming events in the organization and the industry. So, of course, there cannot be hundred per cent certainty in such cases. So it can be said that business planning lacks accuracy.

Steps in Planning Function.

Planning function of management involves following steps:-

1. Establishment of objectives.

▪️Planning requires a systematic approach.

▪️Planning starts with the setting of goals and objectives to be achieved.

▪️Objectives provide a rationale for undertaking various activities as well as indicate direction of efforts.

▪️Moreover objectives focus the attention of managers on the end results to be achieved.

▪️As a matter of fact, objectives provide nucleus to the planning process.

▪️Therefore, objectives should be stated in a clear, precise and unambiguous language. Otherwise the activities undertaken are bound to be ineffective.

▪️As far as possible, objectives should be stated in quantitative terms. For example, Number of men working, wages given, units produced, etc. But such an objective cannot be stated in quantitative terms like performance of quality control manager, effectiveness of personnel manager.

▪️Such goals should be specified in qualitative terms.

▪️Hence objectives should be practical, acceptable, workable and achievable.

2. Establishment of Planning Premises.

▪️Planning premises are the assumptions about the lively shape of events in future.

▪️They serve as a basis of planning.

▪️Establishment of planning premises is concerned with determining where one tends to deviate from the actual plans and causes of such deviations.

▪️It is to find out what obstacles are there in the way of business during the course of operations.

▪️Establishment of planning premises is concerned to take such steps that avoids these obstacles to a great extent.

▪️Planning premises may be internal or external. Internal includes capital investment policy, management labour relations, philosophy of management, etc. Whereas external includes socio- economic, political and economical changes.

▪️Internal premises are controllable whereas external are non- controllable.

3. Choice of alternative course of action.

▪️When forecast are available and premises are established, a number of alternative course of actions have to be considered.

▪️For this purpose, each and every alternative will be evaluated by weighing its pros and cons in the light of resources available and requirements of the organization.

▪️The merits, demerits as well as the consequences of each alternative must be examined before the choice is being made.

▪️After objective and scientific evaluation, the best alternative is chosen.

▪️The planners should take help of various quantitative techniques to judge the stability of an alternative.

4. Formulation of derivative plans.

▪️Derivative plans are the sub plans or secondary plans which help in the achievement of main plan.

▪️Secondary plans will flow from the basic plan. These are meant to support and expediate the achievement of basic plans.

▪️These detail plans include policies, procedures, rules, programmes, budgets, schedules, etc. For example, if profit maximization is the main aim of the enterprise, derivative plans will include sales maximization, production maximization, and cost minimization.

▪️Derivative plans indicate time schedule and sequence of accomplishing various tasks.

5. Securing Co-operation.

▪️After the plans have been determined, it is necessary rather advisable to take subordinates or those who have to implement these plans into confidence.

▪️The purposes behind taking them into confidence are :-

🔸Subordinates may feel motivated since they are involved in decision making process.

🔸The organization may be able to get valuable suggestions and improvement in formulation as well as implementation of plans.

🔸Also the employees will be more interested in the execution of these plans.

6. Follow up/Appraisal of plans.

▪️After choosing a particular course of action, it is put into action.

▪️After the selected plan is implemented, it is important to appraise its effectiveness.

▪️This is done on the basis of feedback or information received from departments or persons concerned.

▪️This enables the management to correct deviations or modify the plan.

▪️This step establishes a link between planning and controlling function.

▪️The follow up must go side by side the implementation of plans so that in the light of observations made, future plans can be made more realistic.

The 4 Types of Plans.

1. Operational Planning.

This type of planning typically describes the day-to-day running of the company. Operational plans are often described as single use plans or ongoing plans. Single use plans are created for events and activities with a single occurrence (such as a single marketing campaign). Ongoing plans include policies for approaching problems, rules for specific regulations and procedures for a step-by-step process for accomplishing particular objectives.

2. Strategic Planning.

Strategic planning includes a high-level overview of the entire business. It’s the foundational basis of the organization and will dictate long-term decisions. The scope of strategic planning can be anywhere from the next two years to the next 10 years. Important components of a strategic plan are vision, mission and values.

3. Tactical Planning.

Tactical planning supports strategic planning. It includes tactics that the organization plans to use to achieve what’s outlined in the strategic plan. Often, the scope is less than one year and breaks down the strategic plan into actionable chunks. Tactical planning is different from operational planning in that tactical plans ask specific questions about what needs to happen to accomplish a strategic goal; operational plans ask how the organization will generally do something to accomplish the company’s mission.

4. Contingency Planning.

Contingency planning can be helpful in circumstances that call for a change. Although managers should anticipate changes when engaged in any of the primary types of planning, contingency planning is essential in moments when changes can’t be foreseen. As the business world becomes more complicated, contingency planning becomes more important to engage in and understand.

Reference:

Planning Introduction”, www.tutorialspoint.com

“Introduction, Meaning, Importance, Features and Limitations of Planning”, www.toppr.com

“Planning Function of Management”, www.managementstudyguide.com

Brian Neese (07-07-2017), “Business Management: 4 Types of Planning”، www.online.alvernia.edu

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